Lords Sitting of 24 July 1996

Preamble
The House met at half-past two of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Coventry.): The LORD CHANCELLOR on the Woolsack.
The Duke of Manchester
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, I have to acquaint the House that the Clerk of the Parliaments has received notification from the Foreign and Commonwealth Office informing him that the Duke of Manchester has been convicted at the United States District Court, Middle District of Florida, of one count of conspiracy to commit bank fraud and wire fraud and three counts of wire fraud and was sentenced, on 6th June 1996, to 33 months' imprisonment on each count, to run concurrently, followed by three years supervised release.

BBC World Service: Restructuring
Lord Orr-Ewing Lord Orr-Ewing asked Her Majesty's Government:
Whether the BBC's World Service is in jeopardy as a result of the BBC Director General's current restructuring proposals.
The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey): My Lords, no. Sir Christopher Bland, Chairman of the BBC, repeated the assurances on quality and financial arrangements given to us earlier when he met my right honourable friend Malcolm Rifkind this morning. It has been agreed that a joint Foreign and Commonwealth Office/World Service working group, with access to independent advice, will be set up to address the concerns expressed in many quarters. The group will report its conclusions to the Foreign Secretary and the Chairman of the BBC, who will meet again in October.
Lord Orr-Ewing: My Lords, I thank my noble friend for that information, but is she prepared to delay any action that may affect the extent and integrity of the news service provided by the BBC World Service from Bush House until the governors and management have had sufficient time to reconsider the implications? Perhaps both Houses of Parliament can debate what emerges when they reassemble in October. Can my noble friend find the time for perhaps a one-and-a-half hour debate in each House?
Baroness Chalker of Wallasey: My Lords, my noble friend is aware that I am extremely sympathetic to what he has said. However, it is not for me to decide what debates are held in this House. The decision taken this morning by my right honourable friend to set up a working group comprising experts from the field of
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journalism and public life, which will report to the Foreign Secretary and Chairman of the BBC, who in turn will meet in October, is an indication that there will be no sudden changes and that the governors and the management will have a chance to consider what the working group has put to the Foreign Secretary and the Chairman of the BBC.
Lord Annan: My Lords, will the Minister ask the working group to reconsider the fact that, whereas now the head of the World Service is a member of the board of management, which is the supreme body of management in the BBC under the Director General, under the present plans he will no longer be a member of the board of management? That causes concern to some noble Lords who have knowledge of the bureaucratic workings of the BBC.
Baroness Chalker of Wallasey: My Lords, I understand very well what the noble Lord, Lord Annan, has said. As a former member of the BBC General Advisory Council, he will not be surprised to know that I have a good deal of sympathy with the view he has just expressed. If I may, I shall refer the matter to the Foreign Secretary, because the discussion that is to take place, and the fact that we are going to involve independent experts from journalism and public life, should ensure that the real value of the World Service—which I am privileged to experience as well as anyone—will be understood a good deal better by October than it seems to have been up to now.
Lord Clark of Kempston: My Lords, does my noble friend agree that, in view of the popularity of the BBC World Service not only among foreigners but expatriates and British nationals who travel abroad, it would be sheer folly to interrupt the service? It has a worldwide reputation and consequently any alteration of the service, whether by bureaucracy or whatever, would be detrimental.
Baroness Chalker of Wallasey: My Lords, I well understand my noble friend's great affection for the BBC World Service. It is the service that I tune into most mornings, like many of your Lordships. But it is right that an organisation like the BBC should look at its management, and that includes the World Service. I am not against having management reviews. I could not be against it having carried out some myself. But I should like my noble friend and all noble Lords to understand that the BBC World Service now broadcasts in 43 foreign languages—many more than 17 years ago, and more than any other major international broadcaster. There is a constant process of commencing new language services. Sometimes it means that alterations are made as priorities change. Since 1990 there have been six new services. The Macedonian Service was launched in January of this year. Our language services are re-broadcast by over 900 local stations around the world. This is not in any sense the end of the World Service, but we must use all of the resources that we have to provide the best possible service that we can across the world, and even for those who may listen to it here.
Lord Wright of Richmond: My Lords, as a former accounting officer of the Diplomatic Service, does the Minister share my hope that the outcome of the working party's deliberations will ensure that the quality, viability, audibility and spread of the BBC World Service are maintained and improved, and that the working relationship between the Foreign Office and the World Service—which I always found extremely satisfactory—is in no way impaired by these management changes?
Baroness Chalker of Wallasey: My Lords, I agree with the noble Lord, Lord Wright of Richmond. It is of interest that the World Service has benefited from investment, even when the noble Lord was our Permanent Secretary. There has been an investment of £166 million which has greatly improved the audibility and efficiency of the World Service. We did not stop at that investment programme. A new £29 million relay station is nearing completion in Thailand, and there is to be another station in Oman funded through PFI which is worth about £30 million. The annual support to the BBC World Service runs at about £169 million. These are big sums of money. We must get value for money, but we must have a good World Service.
Viscount Caldecote: My Lords, can my noble friend give an assurance that no irrevocable change in the organisation of the World Service will be carried out before the working group has reported?
Baroness Chalker of Wallasey: My Lords, that has been the intention of my right honourable friend in calling for the setting up of the working group with independent advice. I am quite certain that that is the intended outcome.
Baroness Blackstone: My Lords, I accept what the Minister has said about the need for management reviews from time to time. Indeed, I was once involved in a management review of the BBC World Service. It was a review which recommended an increase in spending to improve audibility. Does the Minister agree that management reviews require proper consultation after they have taken place? While I welcome the decision to set up a working group, will that working group examine the question of how the Government will ensure that, under the proposals made by the Director General and Chairman of the BBC, grant-in-aid funding will be spent efficiently and transparently on the World Service without subsidising domestic news and current affairs? I believe that that is a very important question.
Baroness Chalker of Wallasey: My Lords, indeed, it is an important question. Although I was not present at the meeting this morning, I am certain that it is one that my right honourable friend asked of the Chairman of the BBC. We have received assurances about quality because of the very special nature of the World Service, and that it will be unaffected by the new arrangements. There is to be a clear separation between grant-in-aid funded and other activities, and that will be maintained.
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We want to be totally satisfied that in practice that is what happens and will continue to happen. I think I can give the noble Baroness the assurance she seeks.
Lord Pilkington of Oxenford: My Lords, does my noble friend share the regret that I and some of my colleagues feel that that task should have been done by the Governors of the BBC and that the Secretary of State should not have had to appoint a special committee to replace a body whose responsibility it is to deal with these matters?
Baroness Chalker of Wallasey: My Lords, there are many lessons to be learned from all of this with the benefit of hindsight, which sadly none of us has. We have now to ensure that the World Service will get on with doing its marvellous job, and that it is enabled to do so by the right sort of management on the part of those who are employed and those who act as governors.

Atmospheric Emissions: Tall Chimneys
2.41 p.m.
Lord Campbell of Croy Lord Campbell of Croy asked Her Majesty's Government:
Whether recent advances in technology make it unnecessary to build high chimneys for discharging emissions from factories and plants in respect of particular processes in certain industries.
The Minister of State, Department of the Environment (Earl Ferrers): My Lords, chimneys are needed in order to disperse any atmospheric emissions which cannot reasonably be controlled in other ways. The height of any particular factory chimney will depend on calculations which take into account a number of factors, including improvements in technology and quality of the air in the area.
Lord Campbell of Croy: My Lords, I am grateful, as always, to my noble friend for his reply. if pollution of the air can now be controlled in certain processes—for example, modern incineration and recycling of refuse—without the need for tall chimneys, can that be turned to the public's advantage by adapting regulations relating to industrial buildings so that there will be fewer excrescences scarring our landscape and so that new factories can more easily harmonise with their surroundings?
Earl Ferrers: My Lords, I agree that where it is possible, it is obviously better to have smaller chimneys. Where there are technological improvements those factors will be taken into account when deciding the height of the chimney which is necessary. Even after many of the cleaning processes have been undertaken, it is necessary to ensure that any pollutants, such as there are, are dispersed in the air and away from human beings. A great deal depends on the lie of the surrounding land, and the emissions from the chimney.
Lord Williams of Elvel: My Lords, is the Minister aware that I am as baffled by the portent of the Question as he showed he was by his answer? The Question seems to be very Delphic. Will the Minister comment, because I am sure that he has been given notice by his noble friend of what this is all about, upon which particular factories and plants are referred to in the Question, what processes are referred to, and which are the "certain industries" referred to? We greatly look forward to hearing the Minister's response.
Earl Ferrers: My Lords, I do not know what has come over the noble Lord, Lord Williams, this afternoon. He says that he cannot understand the Question. Well, I am very sorry for him. I understood it perfectly. Perhaps I can explain in terms of one syllable. My noble friend is worried, because he thinks that large chimneys affect the visual amenity. He asks whether it would not be nice if we could have smaller chimneys. My reply was that if the technological improvements in dealing with emissions are such that we can have smaller chimneys, then we will have them.
Lord Gisborough: My Lords, given the fact that none of the reasons for high chimneys applies to Battersea Power Station, can those chimneys be taken down now?
Earl Ferrers: My Lords, I am not too familiar with the details of individual places. I shall find out about what my noble friend refers to, but my guess is that it is a listed building.
Baroness Seear: My Lords, does not the Minister agree that most modern factories do not have any chimneys? Is not that an end to be very much applauded?
Earl Ferrers: My Lords, the noble Baroness must go to some pretty funny factories if they do not have any chimneys. Most of the factories I see have some form of process, whether it is heating or manufacturing, and most of them require to get rid of the emissions.
Lord Campbell of Croy: My Lords, in order to assist the noble Lord, Lord Williams, may I ask my noble friend whether he is aware of the modern plant built in south-east London for the incineration and efficient recycling of municipal waste, to which a number of us and Members of another place were invited about four weeks ago, where we were told that in future, due to the great technological advances, tall chimneys, like the one there, will not be necessary?
Earl Ferrers: My Lords, I do hope that the noble Lord, Lord Williams, understands that question. I am glad that my noble friends went to the place to which I, too, have been. It is a remarkable building. There are enormous technological improvements which enable there to be fewer emissions from chimneys. The chimney has to be high enough to enable the emissions to be dispersed in the atmosphere so as not to harm human beings.

Teachers: Special Needs Training
2.47 p.m.
Lord Rix Lord Rix asked Her Majesty's Government:
What plans are being made to rectify the shortfall of trained teachers of children with severe learning difficulties.
The Minister of State, Department of Education and Employment (Lord Henley): My Lords, local education authorities are responsible for ensuring that teachers are equipped to meet the needs of children in their area. The DfEE and the Teacher Training Agency are considering how we might improve training for all teachers of children with special educational needs in the light of a report by the Special Educational Needs Training Consortium. Priority has been given to training in severe learning difficulties in allocating money under the grants for education support and training programme. Next year, money will be protected for this area and a small number of other areas of high priority.
Lord Rix: My Lords, I am grateful to the Minister for that helpful Answer. Does he agree that the lack of a dynamic career structure for teachers of children with severe learning difficulties acts as a disincentive to them to take the special courses which are required and to seek employment in that area of work? Can he suggest how the Government might be able to persuade such teachers to undertake the training, for their careers to become, as it were, more productive, in what is perhaps the most important area of special needs education which at the moment appears woefully to be underfunded.
Lord Henley: My Lords, before necessarily accepting what the noble Lord says about the career structure for those involved in special needs education, I should want further evidence. There is no reason why career prospects for teachers with experience in SEN should be less good than those for other teachers. Teachers who teach children with special educational needs qualify for an extra pay point. Many qualify for a second extra pay point if they have further training or extra qualifications. A much higher proportion of teachers in special schools—that is, those dealing with severe learning difficulties, in the main—is on the higher points of the pay spine than other teachers. In the light of a recent report to the Secretary of State I am aware of concerns that there are a number of LEAs which will not spend money to train teachers to move into SEN training, which is the important point at which to look. We have consulted widely on that report, and we hope to be able to announce measures to address some of those concerns in the near future.
Lord Ashley of Stoke: My Lords, does the Minister agree that the teaching of children with severe learning difficulties is becoming more demanding and complex? Does he further agree that there is a widening gap between the possible help and the available help to such children and that there is no local solution to this

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national problem? What is required is a national response by the Government to ensure that such children are helped by fully trained teachers.
Lord Henley: My Lords, that is one of the reasons why we funded the review by the Special Educational Needs Training Consortium into the systems in place for the training of teachers of children with SEN. As I made clear in my Answer, we are considering the recommendations in detail with the teacher training organisation and we will be responding to them in the near future.
I must remind the noble Lord that in the end it is for the LEAs and not the Government to ensure that their staff have the appropriate skills, knowledge and understanding to deal with the needs of all the pupils in their care.
Lord Pearson of Rannoch: My Lords, if there is indeed a shortage of teachers who are adequately trained to teach mentally handicapped children, will the Government consider reversing their present policy of encouraging local services to frustrate parents who wish to place their mentally handicapped children in special schools and, instead, actively encourage such schools with all their well known advantages of scale and effect?
Lord Henley: My Lords, perhaps I may assure my noble friend that we have no such policy. Obviously, we wish to see as many children as possible integrated into mainstream schools. However, we have always made it clear that parental choice in the matter should be observed. If parents wish their child to attend a special school that policy should be pursued as far as possible. It would be wrong to say that we had a policy of actively encouraging or forcing LEAs to push all children into mainstream schools.
Lord Dormand of Easington: My Lords, is the Minister aware that there has always been a shortage of specialist teachers of children with special learning difficulties and that no one has done anything about that? Is it not the case that the Minister has given the usual response by putting the responsibility onto the local education authorities? I recently wrote to the Minister about the matter and I agree that the Government do a great deal as regards the shortage of maths teachers, science teachers, modern languages teachers and so forth. Therefore, why cannot they do something about these specialist teachers? Will the Minister say what is being done in particular about the training of teachers for deaf-blind children?
Lord Henley: My Lords, as regards the noble Lord's final point, I should prefer to write to him. However, as regards his more general point that the Government have done nothing, I wish to make it clear that we have done a great deal. As I have made clear, under the GEST programme we have allocated money specifically for the training of teachers of children with SEN. In recent years, £10 million a year has been supported and priority has been given to those with severe learning difficulties in allocating money under GEST for 1996–97. That money will be protected for SLD and other priorities in the following years.
Baroness Gardner of Parkes: My Lords, will my noble friend confirm that the Government's policy is that there should be parental choice? Is he aware that some areas which have good schools for children with special educational needs are determined that children must go to those schools even though the parents may wish them to go to a normal school?
Lord Henley: My Lords, obviously every LEA has a slightly different priority in terms of how much integration it wants. However, I can confirm that the Government believe that parental choice should receive a high priority in considering the needs of the child. That requirement was included in the 1993 Act and it is clear that parental choice should always be observed.
Lord Morris of Castle Morris: My Lords, is it true that in 1997–98 the DfEE is proposing to cease the GEST funding grant for the training of SEN specialists and replace it, together with two other grants, with a combined SEN grant? If so, we are informed at paragraph B.39 of a DfEE circular that the combined grant is likely to be less than the SEN-related grants for 1996–97. Why should the total be less than the sum of the parts?
Lord Henley: My Lords, as I made clear, next year money for severe learning difficulties and other priorities will be protected.
Lord Morris of Castle Morris: My Lords, will it be cut and will it be lower than the current year?
Lord Henley: My Lords, as I made clear, it will be protected.
Lord Renton: My Lords, does my noble friend have the estimate of the number of such teachers who are needed in England and Wales and can he say how many are available?
Lord Henley: My Lords, according to our surveys, about half the number of teachers of children with severe learning difficulties have a specific severe learning difficulties qualification. Many of the other teachers will have other relevant and specific training and other skills which they can bring to the classroom. However, I do not believe that it is necessarily right that all teachers of children with severe learning difficulties should go on lengthy specialist courses. As I made clear, we believe that other teachers can bring different qualities which complement those of the teachers with specialist training.

Overseas Aid: Discussions with NGOs
2.55 p.m.
Lord Judd Lord Judd asked Her Majesty's Government:
What discussions they have had with United Kingdom-based overseas aid development charities and voluntary organisations on the future of the Government's overseas aid and development programme.
Baroness Chalker of Wallasey: My Lords, Ministers and officials regularly meet representatives of the non-governmental organisations to discuss development issues. My right honourable friend the Foreign Secretary met a wide-ranging group of such NGOs on 23rd January. I had a follow-up meeting with them on 16th May. Further such meetings are planned for later this year. Individual meetings on specific issues are held whenever necessary, such as the meeting last week on Sudan and the Great Lakes Regions.
Lord Judd: My Lords, will the noble Baroness accept our warm and genuine congratulations on her seventh anniversary today as Minister for Overseas Development?
Noble Lords: Hear, hear!
Lord Judd: My Lords, will she also accept our sadness at the fact that her obvious and consistent humanitarian concern has repeatedly been undermined by her senior colleagues in an aid budget which is down by almost 50 per cent. as a percentage of gross national product since they came to office in 1979?
Has the Minister studied the recent UNDP human development report, which demonstrates that the sustained and successful economic and social development of countries such as Japan, South Korea, Taiwan, Malaysia and China has been based on a strong partnership between government and the private sector, with government giving priority to land reform, education, health and other social infrastructure and to the redistribution of wealth to reduce the gap between poor and rich? What lessons do the Government draw from that? Will they now discuss with NGOs and others how those lessons can be applied elsewhere?
Baroness Chalker of Wallasey: My Lords, I thank the noble Lord, Lord Judd, for his kind congratulations. Seven years may seem a long time, but they have passed in a flash and I am game for at least seven more.
Noble Lords: Hear, hear!
Baroness Chalker of Wallasey: My Lords, I am not sad about the actual amounts of money because during those seven years I have seen that what counts is what one does with money. It is simply no good throwing money at many of the problems of the developing world. What is important is how one applies the money. Indeed, the amount has increased in real terms and certainly the NGOs, which in 1994–95 received £185 million as compared with £65 million in 1989–90, know full well that we will back worthwhile projects wherever they arise.
As regards the UNDP human development report, as I have already told the noble Lord, Lord Judd, we support its main thrust. The importance of human development as an end in itself and as one of the means to increasing incomes is fundamental to our work. That is why the ODA is committed to promoting human
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development in order to improve the quality of life of people in poorer countries. That, indeed, is one of the four central aims of the ODA' s work.
Lord Clark of Kempston: My Lords, does my noble friend agree that the record of Her Majesty's Government is excellent and that we are one of the leaders in the EU as regards overseas aid? Does she further agree that it is a mistake merely to look at government intervention and that we must also look at private enterprise intervention, which has been extremely high because we have a sound economy in this country?
Baroness Chalker of Wallasey: My Lords, my noble friend is once again right.
Lord Graham of Edmonton: She means it.
Baroness Chalker of Wallasey: My Lords, I should say to the noble Lord that I do mean it. This country has more than 1 per cent. of GNP going on private investment. It is the private investment which can take on from the fundamental work of government investment through the development programme. If there were only government development programmes, those countries would never make changes and alleviate the poverty about which the noble Lord, Lord Judd, and I are so deeply concerned. That is why there must be a contribution from the private sector as well as from governments across the world which will make it a safer and less unhappy world in which to live.
Lord Redesdale: My Lords, is the Minister aware that one of the main issues about which the NGOs are campaigning at present is the issue of landmines? Does she not agree that Britain could show a lead to the world and show its disgust of those weapons by taking a unilateral step and banning the production of landmines in this country?
Baroness Chalker of Wallasey: My Lords, nobody who has walked through wards of limbless children in Angola, as I have, can be in any doubt that landmines should be done away with as soon as that is possible. But it would be both short-sighted and naÏve to take unilateral action. We must get landmines out of the system of weaponry but we should also like to see many other weapons out of that system. But let us be realistic and carry on with the excellent demining work which is done by so many, both in the voluntary sector and with the help of the services in this country. That is making a great difference to people in lands which have been mined.

Business
3.2 p.m.
Lord Strathclyde: My Lords, at a convenient moment after 3.30 p.m., my noble friend Lord Lindsay will, with the leave of the House, repeat a Statement that is to be made in another place on transmissible spongiform encephalopathy (TSE).

Bodmin Moor Commons Bill [H.L.]
The Chairman of Committees (Lord Boston of Faversham): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the Commons Message of yesterday be now considered; and that the promoters of the Bill have leave to suspend any further proceedings thereon in this Session in order to proceed with the Bill in the next Session of Parliament, notice of their intention to do so having been deposited in the Office of the Clerk of the Parliaments not later than 12 noon tomorrow; That the Bill be deposited in the Office of the Clerk of the Parliaments not later than 3 p.m. on the second sitting day in the next Session with a declaration annexed, signed by the agent, stating that the Bill is the same in every respect as the Bill at the last stage of the proceedings thereon in this House in the present Session; That the proceedings on the Bill in the next Session of Parliament be pro forma in regard to every stage through which the Bill has passed in the present Session, and that no new fees be charged to such stages; That the Private Business Standing Orders apply to the Bill in the next Session only in regard to any stage through which the Bill has not passed during the present Session.—(The Chairman of Committees.)
On Question, Motion agreed to, and it was ordered that a Message be sent to the Commons to acquaint them therewith.

Statutory Instruments (Production and Sale) Bill
3.3 p.m.
The Lord Privy Seal (Viscount Cranborne): My Lords, I beg to move that this Bill be now read a third time.
When I moved the Motion suspending Standing Orders last Thursday, I indicated that I hoped that agreement through the usual channels might be reached to proceed with the remaining stages of the Statutory Instruments (Production and Sale) Bill before the Summer Recess.
At that time, I undertook that, in the event that such agreement could not be reached, we would not invite the House to proceed further with the Bill without providing a further opportunity for your Lordships to decide how this House would wish to proceed.
It is with the greatest regret that I must report to your Lordships that there is no usual channels agreement. Therefore, I hope your Lordships will agree that in keeping with the assurance which I gave last week, I am inviting your Lordships to decide whether or not this House is content to proceed today with the Third Reading of the Bill.
As my noble friend Lord Howe explained on Second Reading and again yesterday, there are pressing and substantive reasons why the Bill should be enacted before the House adjourns for the Summer Recess. As your Lordships know, the Bill seeks to rectify a defect
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in the arrangements for the printing of statutory instruments which could give rise to possible technical defences in proceedings for breaches of such legislation. If the Bill is not passed, the Government are advised that there is a very real risk of the courts being obstructed by needless and contrived argument as to the validity and evidential status of printed copies of instruments. That legal advice shows clearly that there could even be a possibility of defendants being acquitted on that technicality alone.
At the very least, if challenged, statutory instruments would need to be proved specifically in court. That would represent a serious obstacle to the efficient administration of justice throughout the Summer Recess and until the Bill was enacted. I am sure that your Lordships will agree that it really would not be very responsible of this House to allow that risk to persist longer than is strictly necessary unless there were compelling reasons to do so.
I fear that noble Lords opposite have not, either in the earlier proceedings on the Bill or in discussions through the usual channels, put forward any cogent argument relating to the provisions of the Bill as to why the House should not proceed in this way. They appear to wish to delay the Bill on one ground alone: simply because it seems to them that if they manage to do so they will hold up implementation of a government policy on which this Bill has absolutely no bearing whatever.
I have endeavoured—and there is clearly a severe deficiency in my capacities in that regard—to explain to noble Lords opposite that that is so. Indeed, they persist in the erroneous belief that without this legislation being passed the privatisation of HMSO cannot be completed. That is actually not true. As I have said, the Bill has no bearing on that privatisation. It merely addresses a legislative defect which, now it has come to light, I submit to your Lordships it would be wholly irresponsible not to rectify because of the potentially damaging consequences for the administration of justice. Therefore, failure to pass the Bill would result in quite significant additional costs in the printing of statutory instruments which might in due course result in a higher cover price. I know that that is something which noble Lords on all sides of the House would regret.
I understand that noble Lords opposite feel a sense of outrage about this development or the way in which events have developed. I should like to say with the greatest sincerity at my command that I regret deeply that that is so. I hope that noble Lords opposite will accept that I have entirely fulfilled the obligations which I felt I was under and, indeed, have done my best to give advance warning to the leaders of the two main opposition parties about my intentions.
I hope that they will recognise that in another place the entire proceedings on the Bill took less than two hours. In the Second Reading debate in your Lordships' House, only two noble Lords spoke other than my noble friend. In Committee yesterday only two amendments were tabled and one of those was not moved. I am not surprised about that because I am sure that your Lordships will agree with me that it is not the habit of

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this House or, indeed, the parties opposite to encourage the Government to continue to break the law. Therefore, as Leader of your Lordships' House, and in spite of being fully aware of the absolute need to preserve cordial co-operation between the usual channels, without which it is difficult for this House to proceed in the way that it traditionally has, I must ask your Lordships with the greatest regret to consider conducting and proceeding with business on which there is no agreement through the usual channels.
I hope that the House will feel that the considerations which I have outlined with as much clarity as I am able will lead the House to judge that it is right to proceed with the Third Reading of this Bill. I hope that your Lordships will agree with me and agree that the Bill should be read today a third time.
Moved, That the Bill be now read a third time.—(Viscount Cranborne.)
Lord Richard: My Lords, I rise to oppose the suggestion that the House should now proceed with Third Reading of this Bill; not only that, but I propose to divide the House on the issue. The noble Viscount the Leader of the House is absolutely right, there is a deep sense of outrage on this side of the House in relation to the way in which the Government have behaved in the matter.
The noble Viscount has enunciated this afternoon a novel constitutional doctrine; namely, that the usual channels work. They should work and, indeed, he is in favour of them working, except of course when he comes to the conclusion that the Opposition's argument in relation to a Bill, and the way in which they are approaching it, is not one which the Government think appropriate.
If we are in a rush in relation to the Bill, it is because the Government did not introduce it early enough. Indeed, I might have a word to say in that respect. I see several nods of heads on the other side. We were told last night that this point arose as long ago as the middle of last April. If we are running against the time limit now in view of the House being in Recess as from tomorrow, it is not the responsibility of the Opposition; it is the responsibility of the Government. There is no obligation whatever on the part of an opposition to assist the Government to get their business through.
I have to point out to the House that not only has there been no agreement through the usual channels to truncate the timetable specified in the Companion to the Standing Orders, in particular as regards the time needed between the Report stage and Third Reading, but also it is now being done not just without the agreement of the Opposition but specifically against our wishes. I hope that the House will accept that I am not one who usually indulges in great procedural wrangles simply for the sake of so doing. However, I have to tell the House that not only are the Opposition outraged about this, but I personally do not think that this is the way in which governments ought to behave in this House.
Perhaps I may remind the House of a little of the background involved. On Thursday last the Lord Privy Seal moved a Motion. The Motion was that Standing
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Order 38 and Standing Order 44 should be suspended until the House rose for the Summer Recess. Let us just consider what was said in that Motion. The noble Viscount said:
"I beg to move the Motion standing in my name on the Order Paper. The Motion is to make it easier to arrange a number of items of business which have usual channels' agreement. At this stage in the Session, I am advised that it has not been unusual for the House to agree to such a Motion which allows for greater flexibility in the arrangement of the Order Paper and the consideration of leg islation".—[Official Report, 18/7/96; col. 1001.]
That is true. If it is agreed between the usual channels, it is indeed a most sensible Motion to move. However, at that point, I rose to my feet and said:
"I do not wish to detain the House long on this Motion; nor do I wish to move a formal amendment to it. But the Leader of the House will know that going through the House at the moment is a Bill called the Statutory Instruments (Production and Sale) Bill. He will also know that … the Opposition … are not prepared to see the proper time limits on that Bill truncated in the way set out in the Motion.
Therefore, … while I do not wish to amend the Motion formally, I wish to have the expressed consent and acceptance of the Leader of the House to the fact that discussions on the Statutory Instruments (Production and Sale) Bill are continuing within the usual channels. If they are successful, no more will be heard from me. But if they are not successful, it will be necessary for the Leader of the House to come back to the House in relation to that particular Bill and ask for a Motion in like terms to the one which he is moving now".
Well, we are still waiting for a Motion to truncate the time limits on this Bill. However, the noble Viscount has not put down a Motion to that effect this afternoon; what he has done, presumably, is to use the Motion that he passed last week in order to sweep it up in that all-purpose piece of legislation.
Following that exchange of last week, we agreed to take the Committee stage of the Bill yesterday; and, indeed, we did so. We also accepted that the Report stage should be taken formally thereafter in accordance with the terms of the Companion to the Standing Orders. We could have objected to that course of action but we did not do so. At 6.30 yesterday evening it emerged via the noble Earl, Lord Howe (who is the Minister in the House in charge of the Bill), that the Leader of the House intended to move that the Bill be now read a third time immediately after Question Time today. Understandably, there was a strong reaction on the Floor of the House last night as a result of that information.
In view of the history of the matter I have to tell the noble Viscount the Leader of the House—and I pick my words carefully—that, regrettably, we shall have to read the fine print of what he tells us with somewhat greater care than we thought necessary in the past.
However, quite apart from that, the affair raises some serious issues. The Government say that the Bill is nothing to do with privatisation. I do not happen to believe that. There is no point in the Leader of the House saying that he does not believe that our arguments have any validity. We are perfectly entitled to press those arguments. Indeed, I justified that during the Second Reading of the Bill only the other day. If it has nothing to do with privatisation, what is the rush? The Government say—and the noble Earl, Lord Howe, said it last night—that they can manage perfectly well without the Bill, although that may cause some

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inconvenience. Again, I ask, why the rush? We know that this legal problem became known in April of this year. If it was so urgent, why was the Bill not introduced at that time?
More importantly—and this is the substance of what I have to say to the House—why are the Government now prepared to tear up the good relations that enable this House to function properly? I can recall no previous example of the Government behaving in such a way; nor can any of my more senior colleagues whose memories go back further than mine; nor, indeed, can any of the Clerks who conducted some research into the point. This is an unprecedented display of government high-handedness and it is totally unacceptable to the Opposition. It is perfectly in line with the Government's attitude towards the Recruitment and Assessment Services, which we shall be debating tomorrow. I must stress that they will have to pay the price for this in due course.
Last night the Government Chief Whip said:
"It has been clear since last week that the Bill did not form part of the usual channels arrangements".—[Official Report, 23/7/96; col. 1363.]
That is a novel doctrine. As I understand it, Bills are now, apparently, to be part of the usual channels' agreement unless and until the Government find that they cannot get their way within those channels and, thereafter, they will get their way in any event. What is this new doctrine of Bills being outside the usual channels about? Are we to have a sort of special starred section on the Order Paper of normal Bills which fall within the usual channels, and then a special section for Bills which do not fall within the usual channels so that the Government can then decide on their timetabling? Indeed, are we to tear up the Companion to the Standing Orders to that extent? I sincerely hope not.
I propose, therefore, to ask the Opinion of the House on the Motion that the Bill be now read a third time. I accept that this is a rare event, but it is one which has been forced upon us by the Government's action and the unprecedented behaviour of the Lord Privy Seal. No doubt the Government will get their majority; indeed, I am sure that the Whips have been active in that respect. Interestingly enough, last night at 7.30 p.m., on a dead day in the House, it just so happened that there were 101 Conservative Peers littered around the building who all turned up to vote.
Similarly, I have no doubt that the Government will ram the Motion through and that the troops will loyally go into the Lobby and force through the Third Reading of the Bill today. It is yet one more example of this House being used as a political football by a Conservative Administration. Now they have even got to the stage when they are bending the rules to secure the passage of a Bill that they say they do not really need in defiance of the timetable set out in the Standing Orders in a way for which there is no precedent; and, indeed, in total disregard of the normal procedures and the usual channels. It is quite disgraceful and they should be ashamed of themselves.
Lord Jenkins of Hillhead: My Lords, the noble Lord, Lord Richard, feels great anger at the way in which the Government are riding rough-shod over the Opposition and over the normal conventions of this House. I in no way dissent from the noble Lord in that respect; indeed, I endorse what he said. However, I feel one emotion which is perhaps even stronger than anger—namely, that of surprise. I feel almost astonishment at the "unwisdom", if their own arguments are accepted, for such extraordinarily small stakes which is being displayed by the Government.
As is well known, there is at present a shadow of uncertainty over the future of your Lordships' House as at present constituted. The desire of the present Government—and no doubt many of their supporters—is to resist change. In those circumstances, I should have thought that tactical prudence alone would have suggested a period of restraint, of keeping the hereditary cavalry as far away as possible from the field of battle and of showing that your Lordships' House is a very special place where we work by mutual accommodation and consideration, where arguments count as least as much as Whips and where time is given for reflection. Yet we have seen, and are seeing, in the splurge of this final fortnight, the reverse of that.
I cannot really understand what dementia has come over this tottering government. I cannot decide whether the noble Viscount the Lord Privy Seal, whose leadership has at times shown a sure touch, is an enthusiastic agent or a reluctant messenger of this foolishness. In any event, it is a sad end. This hot July will, I believe, be looked back on as the weeks of unwisdom for which a heavy price may be paid.
Lord Harmar-Nicholls: My Lords, I do not know what the fuss is about. I am all for the usual channels easing the business of the House through its normal stages. It is a useful practice when it can be agreed. But what does the practice mean when one examines it? It means that a problem of the House is handed over to Members of the three Front Benches. That is what "the usual channels" boils down to. If the Members of the three Front Benches cannot agree, for good or bad reasons, then the usual channels procedure will not work. What is wrong with the whole House making the decision that has to be made?
My noble friend gave reasons for wanting to follow this procedure. I was not impressed with the reasons why the noble Lord, Lord Richard, did not wish to agree on this occasion. But he is entitled to do so. I see no special merit in coming to this House and always handing over decisions to Members of the three Front Benches who sometimes hold views diametrically opposed to what I think are the best interests of the country.
There is no need for this fuss. If the House has to make the decision, let it do so. There is nothing wrong with that; and that is what we should do.
Lord Richard: My Lords, before the noble Lord sits down, perhaps I may put this point to him. He is from time to time a fair minded man. He states that if the usual channels cannot agree then the usual channels cannot agree. I accept that. But if they cannot agree

1387
should we not abide by what the Companion to the Standing Orders says? Is that not what should happen in those circumstances? The timetable in the Companion should be stuck to in the absence of agreement.
Lord Harmar-Nicholls: My Lords, that shows how stodgy the noble Lord is. If one can guarantee that all circumstances through every age will be identical, then one can have a book which lays down what one should do. But things change.
I am saying that if a decision is the responsibility of the House, let the House take up its responsibility. It is a pity that Members of the three Front Benches are so awkward within themselves that they cannot sometimes ease something through.
Lord Wallace of Saltaire: My Lords, this morning I was reading some British constitutional history. I began with Dicey, who remarked that constitutional conventions are the constitutional morality of the United Kingdom. The Companion of this House is not to be torn up and thrown away quite so easily if this is indeed an unimportant matter.
I then turned to Ivor Jennings—I had not noted this before—who remarks that there is no basis in the British constitution for resisting a Conservative Government when they wish to act in an authoritarian fashion and can command a majority in both Houses.
I noted last night the admission by the noble Earl, Lord Howe, that he was advised that the defect in the statute was discovered around mid-April—some three months ago. The noble Viscount the Leader of the House tells us that we cannot wait another three months before the matter is rectified. I checked this morning. The background notes which the Office of Public Service kindly provided for the Bill states:
"The potential problem was first discovered as part of a search into HMSO's statutory functions",
while options for its future were being evaluated,
"prior to last year's announcement that it was to be privatised".
That is some time before September 1995. In other words, this has been known to the Government for at least nine months and probably more.
We are told that the Government now wish to rush the matter through, having had an entire Session during which they could have brought it to the House. If that is the case, the arguments for disregarding the Companion and our constitutional conventions simply do not exist.
Lord Skelmersdale: My Lords, I have a vested interest in this matter as a member of your Lordships' representation on the Joint Committee for Statutory Instruments. The noble Lord, Lord Jenkins, rather made my blood boil when he described my noble friend the Leader of the House as acting in a high handed manner for small stakes. As a member of that committee, I do not find these stakes small. It is quite clear to me that the Opposition are labouring under a misapprehension. Indeed, the noble Lord, Lord Richard, confirmed as much last night. He described the Bill as one,
"which we are told has nothing to do with the privatisation of HMSO".
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He continued:
"I have never believed that. I believe it even less tonight".— [Official Report, col. 1364; 23/7/96.]
The noble Lord also referred to that today. There can be no doubt that the illegality of statutory instruments whose printing has been contracted out would never have been discovered had not the decision to privatise HMSO been made; and, therefore, there was a need to find out exactly what HMSO does and how it operates.
I am sure that my noble friend the Leader of the House will tell us exactly what the timetable for that was, but I have no doubt in reconciling what we have just heard: that the investigation was started in September and the result as regards this illegality was not discovered until April.
However, to be fair to the noble Lord, Lord Richard, he has a point. But now I must part company with him. This Bill does not privatise the Stationery Office. It stands or falls on its own. Now that the illegality has been discovered, it must be dealt with, and quickly. For the future that is easy. All we have to do is to legislate to allow HMSO to contract out statutory instruments putting their vires beyond doubt. The Bill does just that.
But how do we deal with the very doubtful vires of those thousands of SIs which have been contracted out for printing over the past 30 years? This Bill validates them all retrospectively. I should have thought that it was a rather neat solution.
Noble Lords: Oh!
Lord Skelmersdale: My Lords, it is a neat solution. What is the alternative? During the course of the two debates, last night and now, we have heard no alternative. Are we to reprint the whole wretched lot, stacks of them a mile high? Are they to be the property of the small piece of HMSO which remains in the public sector? No alternative has been offered.
Do we really want those statutory instruments to be open to challenge in the courts? They could be challenged at any time. The noble Lord, Lord Richard, is a lawyer. He surely cannot want that. There is urgency. The challenge could come next week, next month, next year or in 10 years' time. The Government are absolutely right in seeking to remove the danger as soon as humanly possible. If this matter comes to a vote, they will have mine.
Earl Russell: My Lords, I have listened with a great deal of care and interest to the noble Viscount the Lord Privy Seal. I think he understands that for many centuries, practically since the beginning of printing, a document bearing statutory force has been recognised by the mark of the King's printer. If this Government have been so careless of the majesty of the state that they have allowed purportedly statutory instruments to appear in print without that mark, I do not see why they should ask the Opposition to pull their chestnuts out of the fire. It is a little like the behaviour of the young lady who once took her boyfriend to Johannesburg Zoo, threw her glove into the lions' den and said to him, "Go

1389
and fetch it". I am glad to say that the gentleman went to fetch it, came out unscathed, handed it to her and bowed deeply, and never spoke to her again.
I can understand the Government's problem. However, there are many different kinds of statutory instruments creating many different types of reaction around the House. I do not understand why we should be asked immediately, by retrospective legislation, which is not to be used lightly, wantonly or unadvisedly, to validate the lot. The noble Lord, Lord Skelmersdale, asked whether we are expected to reprint the whole lot. The principle on which I brought up my children is that you clear up your own mess. I commend that principle to the Government.
Lord Dixon-Smith: My Lords, I rise on a small point since I had not expected to intervene in the discussion. I thought that I had listened to the debate and I understood that the fault commenced 30 years ago. My arithmetic takes that back to 1966, when presumably the Opposition were responsible for initiating the procedures which we are now trying to rectify.
3.30 p.m.
Viscount Cranborne: My Lords, perhaps I may deal with the points made one by one. As my noble friend Lord Dixon-Smith made clear, there appears to have been an oversight by more than one government. The 1946 Act is the operative instrument, as I understand it, and I am glad that the noble Lord, Lord Richard, confirms that. I shall come to the timing later.
I say to the noble Earl, Lord Russell, that previous governments of both main political complexions—although not the noble Earl's, for obvious reasons—seem to have failed to discover the illegality until a bit late in the day. However, at least we discovered it, and we intend to do something about it and to clear up our own mess. In order to do so, once we have drawn attention to the matter and it is in the public domain, it is wise for us not to leave an opportunity for others vexatiously to take advantage of the fact that the Government have been breaking the law.
The noble Lord, Lord Richard, said that he did not agree with us that the problem had nothing to do with privatisation. By implication, therefore, he disagrees with the legal advice that the Government have received. With the greatest respect to him, as always in addressing him either in private or across the Floor of the House, I must say that he has not given the House one single reason why he disagrees with that assertion. My noble friend Lord Skelmersdale put it very well and I do not think that I can add anything.
The noble Lords, Lord Richard and Lord Wallace of Saltaire, drew attention to the timing. The briefing note to which the noble Lord, Lord Wallace, and yesterday the noble Lord, Lord McNally, drew attention was billed as a quotation from an OPS briefing note. I have a photocopy of that note. When I investigated what was recorded in the Official Report as having been said by the noble Lord, Lord McNally, my clear advice was that
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the briefing note concerned was not issued by the OPS, although the piece of paper says so. It is a note put together by the Commons Library, based on conversations with the OPS and probably others over the past months. I welcome the opportunity to try to put the record straight on the matter of timing.
Lord McNally: What on earth does that mean, my Lords? It does not make the matter clearer. Is the noble Viscount saying that our timing of September discovery or earlier was wrong? It is the nit-picking and avoiding of the main issues that fuel suspicion on this side as to what is happening.
Viscount Cranborne: My Lords, I shall come to the matter of timing, if the noble Lord will allow me. I am sure I shall fail to satisfy him, as I have failed too often in the past, but I shall do my best. The noble Lords, Lord McNally, Lord Wallace and Lord Richard, are quite right that on 15th April this year the Government finally received advice which revealed the nature and extent of the problem. Immediately Ministers sought further advice and consulted as to the best way of dealing with the problem. A number of noble Lords have had extremely lengthy and distinguished ministerial careers. Therefore, I do not need to explain to this audience that even emergency legislation takes time to agree and prepare, though in this instance the Bill is hardly lengthy. If noble Lords opposite dredge their memories, it will not surprise them that nevertheless it was not until 19th June that further advice and consultation led to a decision that primary legislation was the only fully satisfactory means of addressing the matter. My right honourable friend the Chancellor of the Duchy of Lancaster announced on that date in another place, immediately the decision was taken, that a Bill would be introduced forthwith. The statement was repeated in your Lordships' House in a Written Answer (at col. WA. 32 of the Official Report for 19th June).
I now come to what I found the most distressing part of what the noble Lord, Lord Richard, said. I do not wish to take up his accusations in too great detail. In no way do they undermine the regard that I have for him, certainly not from my point of view. I am sorry that he diagnosed the events of the past week in the way that he did. I hope he will take that remark in the spirit in which it is proffered.
When, last Thursday, I moved the Motion to suspend Standing Orders, I indicated that I hoped that the agreement of the usual channels might be forthcoming. The noble Lord, Lord Richard, remembered that. I hoped that there would be agreement to proceed with the remaining stages of the Bill before the Summer Recess. I undertook that in the event that such agreement could not be reached, we would not invite the House to proceed with the Bill without providing a further opportunity for the House to consider how it wished to proceed. I stand by that assurance. It is why I myself came forward to move the Third Reading of the Bill today.
As the noble Lord, Lord Richard, rightly pointed out, it is within the practice of the House for the Report on a Bill which has not been amended in

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Committee to be received forthwith: in other words, immediately after the Committee stage, as provided in the Companion to the Standing Orders on page 128. As the noble Lord accepted,
"If the bill is reported without amendment, the Lord in charge of the bill may move forthwith:
'That this Report be now received'.
If this is agreed to, the next stage is the Third Reading".
I am glad that the noble Lord, Lord Richard, accepts that that procedure does not require suspension of Standing Orders and it is therefore not outside the terms of the assurance which I gave the House.
The noble Lord implied that I had broken the terms of the undertaking I gave to the House. As your Lordships would expect me to do, I took careful advice as to the proper form for me to come back to the House in order to redeem the promise that I gave to the House and to the noble Lord, Lord Richard. The advice that I received was unequivocally clear. There is no Business Motion that can be moved, as the noble Lord, Lord Richard, spotted, predictably and at once. There was no intent to mislead about that, which is why I gave the undertaking I did in the subsequent exchange. The Motion to suspend Standing Orders which I moved at that time theoretically included the suspension of Standing Orders as it affected the Bill. I have been advised that nothing is proposed that would require the suspension of any Standing Orders, no Motion is available to us.
In order to try to meet the assurance that I gave to the House, within the rules of the House, I come to the House to give your Lordships an opportunity to decide whether noble Lords wish to proceed further with the Bill. That is why I am extremely happy for the House to decide. If the noble Lord, Lord Richard, wishes to push the matter to a Division, I shall regret it, but it is entirely within his right.
If there is a breakdown between the usual channels, that is something I regret. But as my noble friend Lord Harmar-Nicholls made clear, the normal channels are a matter of convenience which we try our best to make work. Indeed, this House could not function unless they were in good working order as a matter of practical possibility. On what I am glad to say are the very rare occasions when we are unable to come to an agreement, surely it is only right, as my noble friend pointed out, that the House itself as a whole should decide. That is what the House will do this afternoon. I know that all sides will abide by the decision of the House.
I should be superhuman if I did not try to respond to the implied challenge of the noble Lord, Lord Jenkins. I merely observe that it is significant that when, over the asylum Bill amendment or any other matter, members of the Opposition feel that the Government have ridden roughshod over their most deeply held convictions, they feel that this House should overturn the wishes of the elected Chamber; and when the Government accede to the wishes of the elected Chamber, they feel, clearly, that the only solution is to reform this House. I merely leave in your Lordships' minds the suggestion that there is perhaps a marginal inconsistency in that point of view. I commend the Bill to the House.
3.41 p.m.
On Question, Whether the Bill shall be now read a third time?
Their Lordships divided: Contents, 152;

Division No. 1

CONTENTS

Aberdare, L.

Grimston of Westbury, L.

Ackner, L.

Hailsham of Saint Marylebone

Ailesbury, M.

Halsbury, E.

Ailsa, M.

Hamilton of Dalzell, L.

Aldington, L.

Harding of Petherton, L.

Alexander of Tunis, E.

Harmar-Nicholls, L.

Allenby of Megiddo, V.

Hayter, L.

Ampthill, L.

Headfort, M.

Ashbourne, L.

Henley, L.

Astor of Hever, L.

Hooper, B.

Belhaven and Stenton, L.

Hothfield, L.

Beloff, L.

Howe, E.

Blatch, B.

Howe of Aberavon, L.

Boardman, L.

Hylton-Foster, B.

Bowness, L.

Ironside, L.

Boyd-Carpenter, L.

Johnston of Rockport, L.

Brabazon of Tara, L.

Kimball, L.

Braine of Wheatley, L.

Kings Norton, L.

Bridges, L.

Kintore, E.

Brightman, L.

Knollys, V.

Broadbridge, L.

Lauderdale, E.

Brougham and Vaux, L.

Layton, L.

Bruntisfield, L.

Leigh, L.

Burnham, L.

Lindsay, E.

Butterworth, L.

Long, V.

Cadman, L.

Lucas, L.

Caldecote, V.

Lucas of Chilworth, L.

Campbell of Croy, L.

Lyell, L.

Camegy of Lour, B.

Macclesfield, E.

Chalfont, L.

McColl of Dulwich, L.

Chalker of Wallasey, B.

MacFarlane of Bearsden, L.

Chesham, L. [Teller.]

Mackay of Ardbrecknish, L.

Clanwilliam, E.

Mackay of Clashfem, L. [Lord Chancellor.]

Clark of Kempston, L.

Cockfield, L.

Mackay of Drumadoon, L.

Courtown, E.

Macleod of Borve, B.

Cranbome, V. [Lord Privy Seal.]

Merrivale, L.

Crathorne, L.

Mersey, V.

Crickhoweil, L.

Miller of Hendon, B.

Cromer, E.

Milverton, L.

Cross, V.

Mountevans, L.

Cuckney, L.

Moyne, L.

Cullen of Ashboume, L.

Munster, E.

Cumberlege, B.

Murton of Lindisfarne, L.

Davidson, V.

Newall,L.

De L'Isle, V.

Noel-Buxton, L.

Dean of Harptree, L.

Northesk, E.

Denton of Wakefield, B.

O'Cathain, B.

Dixon-Smith, L.

Orkney, E.

Ellenborough, L.

Orr-Ewing, L.

Elliott of Morpeth, L.

Pearson of Rannoch, L.

Elton, L.

Pender, L.

Eme, E.

Peyton of Yeovil, L.

Exmouth, V.

Pilkington of Oxenford, L.

Ferrers, E.

Pym, L.

Fraser of Carmyllie, L.

Rankeillour, L.

Gardner of Parkes, B.

Rathcavan, L.

Geddes, L.

Rawlings, B.

Gisborough, L.

Renfrew of Kaimsthorn, L.

Glenarthur, L.

Renwick, L.

Goschen, V.

Robertson of Oakridge, L.

Gray of Contin, L.

Roskill, L.

Greenhill of Harrow, L.

St. Davids, V.

Greenway, L.

Saint Oswald, L.

1393

Saltoun of Abernethy, Ly.

Sudeley, L.

Savile, L.

Terrington, L.

Seccombe, B.

Teynham,L.

Shaw of Northstead, L.

Thomas of Swynnerton, L.

Sheppard of Didgemere, L.

Torphichen, L.

Simon of Glaisdale, L.

Trumpington, B.

Skelmersdale, L.

Ullswater, V.

Soulsby of Swaffham Prior, L.

Vivian, L.

Wedgwood, L.

Stockton, E.

Westbury, L.

Stodart of Leaston, L.

Whitelaw, V.

Strathcarron, L.

Wilcox, B.

Strathclyde, L.[Teller.]

Wynford, L.

NOT-CONTENTS

Addington, L.

Jeger, B.

Ashley of Stoke, L.

Jenkins of Hillhead, L

Avebury, L.

Jenkins of Putney, L.

Barnett, L.

Judd, L.

Beaumont of Whitley, L.

Lovell-Davis, L.

Berkeley, L.

McNair, L.

Birk, B.

McNally, L.

Blackstone, B.

Marsh, L.

Blease, L.

Mayhew, L.

Blyth, L.

Meston, L.

Borrie, L.

Morris of Castle Morris, L.

Bruce of Donington, L.

Nicol, B.

Carmichael of Kelvingrove, L.

Ogmore, L.

Carter, L.

Peston, L.

Cledwyn of Penrhos, L.

Rea, L.

Clinton-Davis, L.

Redesdale, L.

Dahrendorf, L.

Richard, L.

David, B.

Rochester, L.

Dean of Beswick, L.

Roll of Ipsden, L.

Desai, L.

Russell, E.

Donaldson of Kingsbridge, L.

Sainsbury, L.

Donoughue, L.

Seear, B.

Dormand of Easington, L.

Sewel, L.

Eatwell, L.

Shepherd, L.

Falkland, V.

Simon, V.

Farrington of Ribbleton, B.

Stallard, L.

Fisher of Rednal, B.

Stoddart of Swindon, L.

Fitt, L.

Strabolgi, L.

Gallacher, L.

Taylor of Blackburn, L.

Gladwin of Clee, L.

Taylor of Gryfe, L.

Glenamara, L.

Thomson of Monifieth, L.

Graham of Edmonton, L. [Teller.]

Tordoff, L.

Grantchester, L.

Turner of Camden, B.

Grenfell, L.

Wallace of Coslany, L.

Harris of Greenwich, L. [Teller.]

Wallace of Saltaire, L.

Haskel, L.

Wharton, B.

Hilton of Eggardon, B.

White, B.

Hollis of Heigham, B.

Wigoder, L.

Hooson, L.

Williams of Crosby, B.

Howie of Troon, L.

Williams of Elvel, L.

Hughes, L.

Williams of Mostyn, L.

Ilchester, E.

Winchilsea and Nottingham, E

Resolved in the affirmative, and Motion agreed to accordingly.
3.51 p.m.
Earl Howe: My Lords, I beg to move that the Bill do now pass.
Moved, That the Bill do now pass.—(Earl Howe.)
On Question, Bill passed.

Transmissible Spongiform Encephalopathy
3.52 p.m.
The Parliamentary Under-Secretary of State, Scottish Office (The Earl of Lindsay): My Lords, this may be a convenient moment to repeat a Statement being made in another place by my right honourable friend the Minister of Agriculture, Fisheries and Food. The Statement is as follows:
"With permission, Madam Speaker, I would like to make a Statement about transmissible spongiform encephalopathies in sheep. The subject was discussed at the Agriculture Council last Monday. Commissioner Fischler there said that he intended to put forward proposals for controls on sheep to apply across the Community.
"Scrapie, a transmissible spongiform encephalopathy (TSE) of sheep and goats, has been known for over 200 years. There is no evidence that it is linked to Creutzfeldt Jacob Disease (CJD) in humans. CJD occurs at approximately the same level in countries with and without scrapie.
"I have recently received advice from the Spongiform Encephalopathy Advisory Committee (SEAC) that BSE could, theoretically, become established in the sheep flock. It notes that in experiments (the results of which have been published) one out of six sheep experimentally challenged orally with BSE brain material succumbed to an encephalopathy; and that when their brain material was tested in mice the same strain type as BSE was found. It notes also the possibility that some sheep could have been exposed to feed contaminated with the BSE agent before the ruminant feed ban was introduced in 1988.
"The committee points out that there is no evidence of BSE occurring naturally in the sheep flock. However, the SEAC concern is, while there is no evidence to this effect, scrapie might be masking BSE in the sheep flock. On the basis of present knowledge SEAC has made three recommendations.
"First, that the Government should consider this issue further with EU partners. We have started that process. We are keeping in close contact with the French Government, whose scientific committee equivalent to SEAC has made certain recommendations on the basis of the laboratory evidence about BSE in sheep, and of concerns about scrapie. At the Agriculture Council on 22nd July Commissioner Fischler announced that the Commission intends to formulate proposals for the removal of certain offals of sheep and goats from the human and animal food chain. These proposals are to be considered initially by the Standing Veterinary Committee in early August, and then by other EU expert committees.
"SEAC's second recommendation was that the Government should give early consideration to removing the brains of sheep, whatever their source, over six months, from the food chain. The agriculture departments are today issuing for consultation a

1395
proposal for the heads of all sheep and goats to be removed and destroyed in the same way as specified bovine material. This measure would go rather further than SEAC suggested, taking into account the practical difficulty of distinguishing the age of sheep at slaughter. It should not have a major economic impact as the vast majority of sheep's heads are already destroyed. It is worth noting that sheepmeat for human consumption comes predominantly from young lambs under 12 months.
"We intend to reach a final decision in the light of responses to this consultation and in the light of progress of EU discussion. Action on this issue at EU level would be preferable, but it is desirable that these measures are put in place promptly. There is no direct threat to human health; the action now being proposed is precautionary, to respond to what appears no more than a theoretical risk.
"SEAC's third recommendation is that further research should be done to establish the levels of scrapie occurring naturally in sheep and to investigate further the risks of BSE transmission to the UK sheep flock. We accept this. Some relevant research has already begun.
"I emphasise that these steps are being taken out of an abundance of caution. There is no direct threat to human health. With the exception of the consumption of brains, there is absolutely no reason for anybody to change their eating habits. I repeat: there is no evidence at all that in field conditions BSE has got into the national flock: but as that possibility cannot be wholly excluded we are proposing to take these precautionary measures.
"I am putting a copy of SEAC's advice and of my Ministry's consultation letter in the Library of the House."
My Lords, that concludes the Statement.
3.57 p.m.
Lord Carter: My Lords, the House is very grateful to the Minister for repeating the Statement made in another place by his right honourable friend the Minister of Agriculture, Fisheries and Food. As always, I should declare an interest as a director and shareholder in a farming company with dairy cattle.
Before we turn to the Statement, it would be helpful to the House if the Minister could bring us up to date with what is happening with the slaughter scheme and the necessary orders both as regards the cull-cow slaughter and the selective slaughter scheme. In the very helpful Ministry BSE newsletter on the 4th July it says:
"We aim to introduce the necessary legislation before the House of Commons rises for the summer recess. In order to meet this, the consultation period has had to be restricted and will finish on 9th July."
I understand that orders will not now be laid until we return, presumably in the overspill. Does the timetable still hold that the Prime Minister gave when he made his Statement after the Florence summit, in which he very clearly stated the October, November and various other dates for the slaughter schemes? This is a chance for the Minister, before we rise for the Recess, to bring
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us up to date on that, although now is not the time to go into detail on the slaughter scheme. I am receiving a lot of information from farmers, from slaughterers and from renderers that it is not working well in practice, but there will be plenty of time to go into that when we deal with the orders on our return.
Perhaps I may now turn to the Statement. The phrase which puzzles me is:
"I have recently received advice from the Spongiform Encephalopathy Advisory Committee (SEAC) that BSE could, theoretically, become established in the sheep flock".
The progress report from the ministry, which is an extremely helpful document that was produced in May this year and referred back to all the research which has been going on for some time, says:
"BSE has been experimentally transmitted … to cattle, pigs, sheep, goats"—
and to other species—
"Cattle, sheep, goats … also succumbed to oral challenge in separate experiments"—
that is mentioned in the Statement. It continues:
"The susceptibility of sheep to challenge with BSE was demonstrated in 1989 … the finding of infectivity in the spleen of sheep is consistent with the known distribution of the scrapie agent in the species".
What has happened? This information has been available. It was published in the Veterinary Record, I believe, on the 1st June, and it was published by the ministry in May, and then all of a sudden we have a crisis again which is affecting the sheep market substantially.
Could the Minister tell the House why there is this sudden need to produce this information now in the way in which it has been done? It was obvious that it was known in March when the first Statement was made about the BSE in cattle. Why is it now being produced in the way that it is?
Perhaps we can turn to the handling of the announcement itself. It seems that the Commission and the Government have learnt nothing. We understand that on Monday evening this week Commissioner Fischler made a statement in the Agriculture Council in which he called on the Standing Veterinary Committee to recommend that the spleen and the central nervous tissue, brains and spinal chord, be removed from sheep and goats. I emphasise that it was the commissioner who called on the Standing Veterinary Committee to recommend that. The commissioner did not specify any age limits in this regard. These issues will be considered by the Standing Veterinary Committee at the beginning of August and its discussions will include the practical implementation of sheep offal controls as well as the possibility of distinguishing between lambs and older sheep.
So there is that and there is the television news, with the Minister, Mr. Hogg, announcing—I think correctly—that there is no risk in eating sheep meat. The news reader immediately went on to say that it would be a month before the ban would be introduced at the very earliest. So what is happening to sheep that are being killed today? Are the specified offals being removed? We all know the effect on the sheep market

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as we heard it on the radio this morning. It is now 25 per cent. down. Those are the prime lambs—the sheep farmer has just one harvest a year—and they are just coming to market. Once again, there are announcements which cause great concern; information which has been available for a very long time; the European commissioner instructing the Standing Veterinary Committee on what to do; and the Minister attempting to catch up on behalf of the British sheep farmer. Cynics might just wonder about the timing of our European partners, just when our sheep are coming to market. We need now from the Government a clear statement which traces the whole of the scientific background and explains just why it has been felt necessary to bring out this news now.
How much notice did the Commission give the Government of its intention to make the announcement? Was it any longer than the 30 minutes that the Government gave the Commission in March? Perhaps I may also take this opportunity to ask the Minister to bring the House up to date on what is happening with tallow, gelatine and semen? What is the news on the ban? Is there any more news? Are we any further in ensuring that the ban should be lifted?
My last point on the Statement is that the Government, correctly, have overruled the scientific advice in which SEAC spoke of removing the brains of sheep, whatever their source, over six months from the human food chain. I believe that we all think that the distinction at six months is quite absurd. How on earth does one know whether a sheep is five months and two weeks old or six months and two weeks old or whatever?
The Government said that they will be issuing for consultation a proposal that the heads of all sheep and goats be removed and destroyed in the same way as the specified bovine material. The assumption is not entirely correct. I believe it is true that the brains of calves under six months old can still enter the human food chain. I ask the Minister whether it is correct for them to go in their present direction and overrule the SEAC advice in the case of sheep's brains. Why does the same point not occur with calves' brains?
Finally, the Government and the Commission are at last working on the precautionary principle. I feel that that is absolutely correct. That is what we have learned from the whole of the BSE debacle—which is what it has been. Only recently the Minister in a public speech said that since the late 1980s the Government had the working assumption that there was no connection between BSE and CJD, and that has now been called into question. They are therefore changing their policy. The possibility of such a link was made known in the 1980s and the Government were working on the wrong working assumption in effect. If they had followed the precautionary principle then, we should not be in the mess that we are in now with cattle. At last, I believe that they are following the correct principle—the precautionary principle—in dealing with this recent matter.
Lord Beaumont of Whitley: My Lords, the Statement says that:
"one out of six sheep [were] experimentally challenged orally".
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It seems to me that your Lordships have been experimentally challenged orally this afternoon, in both the previous business and this.
How many years do we have to go without BSE affecting an agricultural sheep in the field before this ban—which has been described by the British Veterinary Association as ludicrous and by the President of the Federation of Vets in Europe as a remedy for a non-existent disease—is reviewed? The Government suggest that this is only a temporary measure while more investigations are made. I entirely agree with the noble Lord, Lord Carter, that it is wise to adopt a precautionary principle. But there has been no known case of this disease in sheep. How long do we have to continue with these absurd ways of dealing with the food scares that turn up from time to time?
Lastly, perhaps I may ask the noble Earl, when he is wearing another hat, on behalf of your Lordships and all his Scottish colleagues and certainly my wife and myself, whether or not we are allowed now to eat haggis.
The Earl of Lindsay: My Lords, we should take the most important points first. I can assure the noble Lord that haggis remains absolutely safe. It has sustained the Scottish nation over many thousands of years and I suspect that it will continue to do so.
Both the noble Lords, Lord Beaumont and Lord Carter, made some very constructive points, which I welcome. Perhaps I should point out to the House as background that the concern with scrapie and the possible pathway of BSE into sheep is a European problem rather than a problem specific to any one member state. As such, we have been and will continue to be involved with consultation and discussion with our European colleagues, both at member state level—I single out France particularly in that instance—and with the Commission itself.
The precautionary principle was mentioned by those noble Lords and I agree that it is a vital principle and one that we always seek to follow. The recommendations that have come forward from SEAC have always been acted upon by the Government and promptly acted upon. The noble Lord, Lord Beaumont, touched very pertinently on the fact that an element of common sense is also needed. Otherwise, there is a danger that the precautionary principle will stop us getting out of bed in the morning. So moderation is needed at the same time.
The noble Lord, Lord Carter, asked why suddenly today we have a Statement on the subject when much of the information that is coming forward today has been in the public domain for some time. That latter statement is correct. I should point out that the recommendations from SEAC have just been delivered to us, after it met as a committee on the 19th June. Also, the Dormont Committee in France, which is France's equivalent to SEAC, delivered its recommendations to Fischler at approximately the same time. That led Fischler, also on Monday at the Council of Ministers, to make a statement on the subject and to outline the kind of proposals that he would be bringing forward. So there was sufficient profile for this subject for the House of Commons in particular to

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demand some kind of Statement from my right honourable friend. I believe that it was his intention to deal with the subject in the Adjournment Debate, which has just started in the other place, but other parties there felt that something more formal was needed.
The noble Lord, Lord Carter, casts some doubt on whether the commissioner himself should tell the Standing Veterinary Committee what he wanted to hear it conclude. I stress again the extent to which we are all involved in negotiating and discussing the subject. I certainly hope on behalf of the Government that the undoubted pre-eminence of SEAC in this entire field will be an influence on the European discussions.
As regards the handling of sheep today, I can reassure the noble Lord, Lord Carter, and other noble Lords that almost all sheep's heads are already kept well away from the food chain when sheep go to slaughter. So in a sense we are going out to consultation to implement the SEAC recommendation that sheep's heads should be treated in the same way as specified bovine material. We are merely formalising the existing practice—the status quo.
The noble Lord also mentioned calves. My general observation on that point is that with cattle there is very often better documentation as to the exact date of birth. That is not the case at the moment with the sheep flock.
4.8 p.m.
Lord Harris of Greenwich: My Lords, can the noble Earl say whether there are any public expenditure implications in what he has said today and, if so, what are they?
The Earl of Lindsay: My Lords, that point will become much clearer at the end of the consultation period that starts today. We shall be consulting all relevant parties. They will inform us of any expenditure implications in terms of the private sector. We shall also have to establish to what extent additional enforcement and monitoring might be involved. The pertinent fact is that, as nearly all sheep's heads are already kept out of the food chain, we are simply formalising an existing practice rather than demanding a new one.
Lord Bridges: My Lords, on this question of sheep's heads, can the noble Earl inform the House what steps the Government are taking to ensure that the brains of sheep and goats which appear to die from some form of encephalopathy are monitored and analysed? Do we not need to know whether these animals die from BSE or from scrapie?
The Earl of Lindsay: My Lords, the noble Lord asks a good question. A considerable and increasing amount of research is being done both on the consequences of the laboratory experiment that proved that BSE could be artificially transmitted to sheep and indeed on the scrapie disease itself. I can reassure the noble Lord that analysis of the results indicates there is no evidence that BSE is present in any of our national sheep flock. The testing of material from sheep with scrapie, a similar disease to BSE, has failed to identify anything other than scrapie itself.
Lord Soulsby of Swaffham Prior: My Lords, in view of the circumstantial evidence—or the lack of it—on the transmissibility of BSE to humans, causing CJD, which has resulted in the beef ban, does my noble friend agree that, on the basis of what is new and significant evidence on the transmission of BSE to sheep (even those genetically resistant to scrapie) and to mice, it is a realistic precaution to treat mutton in a similar way to beef? Does he also agree that the primary method of stopping BSE in both cattle and sheep populations in this country is the strict enforcement of the ban on the feeding of meat and bonemeal? Will he ensure that this is done effectively and that the appropriate manpower is provided for it to be so done?
The Earl of Lindsay: My Lords, I am grateful to my noble friend Lord Soulsby, especially because of the background from which he asks questions on such complex subjects. He referred to the evidence which has come forward as being new and significant. I do not want to disagree wholeheartedly with him but at the same time I stress that there is no evidence of our national sheep flock becoming infected with BSE under its natural circumstances and natural feeding habits. What there is evidence of is experimentally transmitted BSE, so I believe that those riders which I add to my noble friend's remarks are perhaps more significant.
The advice of SEAC has always guided us through the encephalopathy policy areas. Given its undoubted expertise in this whole area, the number of scientists and the amount of research that the committee draws together, and given that it includes vets and veterinary scientists who come from countries other than our own, we are and will always continue to be guided by it on the best recommendations we can bring forward.
My noble friend made a good point about the proper enforcement of MBM. Although there has clearly been some leakage since the 1988 ban on including ruminant protein in ruminant feed, the fact that we largely stopped that practice in 1988 and then closed off all remaining avenues earlier this year will help us to prevent any possible problems within our sheep flock. I would point out that it was only at the end of last year that France, for instance, decided that MBM should not be included in ruminant feed.
Lord Desai: My Lords, one of the things we should have learnt is that the way scientists perceive risks is different to the way people perceive risks. Although scientists may think there is a risk, it is the way we convey that information to the people that determines how people think. It is no good saying there is a one-in-a-million risk of getting CJD because for people who eat beef every day a one-in-a-million chance becomes magnified.
One of the great problems with this particular announcement is that even saying—as the noble Lord said—that we are only formalising the status quo alarms people because they have not been made aware of that. For example, if at the minimum level this had been described as something to do with mutton rather than sheep generically, the lamb market would not have

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suffered the price shock it did. If somebody had invented the mad mutton crisis that would very likely have got lamb off the hook.
However, I am making a serious point. We are not making sufficient distinctions of this kind. More alarm is spread than is strictly necessary. The next time we have a crisis like this, will the Government please take note of the fact that there is a lot of research available on risk perception in human beings, which is different to the way scientists calculate risk? If the noble Lord wishes I can give him many references on the subject because there is an important point to be made there.
The Earl of Lindsay: I am grateful that the noble Lord, Lord Desai, has focused on risk perception. Undoubtedly the longer term consequences of the supposition made by SEAC, both in March and again today—the first was made on no direct evidence whatsoever but merely on a likelihood, and that of today was made on the basis of experimentally transmissible evidence—have all arisen from the perception and understanding of the wider public of the risk that scientists seek to explain. I am sure the suggestion made by the noble Lord, Lord Desai, with regard to this area, is relevant.
The fact that I said that we were formalising the status quo is of great relevance because the danger otherwise is that the public may think that sheeps' heads have regularly and widely gone into the human food chain and that is not the case. SEAC has not concentrated on mutton any more than it has concentrated on lamb. It has concentrated merely on the brains of sheep; not even on the tongues of sheep. Sheep's tongues will still be available. Therefore, the thought of a mad mutton crisis, or that that might become a label that the press use, for instance, would be very misleading indeed because the simple scientific focus by the SEAC experts is on the sheep's brain itself.
Lord Gisborough: My Lords, we have had scares about eggs, about beef and about sheep. Could the noble Earl the Minister say to what extent there is now control so that these scares will not be followed by a scare about chickens, ducks and fish?
The Earl of Lindsay: My Lords, there are so many scientists in the world who need to feed the mouths of their children, as it were, and at the same time such great thirst among the media to suggest that things which we all find familiar are not as comfortable as we might have thought, that we are likely to have continued doubts cast on many of those things which we would otherwise trust.
I would refer my noble friend back to the remarks of the noble Lord, Lord Desai, about risk perception. If the Government are advised by experts that there is a potential threat to human health, they must act on the theoretical or potential risk if there is action that they can sensibly take. What happens thereafter is what the noble Lord, Lord Desai, articulated; namely, that the perception changes as it is interpreted by others.
The Countess of Mar: My Lords, is it not the case that sheep are very rarely fed on concentrates? In fact, lowland sheep are normally only so fed at lambing time. If no sheep has been fed with meat and bonemeal since 1989 and a sheep's life is perhaps nine or 10 years at the most, there should be no sheep in the national flock, in the food chain, that have been affected by BSE. Could the noble Earl confirm that please?
I should also like to know how it is proposed to keep a check on the possible spread of BSE in flocks. With BSE in cattle it is intermittent. You get two or three in a herd. I understand it is the same with scrapie in sheep. Many farmers, when their sheep die—and this is particularly so with hill sheep—leave them out on the hill for the foxes. Lowland sheep are very often sent to hunt kennels. I do not expect the Minister to be able to answer my final question immediately. Is there any indication of hounds in kennels suffering from encephalopathy as a result of eating sheep's brains? I imagine that the hounds in kennels eat the whole of the sheep.
The Earl of Lindsay: My Lords, I am not aware of any evidence of hounds suffering from encephalopathy. The best I can tell the noble Countess is that all scrapie controls are now under review, both in the UK and in a European context. We do not feel that there is a need to be unduly concerned about current practices because of the tight focus that SEAC have currently employed on the sheep's brain and its head rather than on other parts of the sheep's body.
In relation to the banning of meat and bonemeal in ruminant food, as the noble Countess pointed out, that was enacted in this country in 1988 and therefore, if that is a possible pathway of BSE in sheep as has been shown by experiment in the laboratory, then this country should show a much lower profile in terms of the threat that it poses than those countries which have not or only recently banned the use of ruminant protein in ruminant feed rations.
Lady Saltoun of Abernethy: My Lords, can the noble Earl say whether saddle of lamb, rack of lamb and lamb cutlets are going to be unobtainable?
The Earl of Lindsay: My Lords, I certainly hope not. The consultation paper published today will focus on the recommendation that only the sheep's head is kept out of the food chain, as is the case with sheep's heads at the moment. The noble Lady's rack of lamb remains safe for the moment.

Deregulation (Slaughterhouses Act 1974 and Slaughter of Animals (Scotland) Act 1980) Order 1996
4.22 p.m.
The Earl of Lindsay The Earl of Lindsay rose to move, That the draft order laid before the House on 12th February be approved [13th Report from the Delegated Powers Scrutiny ommittee].
The noble Earl said: My Lords, Britain has a long history of using legislation to provide safeguards for public health and animal welfare. However, there are some requirements which, although introduced for good reasons many years ago, are now outdated or have been superseded by the introduction of subsequent legislation.
The draft order before the House would repeal provisions of the Slaughterhouses Act 1974 and the Slaughter of Animals (Scotland) Act 1980 which no longer provide adequate protection or which are now outdated and provided for in other ways. In doing so the order will also remove burdens on slaughterhouse operators—a sector which is already well regulated—without compromising any of the necessary safeguards for public health and animal welfare.
I turn now to the detail of the order. There is at present a dual licensing system for slaughterhouses. Since 1993 slaughterhouses have been licensed by the appropriate Minister, under procedures introduced to meet Community obligations. However, under the 1974 Act there remains a continuing requirement for slaughterhouses to be licensed annually by their local authority. In Scotland there is a continued requirement for slaughterhouses to be registered by the local authority. The order would remove the burden of dual licensing by repealing the local authority licensing or registration requirements.
The order would also repeal the powers for local authorities to make by-laws in respect of the sanitary operation and management of slaughterhouses. Adequate safeguards already exist as those aspects are now covered by the new arrangements for licensing, hygiene and inspection to internationally agreed standards, and uniform enforcement arrangements now apply in all slaughterhouses.
Local authorities are currently required to take certain animal welfare requirements into account when issuing animal licences to slaughterhouses. To ensure that those important matters continue to be taken into consideration the order would amend the Fresh Meat (Hygiene and Inspection) Regulations 1995 to make compliance with the relevant requirements of the welfare at slaughter legislation a condition of the issue of a licence by the appropriate Minister.
The order would also provide for non-compliance with those animal welfare requirements to be a reason to revoke a slaughterhouse licence. Compliance with welfare requirements is monitored on a regular basis by the Meat Hygiene Service, and audited by the State Veterinary Service.
The order would remove two outdated burdens on slaughterhouse owners in England and Wales, restrictions which were never imposed in Scotland. First, it is proposed to remove the restriction on the use of part of a slaughterhouse as a dwelling. That prohibition was introduced to protect anyone from having to live in a slaughterhouse. No objections have been received to the proposal to lift that prohibition. In fact it has been welcomed as an opportunity to improve the security of slaughter premises. Should anyone want to live "above the shop", all appropriate planning, building and hygiene controls would continue to apply.
Secondly, licensed slaughterhouses and knacker's yards in England and Wales are obliged to display a legible sign in a conspicuous position stating that the premises are licensed. That requirement dates from food and drugs legislation of the 1930s and has its origin in public health controls of the previous century.
It has been suggested that that provision should be retained as people have a right to know where slaughtering is carried out. When the requirement was introduced there were many thousands of individual slaughterers. It is possible now to request lists of all licensed slaughterhouses or knacker's yards—which are many fewer in number—from the appropriate agriculture department. The right to that information therefore continues to be publicly available.
The order also provides an opportunity to correct an error in the Slaughter of Animals (Scotland) Act 1980. A revised definition of "slaughterhouse" was inserted into the 1980 Act by the Food Safety Act 1990, but that definition contained a drafting error which had the effect of imposing the same standards of construction on all premises where animals are slaughtered for human consumption.
That means that in Scotland any farm buildings where the occasional beast may be slaughtered for the owner's own consumption must meet the same structural standards as a commercial slaughterhouse. No such imposition has been made on the farming community in England or Wales. This order will lift that unnecessary burden.
Since it was first laid before Parliament in October 1995, this order has been the subject of careful study by the House of Commons Deregulation Committee and this House's Delegated Powers Scrutiny Committee. Subject to some minor points which have now been incorporated into the order, both committees recommended acceptance. I beg to move.
Moved, That the draft order laid before the House on 12th February be approved [13th Report from the Delegated Powers Scrutiny Committee].—(The Earl of Lindsay.)
Lord Carmichael of Kelvingrove: My Lords, I thank the Minister for his full explanation of the order. Following the last debate, he will be aware that the public need reassurance on the whole question of the slaughtering of animals. We had the problem in relation to beef, and now sheep's food, and the order does not seem to be well timed in that regard. The Minister suggested that the media have a thirst for "going over the top". Because of the timing of the order, they may have a field day tomorrow. However, the Minister's explanation by and large was very full.
I am concerned about a number of points. When the local authorities lose control, how will the order affect the frequency of inspections? Will not there be a loss of local knowledge in regard to the people who work in the abattoirs and slaughterhouses? Will they now be a little removed from the inspectors? As I said, the public need reassurance and I hope that the Minister will make the point that the frequency of inspections will he just as rigid as it is now.

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Is the order introduced not only to tidy up the legislation in relation to slaughterhouses, but also to save money? That seems to be another of its objects. Finally, on the question of slaughtering cattle, I know that the right for owners to slaughter cattle is an ancient right, but that was perhaps more acceptable when farms were more remote and transport was very bad. The situation is different now when one can slaughter an animal in Campbeltown or in the wilds of Kintyre and have it in the city markets extremely quickly. Can the Minister say what control there will be over that? I speak as someone who does not have anything like the knowledge held by the farming community or the Minister, but these are the kinds of worries that the public have. Otherwise, I have every faith that the Minister is doing his best with the knowledge and information that he has. However, I would like some explanation if he can help me on that.
The Earl of Lindsay: My Lords, I am grateful for the general welcome that the noble Lord, Lord Carmichael, gives to this order. I agree with him that every opportunity is needed to reassure the public as to the safety of food and their own health. In moving the order, I hope that I stressed the fact that at no stage in any part of this order are public health or animal health being compromised. We are merely removing duplication where later requirements and measures, with which the industry has to comply, supersede existing and earlier measures.
As regards the frequency of inspection, the Meat Hygiene Service and the State Veterinary Service carry out ever more frequent inspections on the entire industry. Since 20th March there has been a large increase in resources available to the Meat Hygiene Service. It was established in April 1995 as a single agency to enforce hygiene in slaughter in all licensed slaughterhouses. One of its main objectives was to do so consistently across the United Kingdom. It was felt that there was some lack of consistency when each local authority was in sole charge of the operation. The official veterinary service and the meat inspectors are present in all slaughterhouses. That can certainly reassure the noble Lord as regards the principal concern that he had in this area.
The noble Lord was also worried about the loss of local knowledge if some of the local authority controls were removed. The repeal of that power does not affect any other by-laws and neither does it affect planning controls. The local authorities will continue to have the opportunity to be involved to the extent that they feel necessary in the operation of local slaughterhouses. The order is not designed purely to save money; it is designed to save unnecessary bureaucracy and duplication. Where the same job is being done twice we seek to save on bureaucracy and resources and put them to better use.
The noble Lord also asked about owners' private kills. I can reassure him that owners and farmers and others making use of private kills, have to comply with all normal hygiene and animal welfare requirements. It is also worth mentioning that we as the Government
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recently sought views from interested organisations on the continued availability of the private kill provision. We have received a range of responses on that and we shall be considering them very carefully.
On Question, Motion agreed to.

Pneumoconiosis etc. (Workers' Compensation) (Payment of Claims) Amendment Regulations 1996
4.35 p.m.
Earl Ferrers Earl Ferrers rose to move, That the draft regulations laid before the House on 16th July be approved [28th Report from the Joint Committee].
The noble Earl said: My Lords, I begin by offering my sincere apologies, and those of my department, to your Lordships, for drawing on the patience of the House again to consider these regulations. They were originally laid before the House on 27th June and they were debated by your Lordships on 9th July and by another place on 16th July.
It was during the proceedings in another place on 16th July that it was pointed out by the honourable Member for Makerfield, Mr. McCartney, that the figures in Regulation 2(c) were incorrect. That caused some concern. It was found that a mistake had been made, but it was not possible at that point to tell another place what the correct figure should be.
That being the case, it was decided to withdraw the original draft statutory instrument and to lay a corrected draft. The corrected regulations were therefore laid before the House on 16th July. This will enable the regulations to come into force on the date originally intended of 1st August.
The regulations are being made under the Pneumoconiosis etc. (Workers' Compensation) Act 1979. The purpose of the regulations is to increase by 2.1 per cent. the amounts of compensation which are paid under the Act to those who first satisfy all the conditions of entitlement on or after 1st August 1996.
Regulation 2(c) of the draft statutory instrument had originally stated:
"in regulation 6(1) (payment where pneumoconiosis is accompanied by tuberculosis), for the amount of £3,575 there shall be substituted the amount of £3,650".
The figure of £3,575 was incorrect. The figure should have been £3,654.
Your Lordships may say that the mistake was rather like the housemaid's baby—it was only a small one. Nevertheless, it should not have been made and I apologise for the fact that it was. With an increase of 2.1 per cent. the figure of £3,650 now becomes £3,731. The regulations before the House today have been amended accordingly. I apologise again to your Lordships for the fact that I ask your Lordships to consider this matter again but, nevertheless, I hope that noble Lords will approve the regulations. I beg to move.
Moved, That the draft regulations laid before the House on 16th July be approved [28th Report from the Joint Committee].—(Earl Ferrers.)
Lord Graham of Edmonton: My Lords, I thank the Minister for advising me as soon as he could that this procedure would take place this afternoon. He has acted entirely properly and put right what was clearly an oversight, for which he has apologised. With the error being on the right side, we have no objection to the order coming forward again. As the noble Earl said as regards the baby being only a small one, all these things are conceivable.
Noble Lords: Oh!
Lord Graham of Edmonton: My Lords, we on these Benches recognise that it is an error which has been put right as quickly as possible for the benefit of those who have great problems. We are grateful to the Minister.
On Question, Motion agreed to.

Occupational Pension Schemes (Mixed Benefit Contracted-out Schemes) Regulations 1996
4.37 p.m.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish) rose to move, That the draft regulations laid before the House on 18th June be approved [24th Report from the Joint Committee].
The noble Lord said: My Lords, on behalf of my noble friend Lord Lindsay I beg to move this order. I am sure that it is for the convenience of the House that we also deal with the draft Occupational Pension Schemes (Pensions Compensation Board Limit On Borrowing) Regulations 1996 laid before the House on 18th June and the draft Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, which were laid before the House on 26th June. These regulations are an integral part of the package of measures set out in the Pensions Act 1995.
Pensions are one of the most important ways in which people hold a stake in this country. Almost £600 billion is invested in private pension funds—more than the rest of the European Union put together. We are committed to building on that success.
It is essential that we continue to provide an environment in which private pension provision can flourish. The Pensions Act will play a major part in this. It will give people the security they need to invest for their retirement. It will also introduce greater flexibility for contracted-out schemes so that they can provide benefits in the way that best suits them and their members.
Perhaps I can explain each of the orders in turn. I begin with the Pensions Compensation Board limit on borrowing regulations. Next April the measures in the Pensions Act will introduce a strengthened legal and
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regulatory framework for occupational pension schemes. As I have said, this will improve the security of members' pensions. However, no regulatory system can provide an absolute guarantee against a determined criminal. The new pensions compensation scheme will act as a longstop. Where, as a result of dishonesty, the value of a scheme's assets is reduced and there is no employer to stand behind the scheme compensation can be paid. The compensation scheme will be operated by the Pensions Compensation Board. The board will have responsibility for determining whether compensation is payable, and how much can be paid. The board will come into being on 1st August 1996. It will be chaired by Dr. Julian Farrand, who is also the Pensions Ombudsman.
The board will need to be able to meet urgent calls for assistance and act quickly to limit any financial hardships to scheme members. But it would be undesirable for the board to build up large reserves as a contingency against valid claims. Therefore it needs to be able to borrow from recognised financial institutions. Its borrowing powers will be activated from 1st August, and this will enable the board to raise funds to meet its start-up costs.
The regulations before the House today propose setting the statutory maximum amount that the board may have outstanding in respect of any money borrowed at £15 million. It is not expected that the board will generally need to borrow large amounts. It has levy-raising powers. However, we recognise that the limit needs to be sufficiently high to ensure that urgent and significant calls for help can be met should they arise. The borrowing limit is one control to ensure that the compensation scheme remains affordable. We can also set the maximum amount of the annual levy. As the board is a public body its finances will be subject to government accounting rules and there will be a financial memorandum with the board. In addition, the Comptroller and Auditor-General will audit the board's accounts. The proposed statutory borrowing limit is set at a realistic and affordable level and effective controls will be in place to ensure that the board maintains the highest standards of propriety, regularity and value for money.
I now move to the regulations on contracted-out mixed benefit schemes known as "COMBS". These regulations will enable a single occupational pension scheme to contract out of SERPS on both a salary-related and money purchase basis. Present legislation requires employers who run contracted-out schemes to provide either salary-related benefits or money purchase benefits. They cannot have both types of contracted-out rights in one scheme. A scheme can change the basis on which it contracts out only if the scheme trustees first discharge their liability to pay accrued contracted-out benefits. These new regulations will enable schemes to hold two kinds of contracting-out rights in one scheme. From 6th April 1997 new schemes can elect to contract out as COMBS from the outset. Existing schemes already contracted out on a purely salary-related basis will be able to elect to become

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COMBS from the same date. The option will be extended to cover existing contracted-out money purchase schemes one year later, from April 1998.
Our aim is to maintain the attractiveness of contracting out for employers by allowing them greater flexibility to respond to changes in the financial environment, the labour market and the pattern of pension provisions. Scheme members will also benefit. This will be particularly true where they are free to choose which part of the scheme to join, and whether to move from one part to the other. These new flexibilities will also broaden the options which employers have when designing and setting up a contracted-out scheme.
We have tried to keep the provisions as simple and as easy to understand as we can by sticking, where possible, to the existing rules for contracted-out schemes. Therefore, broadly speaking, members of the salary-related side of the scheme will be subject to the salary-related provisions of the main contracting-out regulations, and members of the money purchase side will be subject to the relevant contracted-out money purchase provisions. The employer will also be spared the need to get to grips with a completely different set of procedures when deciding to go down the COMBS route.
Where an internal transfer takes place, the regulations set out the basic requirements with which schemes must comply. We have specified the minimum necessary in order fully to safeguard the rights of members. These contracted-out mixed benefit schemes are a new concept. We shall monitor them closely to see that they are working as intended. But the industry has asked us for them and we expect them to be welcomed as a more flexible contracting-out option.
I turn to the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations. They deal with requirements on trustees to obtain audited accounts and a statement from the auditor as to whether contributions have been paid correctly and on time. For ease, perhaps I may simply call them "audited accounts".
Auditing provides an independent view on whether accounts show a true and fair picture. Audited accounts are, therefore, one of the most important controls to ensure pension scheme security. The requirement on pension schemes to have audited accounts was first introduced in 1986. The 1996 regulations update this existing requirement. We have made two significant changes to reflect the importance that we attach to audited accounts. First, trustees will have to obtain them within seven months of the end of the scheme year. This compares with 12 months allowed under existing regulations. It means that they will be available to scheme members much sooner. Secondly, they introduce a criminal sanction on trustees who fail to obtain audited accounts. This brings the requirements on pension scheme accounts more into line with those on company accounts. On summary conviction, trustees will be subject to a fine not exceeding £5,000.
These regulations strengthen the financial control of pension schemes. They will increase the security of occupational pension funds without imposing unreasonable burdens on employers.
In conclusion, we need to ensure that funded pension provision can continue to flourish into the next century and beyond. As part of a wider package of pension reforms, the regulations which I bring before your Lordships today will make an important contribution to this process. I commend them to your Lordships.
Moved, That the draft Regulations laid before the House on 18th June be approved [24th Report from the Joint Committee.]—(Lord Mackay of Ardbrecknish.)
4.47 p.m.
Baroness Turner of Camden: My Lords, I thank the Minister for his detailed explanation of these regulations. All of them have been accepted in the other place. It is not our custom to oppose regulations in such circumstances; nor do we want to do so in respect of these regulations. There are, however, some points relating to the regulations laid under the Pensions Act which I believe should be made.
First, the Minister will not be surprised to hear from me that some noble Lords are concerned about the general weight of regulations under the new Act. Comments to this effect have already been made by organisations which are active in the pensions industry. I am glad that I am not a professional engaged in the administration of an occupational pension scheme.
At the outset, I accept that this issue is not an easy one. It is desirable that scheme members should have as much protection as possible because their investment in a pension scheme is probably the most important one that they will make and is second only to their investment in house purchase. It is in the interests of everyone that that investment should be properly protected. It is a question of getting the balance right and having sufficient regulation to protect scheme members and their expectations while at the same time not having a regime which is so complex that employers deem it not worth their while to have an occupational scheme at all, thus driving more and more people into personal pensions where their future may not be as assured as it might be under a good occupational scheme—or perhaps they may have no provision at all.
I know that it is the policy of the Government to persuade people to take out private personal pensions, but many have little notion of how much they need to contribute to produce a pension of reasonable size when they reach pension age. Good occupational provision is still the best way to provide for large numbers of people. Very complex legislative requirements may have the effect of inhibiting the growth of such provision. The number of new final salary schemes has already fallen dramatically. It is my understanding that virtually all of the new occupational schemes are money purchase schemes. I am sure that the Government have been advised by the National Association of Pension Funds of its concerns about the complexities inherent in the procedures relating to mixed benefit schemes.

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The Minister has been good enough to explain in detail what on the surface appears to be a somewhat complex situation. I am grateful to him for his explanation this afternoon. I understand that the provisions will require members who want to transfer from money purchase to final salary or whatever to give their consent in such circumstances. Of course there is no objection to that, but the regulations are complex. I am glad that the Minister has said that it is the intention of the Government to make them as simple as possible in the circumstances.
With regard to audited accounts, of course there can be no objection whatever to that requirement. It is perfectly right and proper. However, I raise one point about lay trustees. It is right that there should be member-nominated trustees. We had a good deal of discussion about that matter when we debated the Pensions Bill in this House.
The responsibilities of trustees under the new Pensions Act are considerable. The regulations contain references to such responsibilities, including a provision for fines if they are not complied with. The Minister has referred to that this afternoon. That is all right, I suppose, and I am not complaining about it, but it seems to me that trustees should have some training for the tasks that they will need to perform. I believe that such training should be mandatory in the interests not just of the trustees but of scheme members so that their interests can be protected adequately.
I know that the regulations are not about trustees or their training, but they present another opportunity to put this point to the Minister yet again. I shall be grateful for any response he feels he can make. However, having said that, we offer no opposition to the regulations. They are, in the main, to the benefit of scheme members, and to the whole matter of the safety of members' investments in occupational schemes. We wish them well.
Earl Russell: My Lords, the Minister may be glad to hear that on this occasion I believe that he has succeeded in doing something which is not controversial, which may save us a little time. However, I hope he will forgive me for mentioning, extremely briefly, one business matter about which he may wish to talk further in the future. I have given him notice of this point.
I have today just put down a Motion in "no day named" to move to resolve that the proposed sale of DSS benefit offices shall not proceed until the House is satisfied that adequate arrangements are in place to preserve ministerial accountability for the delivery of benefits.
I hate introducing business late in July, but if the Secretary of State bowls at my middle stump I have to play a stroke, even if it is the last ball of the day. So I hope that the Minister can assure me that no decision on this matter will be taken until the usual channels have had a chance to consider it. I know that he cannot anticipate the decision of the usual channels, but if he can tell me that no decision will be taken until the autumn when the usual channels are flowing again, that would be all I could legitimately ask him.
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On these regulations, I agree entirely with what the noble Baroness, Lady Turner of Camden, said about their complexity. I believe that there is unanimity in the House about the need for and propriety of insisting upon proper audited accounts. But if noble Lords look at the schedule of the regulations, they will see that they are pretty complicated. There are specific headings according to which the accounts must be divided. If I know anything about accounting material, which is not much, it is that it never divides quite according to the headings under which it is meant to divide.
I agree with what the noble Baroness said about training. I hope that the Minister can also assure us that this method of dividing the material has been a matter of the fullest consultation with the industry, and will continue to be so.
I accept entirely the Minister's explanation of the borrowing limit of the Pensions Compensation Board. I should be glad to know if he can tell me how the figure of £15 million was arrived at. Why not £12 million? Why not £18 million? No doubt there was a reason, but I should like to hear it.
On the contracted-out regulation, I must declare an interest, since, if I do not encounter the proverbial bus, I hope to benefit from them in due course. Having said that, I have nothing further to say about them.
Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Baroness, Lady Turner of Camden and the noble Earl, Lord Russell, for the welcome that they have given to the regulations. They are as familiar as I am with the debate we had on the Pensions Bill. We have all been over these matters on a number of occasions.
I say, first, to the noble Earl, that there has been considerable consultation with the industry not just on these three regulations but on all the other regulations that we are bringing forward. Indeed, there are usually two sets of consultations. There is an initial one, and then we pretty well always put out another consultation when we have come to a decision in the light of the previous one, just to ensure that we have the position right, because these are important issues. This is an important industry, and we want to take it along with us.
I know, as the noble Baroness pointed out, that there are a number of suggestions going around that we are over-regulating in this field. Although she did not use the figure, I have been accused of producing 1,000 pages of regulations. I sent my officials off to have a count, and I am told that we have managed to achieve 400, which is an increase on roughly 300. However, in my defence let me say that many of those pages will not be in the least relevant for many schemes because it will depend upon which kind of scheme is being operated. Many pages in the regulations deal with matters such as the winding up of schemes, which fortunately does not happen often, and therefore the great majority of schemes will not have to get to grips with them. It is not quite as bad as has been suggested.
Having said that, I am well aware of the desire in the industry to keep the burden of regulation as low as we can. That is what I have attempted to achieve with my

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officials throughout the work since the Pensions Bill completed its stages. We have attempted to balance the need for security for members of the scheme with the need to ensure that we do nothing to inhibit employers from running the schemes.
I am as keen as the noble Baroness to see employers continue to run schemes, and to start new schemes. It is not an either/or situation. Both employer led schemes and personal pensions have important parts to play because not everyone can get into an employer's pension scheme, because not all employers run them. I want to underline the point that we are keen to see employers' pension schemes continue. The last thing we want to do is to give employers the feeling that they are being so over-regulated that they would rather not bother to continue to run their schemes. We are at one on that.
The noble Baroness—not to my surprise, I may say—brought up the subject of training for trustees. We had a considerable debate on that subject. We differed on whether there should be mandatory training. As I recall it, my view on the matter prevailed, and we do not have mandatory training. However, we have provision for people to have adequate time off their work for training. There are a number of training schemes available. We have gone a long way towards ensuring that people can have training by having paid time off their work in order to do their training. We believe that that is important.
Just a fortnight ago I addressed a northern pensions conference at Newcastle. The bulk of the audience was drawn from the trades unions and people who are involved in being trustees. So a great deal of work is being done on the subject, and I am sure we all welcome that.
I was asked whether £15 million for compensation was the right level. I suppose my answer is, how long is a piece of string? It was the illustrative estimate made for the Pensions Act compliance cost assessment. We arrived at it by looking at the number and size of the compensatable events that might occur on average in each year over a 20-year period. We made adjustments for any recovery of assets that we might hope to achieve.
We hope that the actual cost will be much lower, particularly in the first year or two of the scheme, as the reduction in assets must have taken place after April 1997. Of course we cannot rule out that the board might at some stage have to meet a significant claim, and to do so quickly, if pensions in payment are to continue. So that is how we arrived at the figure.
As to the other point the noble Earl made, I have to say that as it is well outside the context of these regulations, I have noted what he said.
Earl Russell: My Lords, before the Minister sits down, it would be for the convenience of the House, since it is due to rise so soon, if he could give me a rather more precise answer than merely noting what
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I said. I do not want to take up the time of the House unnecessarily just before it rises, but if he could save us all that trouble I should be very grateful.
Lord Mackay of Ardbrecknish: My Lords, I always like to be helpful but I am in some difficulty because I shall be straying not only a mile or two but many miles from the regulations. Perhaps I may recommend that the noble Earl discovers what I said today on "The World at One" about the timetable of the project. He will then understand that not a great deal will have happened by the time the House returns.
On Question, Motion agreed to.

Occupational Pension Scheme (Pensions Compensation Board Limit on Borrowing) Regulations 1996
5 p.m.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish rose to move, That the draft regulations laid before the House on 18th June be approved [24th Report from the Joint Committee].
Moved, That the draft regulations laid before the House on 18th June be approved [24th Report from the Joint Committee].—(Lord Mackay of Ardbrecknish.)

Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish rose to move, That the draft regulations laid before the House on 26th June be approved [25th Report from the Joint Committee].
Moved, That the draft regulations laid before the House on 26th June be approved [25th Report from the Joint Committee].—(Lord Mackay of Ardbrecknish.)

"An EMU of 'Ins' and 'Outs"': ECC Report
5.1 p.m.
Lord Barnett Lord Barnett rose to move, That this House takes note of the Report of the European Communities Committee on "An EMU of 'Ins' and 'Outs'" [11th Report, HL Paper 86].
The noble Lord said: My Lords, I have never been so delighted to move a Motion either in this House or in the other place. I wish to begin by thanking the members of my sub-committee for their help and support in the preparation of the report. I am grateful to them and to members of the Select Committee too. Perhaps I may welcome in advance the maiden speaker, the noble Lord, Lord Sheppard of Didgemere. We all look forward to hearing his speech today.
I will not bore your Lordships by reading out the terms of reference for debate. They are clearly set out in paragraph 3 of the introduction. The terms of reference do not ask whether there should be an economic and monetary union but what would be the consequences for us whether we are in or out. We believe that that is probably the most important subject which needs to be discussed at the moment.
I am sorry that we did not go into the main issue of whether or not we should join because personally—and I emphasise "personally"—I should have liked to have said a number of things. For example, I should have liked to have said that this week's ministerial resignation was irrelevant to the serious questions that we raised in our report. Even having read the Minister's document, I still believe that his resignation is irrelevant to the points that we raised.
I should also have liked to have said—I could not because it was outside the terms of reference, but I shall say it nevertheless—how much I regret the damage done to our influence by the so-called "beef war". Perhaps I may say to my noble friend on the Front Bench that I regret my Front Bench's support for that so-called war. I found it humiliating to see a British Foreign Secretary treated by all 14 other member states as a kind of petulant child. It embarrassed me and it should have embarrassed many others. I do not believe that it helped to achieve the good will that we shall need in our negotiations with the Community.
I emphasise that that is my own view and has nothing to do with the terms of reference. However, in my view we will have no influence outside an economic and monetary union if seven or eight member states decide to join. It would be in our own interest to join as soon as we have a sustainable convergence within the Maastricht Treaty. I say that despite misgivings about the way in which the European Central Bank might work.
Perhaps I may re-emphasise that those are not the views of the committee but they are my views. Having briefly upset members of my committee and perhaps others by being slightly controversial, I shall turn to the terms of reference. Volume II, which contains the evidence, was mixed—and I put it no higher than that. That may be understandable because, for example, we had evidence from the noble and learned Lord, Lord Howe of Aberavon, and the noble Lords, Lord Jenkins and Lord Tebbit. Your Lordships will not be too surprised that the evidence that we received was mixed. Perhaps I may say in passing that the evidence was excellent on all sides, whether one agreed with it or not. In the interests of time I propose to deal only with our conclusions, which are set out in Part 5.
Perhaps, in fairness to two members of my committee, I may say that although it may appear that there was unanimity, there were a large number of amendments but none was pressed to a vote. Your Lordships will not be surprised to learn that many of them came from my noble friend Lord Bruce of Donington and the noble Lord, Lord Boardman. I am happy to say that, after debate, they decided not to press their amendments to a vote. I and all members of my
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committee regret that my noble friend Lord Bruce of Donington will not be a member after the end of this Session for what one might call technical reasons. I am most sorry about that. He is usually knowledgeable on the subject of the Community and he was most helpful to us, even though occasionally I disagreed with much of what he said.
We received a memo from the Chancellor dated 15th July in which he referred to a memorandum dated 5th December. In fact, that was the date on which he gave evidence to us. Apparently, there was a small error on the part of the Treasury because the memorandum to which it referred was dated 13th November. Whatever the dates, I was extremely disappointed in the Chancellor's memorandum. To say "disappointed" is putting it mildly. I can assume only that it was perhaps written by some "kids" in the Treasury! I do not know, but it is a most disappointing memorandum and during the course of my remarks I propose to raise some of the omissions. I hope that the Minister will be able to reply to that at the end of the debate.
I believe that the noble Lord, Lord Mackay of Ardbrecknish, should be entitled to overtime. Working for the Department of Social Security and the Treasury must be a burden for him. If as a result of pressure from me he does not receive overtime I hope that someone else will consider the proposal.
The first question we raised at paragraph 112 was whether EMU will go ahead at all and, if so, when. We believe that there is a political momentum for it to go ahead on 1st January 1999. I should be interested to know whether the Government agree because that was not in the memorandum.
The crucial next question, which appears in paragraph 113, is which countries are likely to join? The committee believed that there would not be a start unless France and Germany joined. Indeed, a number of others might not meet the convergence criteria set out in the Maastricht Treaty. A great deal will depend on whether there is a looser or stricter interpretation of the convergence criteria. We do not yet know what will be the case but perhaps the Government do. I hate to pile questions on the Minister. I do not ask him as a Minister in the Department of Social Security but I ask him as a temporary Minister in the Treasury whether he will give us the Treasury's view on these matters.
We then asked in paragraphs 114 to 116 whether EMU will work well. There are three main issues for the "ins". The first issue is whether and how quickly the European Central Bank will establish credibility comparable to that of the Bundesbank. Secondly, how well will EMU cope with the high or differing levels of unemployment and with asymmetric shocks? Thirdly, to what extent will EMU lead to further constraints on national taxation and public expenditure? Incidentally, as regards those two issues—that is to say, the tax and the spending argument—I should emphasise that they will remain matters for national governments, whether for the "ins" or the "outs". Of course, the "ins" will need to keep within the convergence criteria.
The effect of EMU on the "outs" depends on whether it works well or badly for the "ins". There will clearly be a spillover effect from the "ins" and it will depend

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partly on whether the pursuit of the convergence criteria by the "outs" will lead to more sustainable prosperity or whether they will fall behind the advancing "ins". That will be a matter for the "outs" who will retain autonomy to be responsible for the outcome as it affects them. Again, I should be interested to know the Minister's view—if there is a government view—on that matter.
Next is the question of unemployment to which we refer at paragraph 117. We believe that EMU is neither deflationary nor likely to reduce unemployment. It will depend on whether the European Central Bank can achieve price stability and whether national governments can achieve a high level of employment. Both objectives are enshrined in the treaty. Again, I should be interested to know whether the Government agree with that conclusion which we reached.
Next, and perhaps the most important issue for an "out" is the implications for the single market, for that is the most important benefit to the UK. That is referred to at paragraphs 119 to 123. If we are out, how should we be affected? Discrimination itself would be illegal and the Commission has indicated that it would act to prevent such discrimination. On the other hand, as we point out, simple delaying tactics would be more difficult to prevent; that is, covert discrimination, to which we refer at paragraph 120. Again, I should like to know what the Government have in mind to do in those circumstances if they agree with our conclusions.
The risks to the single market seem to the committee to be greatest in two circumstances. The first is where there is real exchange rate instability between the "ins" and the "outs"; and for the "outs", the best defence would be to achieve sustainable convergence. Indeed, the Minister who is to reply to the debate said that in answer to a question which I raised last week. He said that the Government would seek to achieve sustainable convergence. But of course, if we have that sustainable convergence, by remaining out, we should relinquish the greater influence which would be available to us if we were within EMU.
The second area where the single market would find itself in difficulties is where member states meet the criteria but are unwilling to join. That may apply to the UK. I say "may" because whereas at one time it looked as though we were certain to meet the Maastricht convergence criteria, given the levels of our PSBR as set out in the recent summer economic report, it is now no longer quite so certain. Again, I should be interested to have the Minister's comments on that.
Trade with the rest of the world is a very important matter for us. If the UK stays out of EMU, would we be affected by the extent to which EMU influences general competitiveness? It is very important that we should know what is likely to happen in those circumstances. In paragraphs 124 to 127, we refer to possible shifts in market preference, particularly at paragraph 127. We are happy to see that there has been some very useful and excellent inward investment recently. But in the event, that would be influenced by perceived stability of the economic environment compared with the Euro area.
Clearly one factor would be an assessment by investors of the likelihood of barriers and obstacles against the UK if we are outside. We cannot be confident that there will be no such obstacles. Indeed, recently lain Vallance, the chairman of BT, said that retaliation is definitely on the cards and there are enough people talking about it already. Again, I should be interested to know what is the Minister's view on that matter.
As regards the City, the committee believes that it will remain an international financial centre whether we are in or out. But either way, it will very much depend on the City being well prepared for all eventualities.
I turn now to the implications for the exchange rate, which are set out at paragraphs 128 to 131 of the report. If the UK is out, much depends on whether we join a new exchange rate mechanism, if there is one. In discussion, it has been called ERM2. It is not easy to see what will happen if there is an ERM2. If there are narrow bands, that would clearly invite a challenge from the market. If there are wide bands, it would have little practical effect. Therefore, we clearly do not know whether or not there will be a second ERM. In his memorandum to which I have referred, the Chancellor said that there would be an ERM but membership would be voluntary. We have already been told that the Prime Minister was not inclined to join an ERM again after the trouble he had before. But whatever happens, it is vital that the markets believe in exchange rate stability between ourselves, if we are out, and the rest of the European market. There would have to be a recognition that we did not have it in mind to devalue on a regular basis. We were told by a senior Treasury official that of course devaluation is not a free lunch. We were of course aware of that but he confirmed it for us. It seemed to the committee that the best way to avoid having a fear of devaluation on our part, if we were out, would be by achieving the sustainable convergence to which I referred earlier.
The next item to which we referred in our report is at paragraphs 132 to 134; that is, the implications for the European Union budget. After EMU, the pressure to increase fiscal transfers between the "ins", or from the "ins" to the "outs", would be considerable, but there would be little chance of that happening in our view because it would be resisted both by the Commission and member states who are net contributors to the European Union budget. There would also be other constraints because of the very small size of the European Union budget in relation to national budgets, and bearing in mind that that European Union budget can be increased only by a unanimous vote of the Council. Again, I should welcome the Minister's views on that.
I turn next to the implications for institutional arrangements set out at paragraphs 135 to 138 of the report. I doubt, and the committee doubted, whether the Waigel proposals for automatic sanctions would be acceptable to anyone. Certainly they would not apply to the "outs" in any event. I should be glad to hear the Minister confirm that that is the Government's view.
As regards the informal and political implications which are referred to at paragraph 139, if we decide to opt out, future relations between the UK and the rest of the European Union will depend on whether there is a climate which is friendly and not bitter—something to which I referred earlier. We believe that it is in the UK's interests that a decision to "wait and see" should be seen as a genuine postponement and not as a disguised final rejection of economic and monetary union. That is a most important matter and, again, I should welcome the Minister's view on that.
I tuna now to enlargement as set out in paragraph 140 of the report where the committee states that EMU and enlargement are not alternatives; one is not conditional on the other. Each should be "treated on its merits". Again, I would welcome the Minister's response. Then there is the question of qualification for later entry which the committee set out in paragraphs 142 and 143. Of course, it is possible that the "ins" might have it in mind to risk setting in front of us greater hurdles, thus making membership of ERM2 a condition of adherence to any fiscal stability pact that they decide upon. Again, I would welcome the Minister's view as to whether such hurdles are likely to be set for us.
Finally, policy preparations, if we do not join, are set out in paragraphs 144 and 145. They relate to how credible our monetary policy would be. Unless credibility is achieved in that respect, it was made quite clear to us in evidence that interest rates would be higher. We thought that at least the Bank of England could be responsible for price stability, and that the case for independence needed to be examined as soon as possible. Again, I would welcome the views of the Minister.
In paragraphs 146 and 147 of our report we refer to the technical preparations, whether or not we join at the outset. I am pleased to see from paragraph (3) of the Government's memorandum that they are committed to being fully involved. Yet, while they want to remain fully involved, they are not prepared to do much about it. The City needs to prepare now for the introduction of EMU, and a widespread perception needs to be established of the need for co-ordination through a national body. The Government are unwilling to set up such a body, but it is good to see that the Bank of England is at least aiming to provide a necessary degree of co-ordination. It is important to the City that that progress should be kept under review. I have given what I believe to be a brief summary of our conclusions. Indeed, I hope and believe that it is a balanced report which will be acceptable to your Lordships.
Moved, That this House takes note of the Report of the European Communities Committee on "An EMU of 'Ins' and 'Outs'". [11th Report, HL Paper 86].—(Lord Barnett.)
5.21 p.m.
Lord Howe of Aberavon: My Lords, I am sure that I speak for the whole House when I express my gratitude to the noble Lord, Lord Barnett, for his chairmanship of the committee and his lucid presentation of the report. I should also like to thank the
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noble Lord's colleagues for the report which, as they say, touches matters that are of such importance that they affect our future for a generation or more. I am also grateful for the opportunity of today's debate, not least because it gives the House the opportunity to hear the maiden speech of my noble friend Lord Sheppard of Didgemere, to which we very much look forward.
The noble Lord, Lord Barnett, went a little way, but not too far, towards disavowing the unanimity of the report. It is important that such a broad spread of opinion was able to reach at least two very important conclusions. The first is that for certain key economies within the Union EMU is now moving from a dream to a probability with far-reaching implications for this country whether we are in or out. There should be small wonder at that when one reflects that almost two-thirds of our trade is now conducted with fellow Union members.
The second important conclusion of the report is that it is overwhelmingly in this country's interests actively to prepare for that eventuality coming to pass. We need first to influence the shape of the system which is likely to emerge. We must ensure that our voice is heard, and the committee clearly endorsed that view. In fact, during the past year alone, we have been able—thanks to the Government's commitment to that effect—to make vital contributions to the debate. The "ins" and "outs" issue with which the committee was concerned is on the agenda. We have ensured by government participation that ERM 2, if it happens, will remain voluntary. We have secured a commitment that EMU does not justify the more active Community budget. So participation has already had an effect.
Moreover, the committee says quite plainly that we need to prepare for the impact of the Euro on our own economic and industrial future and, above all, on the future of our financial service industry. The committee is also quite right to say in paragraph 127 of the report that,
"the City's future as a financial centre for the Euro market depends on preparing for EMU thoroughly and in good time, whether the United Kingdom eventually decides to join or not".
That is a most important conclusion coming from a committee with such authority.
Before I say anything more about the future, perhaps I may reflect for a few moments on the other observation made by the committee; namely, that the debate has been characterised for far too long more by,
"partisan feeling than by thoughtful analysis".
I have always believed that citizens and businesses are entitled to look to government to maintain the value of our currency and, so far as possible, to achieve exchange rate stability outside our country.
At one time the gold standard achieved that aim. For more than a quarter of a century Bretton Woods went a long way towards achieving it. It is no surprise that, within five years of the collapse of Bretton Woods, Arthur Burns—not a very Keynesian character—was calling for a return towards a rule of law for international monetary relationships; and that, in less than 10 years, President Giscard d'Estaing, Chancellor Helmut Schmidt and the then president of the

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Commission, the noble Lord, Lord Jenkins, were putting in place the exchange rate mechanism to achieve just that within the European Community.
People sometimes forget that the manifesto on which Conservative candidates fought the European elections in 1979—a manifesto agreed at the time with the then Prime Minister and myself—contained the following passage:
"We regret the Labour Government's decision … not to become a full member of the new EMS. We support the objectives of the new system, which are currency stability in Europe and closer co-ordination of national economic policies, and we shall look for ways in which Britain can take her rightful place within it".
For me it is almost the greatest sadness of my life that our failure to fulfil that commitment in what I think were the right circumstances in 1985 and the decision five years later to do so in wholly inappropriate circumstances were perhaps the most far-reaching errors—indeed, apart from the poll tax, perhaps almost the only errors—of the Administration in which I served under the leadership of my noble friend Lady Thatcher. Had we been effective participants in the system as we had promised we would be, at least three more far-reaching hazards might have been averted.
First, I believe that we would have avoided the hugely damaging humiliation for this country—and, indeed, for Her Majesty's Government—of Black Wednesday. Secondly, we would have avoided the wider damage done that day to the effectiveness and credibility of the European monetary system. Thirdly, had we been long-term participants in the system, we might well have prevented the premature rigidity of the Delors plan for a move to a single currency which has to some extent overshadowed the debate ever since.
Even so, the fact which the committee now brings firmly to our attention is that—despite those setbacks, which have done so much to undermine our national self-confidence—the probability is that our partners will go ahead with the establishment of EMU and that the Euro is more likely than not to come into existence. As the committee points out, in those circumstances we will not be able to escape the proximity of the Euro zone within the European Union market. Yet, it seems quite possible, that we shall not be a part of it.
The truth is that here, too, in a phrase beloved by my noble friend Lady Thatcher, if that happens, we shall not be able to "buck the market". Everyone will proclaim, as the noble Lord has rightly done—and, indeed, as Eurosceptics do as loudly as any—that if, in those circumstances, confidence in our economy is to be maintained, we shall need to do at least as well as our neighbours in avoiding inflation and devaluation (still more the charge of competitive devaluation, with all the risks of retaliation that that might imply). The committee spells out those consequences very clearly in paragraphs 122 and 138. I quote especially from the latter paragraph which states that,
"if the United Kingdom decides to remain outside EMU, in order to sustain confidence of the international markets in sterling, monetary and fiscal policies at least as disciplined as those practised by Member States within EMU will have to be followed. The paradox is that the United Kingdom's freedom to pursue whatever monetary
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and fiscal policies it chooses will be constrained whether it is inside or outside EMU. These constraints apply in particular to the fiscal balance".
It is clear that one "cannot buck the market" indeed. The probability is that in that position our interest rates, as the noble Lord, Lord Barnett, pointed out, would need to be higher, although our influence over the structure surrounding us would be much less. It is perhaps more prudent to conclude that if one cannot lick them, then it would be wiser to be ready to join them.
For myself I have little doubt that if EMU survives, it would soon be seen to be to the national disadvantage not to belong; and that if we are seen to have excluded ourselves from it virtually for good, it would be gravely damaging to our national interests—economic and political alike. I leave the economic arguments for another day. But, politically, if the G7 (as it now is; the G5 as it used to be) becomes in effect the G3, what strength would our voice have in those hugely important global economic debates for the future? The Chancellor was right to point out to the committee that, in all sorts of decisions in the European Union we will no longer have the same weight as we now have. If we are not effectively "in", the effect on inward investment would be damaging in the end. I subscribe entirely to the Prime Minister's commitment to make Britain the enterprise centre of Europe. However, "enterprise centre of Europe" is a phrase divisible into two halves: "enterprise" certainly—the Government have been achieving a great deal of that; and the other half is "centre of Europe". One cannot have one without the other. One cannot be the enterprise centre of Europe and yet not part of Europe. I suspect that Lucky Goldstar's £2 billion investment in South Wales might well have not come to Wales had Britain not been an effective player in the European Union.
Even so, it is all too likely that we shall postpone a decision on this as on so many other issues. In those circumstances, if our country is to have any chance of avoiding the grave risk of discrimination, to which the noble Lord referred, then the tone of voice, the manner and the duration of our self-exclusion are critically important. I think that the most important practical recommendation of the committee is at paragraph 139 which states:
"We think that United Kingdom influence may decline in the EU, if it decides to opt out of EMU". There is then this passage: "Future relations between the United Kingdom and the rest of the EU may also depend on whether any decision to opt out is taken in a climate of benevolence or bitterness … it is essential to British interests for any decision to 'wait and see' to be perceived as a genuine postponement of a decision and not as a disguised final rejection of eventual membership".
One conclusion is surely manifest from this: that a decision to announce now that Britain had excluded for the duration of the next Parliament, still less for any longer time, the very possibility of joining EMU would be calculated to inflict grave damage on Britain's standing within the European Union for all purposes—by no means confined to the economic.
My important conclusion is this. Far from moving in that self-destructive direction, it is vital for the United Kingdom and Her Majesty's Government to

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remain politically and actively engaged in the entire process towards economic and monetary union and, in particular, as leaders of the necessary work within the United Kingdom itself. On this concluding point as well the committee offers wise and compelling advice. Paragraph 147 states that,
"the United Kingdom's preparations for EMU need to be co-ordinated through a national body, even if the United Kingdom stays out, and also to keep open the option of going in".
It would be catastrophic if we were to handle a decision of that kind as decisively as we have managed, for example, decimalisation; as decisively as we have managed, for example, accession to the central European time zone. It is for me a matter of shame that we have muffed and miffed and mishandled those conclusions, leaving our people driving up highways with a sign saying, "Birmingham 39 miles, roadworks 500 metres". We cannot handle this issue in that fashion. The national body that is apt for the purpose of making these preparations for EMU, in or out, is Her Majesty's Government. I look to my noble friend on the Front Bench for a clear assurance that the task which should be undertaken by the Government will be undertaken.
5.34 p.m.
Lord Jenkins of Hillhead: My Lords, it is a pleasure to follow the powerfully argued and impressive speech of the noble and learned Lord, Lord Howe of Aberavon. I believe that this is a good report, and I congratulate the noble Lord, Lord Barnett, and his colleagues on having produced it. I am glad that we are debating the issue before we disperse tomorrow for three months.
As the noble Lord, Lord Barnett, said, it does not give a sharp "in or out" answer. That would have been difficult even with a unanimous report. However, it advances the argument in a number of important ways. First, it moves forward from that typical and facile British assumption of a few years ago that a single currency was all Cloud-cuckoo-land and would never happen. As we have made the same mistake with every European initiative for 46 years now, one might have thought that we would have begun to learn that things actually happen. But until recently there was precious little indication that that was so, and least of all from the Prime Minister, who quite a short time ago used some extreme language about the fantasy of a European currency.
The assumption now is that there will be an EMU on time, at the beginning of 1999, with the five core countries of Germany, France and the three Benelux countries participating—I do not believe that it can occur without them—with probably three or four others as well. I refer to Austria, Finland, perhaps Sweden, and very likely Ireland. Italy will be mortified at not being for the first time a founder member and will make it at the earliest possible moment. So will Spain and Portugal.
Therefore, all of those who are not in from day one will be in the category now being called in Brussels the "pre-ins". That disposes of the second British fallacy in this field: that there is a role waiting for us as captain of the refuseniks. The divide will not be between those in and those out, but between those on the one hand who
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are in together with those who wish to be in, and will be as soon as they can, and those on the other who do not want to be in even if they qualify by the criteria. In that position we may be alone; we may be with Denmark. After the BSE row I am not sure that anyone will be queuing up to be together with us, and no one else, in a column. That will be the frontier. It will certainly be a position of loneliness. A question which to some extent was raised by the noble and learned Lord, Lord Howe, is whether it will be one of bitterness for us as well.
The bitterness will not in itself arise merely from our not joining. The other countries are used to that. They may even, I am afraid, welcome it, in particular given how quickly we messed up the ERM, which had worked perfectly well for 11½ years before we joined it. It certainly did so. I apologise. The noble Lord, Lord Bruce of Donington, merely coughs. I had thought that he was dissenting. I misunderstood the sounds which came from him.
There are three possible dangers of exacerbation. One is the thought that we are not merely standing sceptically on the sidelines, of which we have made a habit, but are actively encouraging the failure of the single currency. To be frank, we have been close to that position during past years and it could be dangerous if we continue with it in the future.
Secondly, it will be dangerous if we try to prevent other countries making arrangements in which we have no intention of participating but which we nonetheless try to obstruct in regard to those other countries.
Thirdly, it will be dangerous if we pursue a maverick exchange rate policy from outside and try constantly to gain unfair advantage by competitive devaluation. I do not see that as likely. In future circumstances, I doubt whether we will have the energy to pursue a maverick or wrecking exchange rate policy. I see our position then as being much more like people in a small boat in the wash of a big liner, trying hard not to be seasick. Without question, we will find much speculation diverted to us in those circumstances.
We should also realise that the single market cannot be complete or even secure with separate and fluctuating currencies. As the single currency becomes a battlefield, a religious war within the Conservative Party, so we tend to forget the practical issues and advantages involved in a single currency. Being generally inclined to talk in macro or even theoretical terms, perhaps I may give two specific concrete examples.
A few months ago I received a private cheque to settle a small private debt. It was drawn on a Paris bank and made out not in French francs but in sterling for £151·50. I paid it into my bank in the normal way and received a credit for £134. In other words, a turn of £17·50 or 12 per cent. was taken on that simple transaction between two of the major countries. Noble Lords may suggest that I should change the bank, but I suspect the result would be the same. When I wrote to the bank protesting, I said that while I thought the charge was scandalous I would nevertheless pay it with a certain amount of satisfaction because I would make good use of it in the argument about a single currency.

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The bank immediately wrote back saying that it would waive the charge altogether. I fear that my position may not have been wholly typical.
The other example is in a different field. I have been involved in setting up an Anglo-French scholarship scheme in which the retiring British ambassador in Paris has taken a leading role; I am chairman of the trustees. As we were setting up the initial orders, a question arose as to payments for the British scholarship holders going to study in France. It was first proposed that payment should be made in French francs on a yearly basis. It was then proposed that that should be changed to sterling on a termly basis, and the number of terms in a year does not matter. We suddenly realised that it could make an enormous difference. The recipient would have no idea what he would receive in French francs; there could be a swing—such as we have had in the past few years—of 20 per cent. on the money available. That is typical of the uncertainty which is involved and will persist if we are outside the single currency.
There are other practical consequences. In my view, an interesting picture emerges from the report and the evidence to the Select Committee. It is the detail of how, if we stay out, we could minimise the practical dangers which I found fascinating. First, could the City of London continue to function effectively as an international financial centre? Probably yes, provided it reconciled itself to doing a substantial and growing proportion of its business in Euros rather than sterling. That is not a splendid vindication of the proud independence of sterling.
Secondly, could we keep interest rates within striking distance of those within the single currency area? At the time when evidence was taken on that, the difference between London and Frankfurt or Paris was about 1·6 per cent. in favour of Frankfurt or Paris and against London. The answer given was: yes, we possibly could, provided we shadowed the money and exchange rate policy of the European Central Bank as closely as was humanly possible. Again, that is hardly a striking advertisement for unfettered sovereignty outside. In other words, if one is in, one follows the policy with a share in determining it; out, one follows the same policy without any say in forming it.
I end on a wider consideration. Europe, I fear, has largely written off the present Government. It expects nothing from them. The Chancellor of the Exchequer is personally rightly respected in ECOFIN, but that is about it. I agree with Mr. Heathcoat-Amory, whose method of resigning does not exactly command confidence, that the present relationship is not working. It causes the maximum of irritation with the minimum of results. However, the fact that the Government have been written off does not necessarily mean that Britain has been written off. It means that the first six months in the life of a new government will be a crucial and dangerous time for Britain's relations with Europe.
I echo some of the points made by the noble and learned Lord, Lord Howe. Hopes of a constructive British role have been disappointed too often. They were there after the referendum of 1975, but three years later we were the only country to stay out of the ERM. The
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hopes were there after the 1979 change of government. I vividly remember how hard the noble Lord, Lord Carrington, tried to create a new atmosphere. To some extent he succeeded, until it was swept away by the swing of the handbag of the noble Baroness, Lady Thatcher. She dug deeper and deeper into the budgetary dispute which eventually concerned small amounts of money but a great deal of influence and good will. There was yet another disappointment when Mr. Major's famous words about Britain being at the heart of Europe quickly turned to ashes.
Should there be yet a fourth wave of disappointment under a new government, then I fear that, whether we like it or not, we will come to an effective parting of the ways. I do not believe that we will be asked to leave, although during the BSE dispute such thoughts were undoubtedly beginning to surface. I believe that what will then happen in the fourth wave of disappointment is that a new clubhouse will begin to be erected alongside the old. The most important activities will be conducted in the new clubhouse, which we shall not be asked to join. Our danger in Europe has always been not an excess of realism, as we like to believe, but a lack of it, based on a consistent over-estimate of how essential we are. Not the least value of the report is that it dispels some of that miasma of illusion.
5.49 p.m.
Lord Roll of Ipsden: My Lords, I must begin with an apology to the House. A long-standing commitment this evening may make it impossible for me to be here for the whole of this debate.
This House, not for the first time, has the opportunity of debating a difficult and controversial subject reasonably and objectively, whereas elsewhere it tends to generate much more heat than light. We must be deeply grateful to the noble Lord, Lord Barnett, for initiating the debate, for the manner in which he introduced it and, above all, for the report prepared under his chairmanship which is our subject tonight. I had the privilege of participating in the preparation of the report and I pay tribute to the masterly manner in which the noble Lord conducted our inquiry. He showed unfailing good sense and unfailing good temper. Firmness combined with gentleness were the characteristics with which he guided us through the thickets of issues that confronted us.
The noble Lord in introducing the subject emphasised the terms of reference of the report and of the debate. He drew a distinction between concluding whether a European monetary union is desirable—whether if it came about one should join it—and if one were created between a number of members of the European Union, what would be the consequences for the insiders and the outsiders.
It is perfectly true that those are two distinct subjects. However, as the noble Lord himself demonstrated, as did the noble and learned Lord, Lord Howe of Aberavon, and the noble Lord, Lord Jenkins of Hillhead, it is extremely difficult to treat these two subjects separately even though they are distinct. The preconceptions—dare I say the prejudices?—one has

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formed about the desirability of a European monetary union, and more particularly the desirability or otherwise of British membership of it, will inevitably colour one's view on the balance of advantage and disadvantage to insiders and outsiders.
Reference was made to the witnesses. We examined a very large number: men of great authority and in positions of great responsibility, and many men of great experience of economic and financial matters. Noble Lords will form their own view about the balance of the evidence that is now available. I believe that the balance clearly points in the direction that the outsiders will fare badly compared to the insiders. However, others may take a different view. Indeed, I would go further. This is not a subject, alas, in which expert opinion can give us absolutely sure guidance. These issues cannot be weighed in an apothecary's scale. Many cannot even be quantified at all. They are inevitably matters of probability and, without detracting in any way from the eminence of our witnesses, we must each form our view on probabilities.
The first and most important probability to assess is: will there be, on 1st January 1999 or thereabouts, an attempt by some members of the European Union to start the process of creating an economic and monetary union between them which within a relatively short time will lead to a common currency between them? The committee's answer is quite unequivocal: for planning purposes the only safe assumption to make is, yes, there will be one. It is not quite possible at the moment, although the noble Lord, Lord Jenkins of Hillhead, attempted to do so, to say exactly who will be members of the first wave of that incipient economic and monetary union. There will be five. There will be France, Germany, and the Benelux countries, despite certain current difficulties in Belgium. There will be Austria; probably Finland; there may well be Ireland; and, as the noble Lord, Lord Jenkins, mentioned, there will be Sweden and possibly Norway. Denmark will almost certainly wish to be an early member. However, it is committed to a referendum which in all probability it cannot hold until about the third stage of economic and monetary union.
Italy is an interesting case. In some quarters in this country Italy has been, as it were, selected as the most likely ally for the United Kingdom in adopting a more reluctant attitude. Indeed, I believe attempts have been made to woo Italy to adopt exactly that position. It so happened that I was in Rome last week and had the opportunity to discuss this matter with a number of leading figures in that country. I assure your Lordships that that is a total misjudgment of the Italian situation. Italy, under its present government led by Romano Prodi, is determined to adopt its traditional role of being in the forefront of European integration. It will certainly wish to become a member of a monetary and economic union as quickly as it can. It talks about doing so within 12 months of the start of the economic and monetary union by some countries. I believe it is even prepared to contemplate the revival in some form of an exchange rate mechanism as a preparation for monetary union, even though it is now uncertain how much that will be required as a precondition for participation. At any rate,
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I think we can expect Italy, within a year or so of the start of monetary union, also to be a member. So we have the prospect of a minimum of five, perhaps a maximum of up to 10 members or even more, within a year or so of the start of the whole process.
Alas, it does not look as though the United Kingdom will be in the first wave, and perhaps it will not be a candidate in the relatively near future. Therefore, the immediate question arises: what is the consequence of that position for the United Kingdom should a monetary union, as the committee believes, come into being? The witnesses are divided on that question. To use the Shakespearian phrase, some have been "laying their flattering unction" on this matter to themselves and arguing about the strength of the City and so on.
My own feeling is, as the committee has insisted, that much will depend on the political and psychological climate in which the separation of the "ins" and "outs" takes place. I believe that despite the huffing and puffing in some quarters, it is very unlikely that this separation will take place in a climate of bitterness, let alone hostility. It is much more likely—although alas one cannot be certain—to be some kind of a diplomatic fudge, a matter of "wait and see", I hope more positive than negative as the committee has pointed out, and that therefore there will not be that absolute parting of the ways which many fear and which I certainly believe would be very disadvantageous to the United Kingdom economically and politically, as the noble and learned Lord, Lord Howe, pointed out.
Even if that is the case, we have to consider very carefully what are the real consequences in economic terms. Much has already been said about that, and I shall be very brief. The committee spent a great deal of time debating the question of discrimination between the "ins" and "outs". I believe that that is not a very serious issue. Overt discrimination is clearly out of the question, because it would be illegal. I do not believe that covert discrimination is likely to be a very serious problem. What will, however, be a serious problem is market preferences. After all, the flows of trade and industry internationally, particularly nowadays, are not especially dependent on what is permitted and what is not permitted. We were told by many members of our committee, as well as by witnesses who were all highly experienced in international trade and industry—and we know the old proverb, "Kissing goes by favour"—that they believe that there will gradually emerge a certain preference on the part of those within the monetary union for each other, particularly with the globalisation of markets that is now taking place. So I believe that even the great achievement of the single market, although it will not be overtly impaired in any way by the creation of a partial monetary union between some members of the European Union, will nevertheless not be working out entirely to our favour.
Then there is the question of the Euro and the financial transactions following from it. I do not know whether it is realised everywhere, but already today the volume of transactions in currency and money markets, particularly in the more modern products of swaps and derivatives of all kinds, in deutschmarks and French francs is already extremely high. There is every

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likelihood that the Euro will become an extremely important currency for those transactions in money markets, in exchange markets—particularly vis-à-vis the great currencies outside, the yen and the dollar—as well as in bond markets.
As regards the City, I have now worked there for 30 years after two other careers, and I am the last person in the world not to recognise its strength. Obviously, its history over the last 100 or 200 years has shown some blemishes, but its position today, its efficiency, its strength, its integrity, and its status in the world is extremely high. There is no doubt that the attempts by other markets such as Frankfurt, Amsterdam, Milan and Paris to displace the City have so far not been successful. Today the City is still far and away the outstanding European financial centre.
But even that situation is not absolutely secure. The advantages which the City enjoys at the moment can be duplicated, especially under modern forms of telecommunications, in many other centres. Once a Euro area is created, and the Euro has every chance of becoming a strong currency which will play an extremely important part in world markets, one cannot be absolutely sure that the City's position will remain totally unimpaired.
I believe that the balance of advantage for the outsider, particularly for the United Kingdom, when a monetary union starts, is likely to be, on the whole, unfavourable.
As the noble Lord, Lord Barnett, and the other two speakers who have already spoken have gone somewhat beyond the strict terms of reference for this debate, may I also, if your Lordships will bear with me for a moment, go a little further and conclude in a slightly more personal vein?
I have had the opportunity for over half a century now of watching very closely the development of our relations with our European neighbours, particularly in the economic field, but inevitably also in the political field. Looking back on the situation, it is a sad and sorry tale. There have been a number of particular and specific errors, which I readily admit are much easier to identify now than they were at the time that they were committed, starting with the strains even in the Marshall Plan, when we were leaning very heavily on our wartime alliance with the United States, when that country was already urging us, begging us, to take the lead in the integration movement in Europe.
Then we went on with the refusal to join in the coal and steel community. I happen to know something about that because I was one of two observers deputed to watch the progress of that. Then came the attempt to find some alternative to the common market, the withdrawal of our observer from the Messina negotiations, and the frantic search for alternatives, which have left the landscape littered with international institutional debris, some of which is not even remembered nowadays, such as EFTA. Who talks about EFTA nowadays?
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Finally, came the great act of courage under Harold Macmillan when we attempted to join what was then still the common market. That was frustrated. I feel that our continuing ambivalence, quite apart from the attitude of General de Gaulle, had something to do with the fact that we did not succeed and had to wait another 10 years under Ted Heath to join the common market. Since then the history has been a pretty chequered one. We did not join the European monetary system completely, as the noble and learned Lord, Lord Howe of Aberavon, has mentioned. We refused to join the exchange rate mechanism, and when we belatedly did so, we did so apparently without adequate consultation, perhaps without any consultation with our partners, and at an absurdly and unrealistically high exchange rate. When we finally had to leave the exchange rate mechanism, I am afraid that in some quarters we tended to blame the system rather than the fact that we had entered it at an extremely high exchange rate.
What is particularly puzzling in this situation is that in monetary matters, in matters of financial and monetary arrangements, we should show this reluctance to accept leadership, which has been within our grasp right through the whole of the post-war period. Why we should do that in monetary matters is totally incomprehensible. After all, I believe that our own financial and monetary arrangements and our banking system have the oldest history in the western world. Possibly Italy could compete with us in some respects. Certainly we have a history stretching over 300 years in this matter. We have a literature of analysis in monetary matters which is incomparably the greatest in the world. We had, to our credit, a leading part in the setting up of the post-war monetary and financial arrangements under Bretton Woods, and yet this is precisely an area in which we have shown the greatest reluctance to accept the leadership in Europe which, as I said, we could have had all along.
The Prime Minister has said repeatedly that he wishes this country to be at the heart of Europe. I have no doubt that this is his genuine wish, but I fear that with the policies which we have been pursuing we are likely to end up at a very different part of the anatomy.
Lord Torphichen: My Lords, did the noble Lord say that Norway would be one of the first entrants into the system?
Lord Roll of Ipsden: My Lords, I thought I heard the noble Lord, Lord Jenkins of Hillhead mention Oslo. Perhaps I misheard him.
6.6 p.m.
Lord Haskel: My Lords, the decision on EMU will be the most important decision affecting British industry to be taken by a British government during the next year. It is a matter about which everybody working in industry needs to be well informed. I would like to congratulate my noble friend Lord Barnett and his committee on preparing such a balanced and readable report.

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Sadly, at present there is only a limited appreciation of what monetary union would actually mean for United Kingdom industry. That is because the debate about Britain's future in Europe has become distorted by the divisions in the Conservative Party and the xenophobia and petty nationalism generated by the beef crisis.
Other noble Lords have spoken of the sad climate in our relations with the European Union. I am sure that many noble Lords are fed up with apologising to business people in the European Union—people with whom we are bound in the single market, and with whom we are attempting to build up a business relationship—for the unnecessarily hostile tone sometimes adopted by the Government. As far as concerns business, that attitude is totally counter-productive. I hope that when he comes to reply, the Minister will not produce the tired, old response that Labour is also divided. The difference is that Labour's Front Bench is united and the Government are split down the middle, and this damages the national interest.
However, business must deal with things as they are and not as they would like them to be. In his memorandum dated 15th July the Chancellor said that the Government are committed to being involved in the preparations for monetary union. So business must assume that monetary union will go ahead sooner or later. Therefore, it is important to consider what are the advantages and disadvantages to business of being an "in" or an "out" and what are the costs and savings.
The noble Lord, Lord Jenkins of Hillhead, has spoken about money transaction costs. Those savings are minor compared with ending the uncertainties of exchange rate variability. Exchange rate speculation is both destabilising and costly, and its removal would make a significant contribution to our competitiveness. Monetary union would allow easy comparability of prices within the area, and thereby clearly demonstrate where we excel.
A further advantage of being an "in" would be that monetary union should reduce the extreme swings we have in this country in the economic cycle, and save us from the added instability that that produces. Industry would welcome the greater price stability that being an "in" might bring. If industry expects price stability, growth and investment will follow. Hopefully, EMU would force governments to follow sensible fiscal policies in the long term so that the volatility of the past would be diminished. The experience of Black Wednesday is etched on everybody's mind and nobody wants to go through that again.
Of what is industry afraid? First and foremost must be the effect on our relationship with the single market. EMU should never for one moment undermine the single market. An enormous amount of money, time and energy has been expended in building up relationships with customers, suppliers and partners in the single market. Nothing must be done to jeopardise that investment. Indeed, monetary union is a logical continuation of that work.
A further point is that hovering half in and half out will be interpreted as a lack of commitment to the single market and a desire to retain the use of competitive
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devaluation as a possible compensation for failure in other areas of business. This is an improper and ill-advised short-term trading position. It must be avoided if we are not to damage our position in the single market. I have no doubt that firms, investors and wage earners will behave differently outside the EMU than inside the EMU, if they believe that devaluation is an option. As the report points out, markets would assume that the UK had a bias toward devaluation and as a consequence the markets would punish us with higher interest rates.
Secondly, I believe that industry is concerned about the exchange rate of the Euro and the US dollar. Britain does more trade with the USA than any other European Union country. So that is a legitimate concern for us. That is why it is particularly important, whether we are in or out, for the Government to encourage work now on the method of calculating exchange rates so that business can begin to get an indication of the likely level of exchange between the Euro and the dollar, so as not to delay plans related to business in America.
Next, there is the matter of the timing and practicalities of monetary convergence. Industry is concerned that deflationary measures are not forced upon us to achieve convergence by a set date. Our performance must be judged over the whole economic cycle and a sensible EMU of ins and outs, as described in the report, will certainly facilitate that.
Then there are the practical economics of monetary convergence. I should like to emphasise that convergence is not only a matter of monetary policy. It is also a matter of employment and the real economy. What is important from industry's point of view is that hand in hand with monetary convergence must go the investment, training and technical progress and management of our companies essential to hold down unit costs. That is to ensure that monetary convergence does not take priority over the real economy, thereby holding back our competitiveness and adding to unemployment. I call for a rounded judgment, not merely getting the monetary numbers right.
Industry is also concerned about losing influence in the single market if we are out. As the single market inside EMU becomes more integrated, there will inevitably be the need for closer co-ordination on matters such as market regulation, social security and tax policy. We must be involved with that.
A further concern is that under the Maastricht Treaty, non-participants in the single currency will be excluded from voting on decisions regarding the administration of the single currency. As the Select Committee's report wisely points out, instead of arguing among ourselves, there are things that we need to be doing. It is of no use to industry for the Government to excuse inaction by saying that monetary union is too distant a prospect for them to have a policy and it may never happen anyway. All that that does is create a policy vacuum which will be filled by consultants second-guessing the Government.
How much better it would be to have a clear and consistent policy which would give industry some stability on which to base its plans for the future,

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knowing that the United Kingdom will play its part in the preparation for monetary union. The European Monetary Institute has prepared a timetable for transition for the banking sector. Industry too needs to be working on a timetable of transition and the DTI should already be laying down guidelines for that as it laid down guidelines for industry's entry into the single market. I hope that the Minister will reassure us on that point.
Because of those arguments, British industry must assume that monetary union will go ahead, whether Britain is an "in" or an "out". Isolation is not an option. Britain can no longer afford to stand and offer advice from the sidelines. We must be at the heart of developments. The strength of the Select Committee's report is that it demonstrates that that is entirely feasible, even if we wait and see.
Of course there are difficulties still to be resolved. But I hope that the Minister will tell us that the arguments about principle are settled. I agree with other noble Lords that the Euro will come, and in preparing for its arrival I recommend the Select Committee's report as essential reading for everybody in industry.
6.15 p.m.
Lord Sheppard of Didgemere: My Lords, at this moment it is very little consolation to me that privately many noble Lords have told me just how nervous they were when they stood up to make their maiden speech in this great and impressive place. Before you, my Lords, you do not have a sturdy shepherd—and maybe in view of today's announcement this is an unfortunate statement—but a sheep ready to run.
I speak against a background of international trade, in which I have been involved for the whole of my life, in the motor industry and more recently in food and drink. Right from the beginning, which goes back a long time to my days when I began with Ford of Dagenham, I learnt a lesson which has stayed with me right up until today (and I hope beyond). It is that if you are going to succeed in business you must spend your time looking outwards and not inwards. To that end, it has been a great pleasure and joy to me as a businessman over recent years to see the removal of protections across the world and the introduction of free trade.
Access to the large domestic market in which we now trade—namely, Europe—has made a tremendous difference. It has given us economies not only of production but also of research and marketing. In strategic discussions, people often ask about the area that one is going for in business. They ask, "Are you going for Europe, for America or for the rapidly growing markets of Asia?" My answer is always the same: yes. In fact, one does not have to choose. Our markets, our customers and our competitors are all increasingly international. They are not restricted by country; in fact, they are not restricted by continent. They are worldwide.
So the first point that I should like to make today is that any discussion that we have on monetary union must take place—as it has so far in this debate—against
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that background. We must assess the impact of economic and monetary union by looking at what it will do to the competitiveness of UK industry (looking narrowly at it) and of all European industry. Can Europe compete in the world and does the single currency help it? That is the fundamental question that will decide the living standards of Europeans for at least the next 100 years and probably for the next millennium.
Some months ago I saw a cartoon in The Times which depicted an emu with the caption "EMU—a bird that cannot fly". I shall not attempt to give an answer or even a view on that at this point. As a businessman one has to keep all one's options open. But in some cases one has concerns which are even more fundamental. Certainly as a businessman I know that if the monetary union debate in Europe means that Europe will be looking inward and arguing, as it has been doing recently and maybe as it will do for some time, the Asians will get so far ahead of us that the debate will be irrelevant.
I speak narrowly as a businessman. I should prefer to see the debate in Europe about how Europe can win worldwide; how European union can expand free trade across the whole of Europe and not just part of it; and how we can forge constructive links with other trading blocs across the world. Let us start building that bridge, which has already been started to some extent, between NAFTA for example, and the European Union. If we are to reduce what I think we would all agree is the unacceptably high level of unemployment across Europe, we must get out and win jobs; we must create jobs. Nobody is going to give them to us. We are only going to do that by being competitive and entrepreneurial and eliminating unnecessary bureaucracy.
The second point I would like to make is one that we sometimes seem to miss—that British business is doing quite well in Europe. We sometimes speak as if we are a failing operation. But we are doing quite well. Of course we can and must do much better. But let us at least approach this issue (which the report of course did) from the basis that we have much to gain and learn from Europe. Our competitors and colleagues in Europe—our fellow Europeans—also have a lot to learn from us, so it is not a one-way mission. It is not Europe imposing on Britain and how Britain responds; we are right in it. I am not certain about being at the centre; I prefer to see us at the front.
I would like to give examples of what I mean. Our successes on inward investment have already been referred to. A lot of countries would love to send regular delegations to Britain to find out how we are achieving that. The major success that British industry has achieved throughout the world as an investor, a trader and an adviser is envied by many European companies.
My role as chairman of London First has involved me in work with inward investment to London on issues such as transport. It has also involved my going around the city in which I was born because people have asked me about places I had not been to for decades. I have been to St. Paul's a bit more recently, but I have not actually looked round it. It was on one of my London

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First visits that I went to St. Paul's, and suddenly I stopped and saw something which is relevant to our debate today. Of course one knows the phrase, "For whom the bell tolls", but I had forgotten that it came from a poem by the great Dean of St. Paul's, John Donne. That poem, as your Lordships know, begins,
"No man is an Island, entire of it self".
I firmly believe that the UK is not an island "entire of it self'. Unless Britain seizes the opportunity and takes its place in leading Europe towards enterprise and towards world free trade, we shall end up chanting another part of that poem: Ask not:
"for whom the bell tolls; it tolls for thee".
I very much welcome the Select Committee's report. It is, as others have said, a report which makes a major contribution, a balanced contribution—it gets past the slogans—to the debate on how Britain should play a vital part in building a better and more prosperous Europe.
Monetary union, as we know well, is a complex subject. There is not a simple yes or no answer. The timing of Britain's decision is critical, as we heard. We must not drag our feet. On the other hand, do not let us make the mistake which has bankrupted many businesses. We should not rush to answer a question which has not yet been properly defined.
I thank your Lordships for listening to my remarks and for the support I have had since I have been a Member of this great place. I look forward very much to this not being my last participation.
6.23 p.m.
Lord Bruce of Donington: My Lords, it falls to me to congratulate the noble Lord, Lord Sheppard, on his maiden speech to which I listened with very great interest indeed. In fact, in sharp contrast to many of the participants in the debate so far, the noble Lord has been cheerful which, in discussing a serious subject like this, is a very good attribute.
The noble Lord comes to this House almost super-qualified in practically every respect. Not only has he intruded into my own field of accountancy, being on the management side; he has also made a good fist in qualifying from the taxation side. He is, I observe, a Fellow of the Chartered Institute of Secretaries. In fact there is hardly a field professionally in which he has not played an active part. He had a distinguished career at the London School of Economics. Not only was he a student there; now he is a governor and on the advisory board concerned with raising funds for it. He has had a distinguished career in practically every kind of enterprise in the United Kingdom.
I for one congratulate him on his speech. I could go on listing his qualifications. I could for example mention his interest in the Prince's Trust and a whole series of other ventures connected with youth, and still I would not have exhausted his qualifications. I am sure that I speak for all your Lordships when I say quite truthfully that we should be listening to the noble Lord not only on this subject, into which I believe he has a shrewd insight, but also on many others about which he would be able so pleasantly to inform your Lordships.
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I interrupt my tribute to the noble Lord's speech by saying, "Let us be cheerful", for never in the field of economics, indeed in foreign affairs and in all matters connected with the intercourse between nations, their nationals, their language, have I heard so much gloom. Could it be that this shows a certain lack of confidence? I listened to my noble friend Lord Haskel who gave us a very good and faithful account of his views. However, from this standpoint he tended to say that all controversy was somehow wrong, that there is no room for dissent. There is, of course, the graveyard, where there is complete unanimity, but in this House I rejoice that there is argument concerning these very important matters on which we have touched this afternoon.
As my noble friend Lord Barnett has already indicated, I have provided an occasional note of dissent in the activities of Sub-Committee A. It is of course not right that I should in any way reveal the tenor of our deliberations, which are not public, as distinct from the evidence, that is. However, I do not think I should be reproached for saying that I had some 69 amendments to the first draft report and received support for what amounted to some typographical errors, but nothing much more than that. However, in the interests of having the report out before next Christmas I decided not to pursue in any depth the amendments which I argued before the committee.
We have had a very interesting discussion this afternoon. One thing that rather struck me was the support given to those who believed that the mere fact that we were in, compelled us to agree with everybody else. What did not emerge was that, of all the countries in the European Community, we are probably the most law abiding of the lot. I do not think that is in any doubt. I am not prepared to grovel or apologise for my country choosing to adopt a practice which has been endemic in Europe, at any rate since 1963; that is to say, when things get too awkward or we cannot establish a point of view of our own, we take extra constitutional action; we decide on non-co-operation. Anybody would think, from what has been said by some of the speakers this afternoon, that in being unco-operative in order to achieve a specific objective, we have somehow offended against all high Heaven. Examination of the record reveals that most other countries—notably France—whenever it suits have not co-operated. I am certainly not going to grovel in apology by withdrawing my support—shared by my noble friend the Leader of my party in another place—in vindicating the right and the duty of the Government, in certain circumstances, to withhold co-operation.
It has been proved that this country has obeyed the law. It has sought to make certain changes. Why not? Or it has sought to argue certain matters out with other members of the Community. The way that some noble Lords have spoken this afternoon it is almost as though it is a sin to disagree with one's colleagues in Europe. Not a bit of it. Surely for the vitality of the Community and, indeed, for our own vitality, it is necessary that we argue matters out from time to time. I shall not apologise for my country having the temerity, under certain circumstances, to disagree with something that the rest have said. Surely we have not sunk to that level.

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Are we so lacking in conviction that we have lost the right or indeed the inclination to be able to disagree? Fie on it! For my part, I have always adopted the standpoint that if one believes in something, one should articulate it—unless one is ashamed of it, in which case one should shut up. But if one believes in something, one should articulate it and, if necessary, stand one's ground and argue about it. That does not apply only to one's personal life; it applies also to the lives of countries. I hope therefore that that notion can be laid to rest.
It was argued at one point that if we did not go into the European Monetary Union, somehow people would gang up against us. At one time it was thought that even officially we may be out of order. However, on detailed investigation it was found that the actions so far taken by the British Government could not possibly attract any legal retaliation. We have acted quite properly from the beginning and there is nothing wrong in that.
But then the argument began to develop as to whether, though they could not get at Britain legally, somehow the other member states would get round it and make life uncomfortable for us. I am a bit old-fashioned in the sense that I work on the balance of advantages. Bearing in mind that Europe has a trade surplus, both visible and invisible, with this country, it occurred to me that it probably would not want to cut off its nose to spite its face. That seemed a reasonable supposition. Moreover, since the taxpayer directly contributes money into the Community on an average of around £2.5 billion a year and rising, it might have some regard to that as well.
I must admit that I was mistaken. Eventually, mainly due to the eloquence of my noble friend Lord Barnett I became convinced that what he said was undoubtedly true: that there was going to be a lot of unofficial action taken against the United Kingdom because we declined to do something that the other members wanted us to do. I said to myself, "Well, these are rum partners with whom to be in the Community if the first time that we disagree with them on some vital subject or other, they start black-balling us or whispering about us".
On balance, after a while, my noble friend Lord Barnett was so persuasive and some of his colleagues likewise that I came to the conclusion that they were probably right. Then I asked the question: "How comes it that we have partners who would try illegally to do something that they could not legally do against us?" It is a little curious. They do not sound like very good partners to me. It is rather like joining a club and somebody says when one arrives, "I black-balled you. Now we have admitted you, but you had better watch your step because we have got it in for you in one way or another". That cannot be a good club to which to belong. I must assume therefore that it pays us to continue to belong to it, in spite of the fact that most of our trade—visible and invisible—is in countries other than in Europe, and those figures can be proved statistically.
Why should we suddenly bow the knee to everybody? Why should we feel it incumbent on us to explain ourselves to everybody? Why should we be compelled
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on to the defensive in anything that we do, as long as we do what we do in good faith and in what we believe to be the interests of our country? At any rate, that is what my country means to me.
Let us turn to the future. Is it wise, in circumstances when our partners are so devious or assumed to be so devious in these matters, that we continue to rely on any kind of assurances that they give us in regard to our joining the single currency? After all, they may disagree with our attitude in that regard. Why is it, in those circumstances, that we are apparently prepared as a country to part with some of the vital factors of control necessary to exercise any decisive influence on the development of our own economy?
Apparently we are going to agree to our deficit being limited to 3 per cent. GDP and to our total indebtedness being 60 per cent. We are going to agree, within certain limits, as to how much GDP we can have and how low or how high it can get. We are going to give powers to the new European central bank that we ourselves now hold, together with the control of this country's currency reserves. We are going to give control in regard to what types of transaction we will undertake. We are going to give over control of our entire monetary policy. All that remains to us as a country, under those circumstances, is the right to raise taxation up to certain levels and the right to spend within those limits; we shall retain a fiscal freedom.
That does not seem to me to make sense. I am very happy to say that my own party has entered a caveat already, although it is not sufficiently watertight. It has said that, as regards the power of the European central bank, it wants a degree of democratic control. That is stated in the party's policy, but unfortunately the treaty does not permit it. It says that the European central bank should not be interfered with in any way by anybody; it should maintain its absolute independence and no government or body of persons should have any right to tell it what to do. It does not say so only in Article 107; the treaty repeats it in Protocols 5 and 6 for emphasis. I hope that soon my own party will be able to publish its proposed amendments for the IGC in order that this matter may be dealt with properly.
Is it really the case that we in this country, notably our economists, cannot find any way to begin to put forward economic policies to deal with the current development of the mixed economy in the United Kingdom? Is it asking too much for them to be able to do so? There are advantages, of course, because if things go wrong the government in office can then say, "It is nothing to do with us. The European central bank made all the mistakes and we are innocent. We had nothing to do with it". I call that an abdication of responsibility.
The function of the United Kingdom government is to govern and to conduct the country's affairs in a way that makes for the well-being of the majority, if not all, of its citizens. That is their task. They cannot abdicate that responsibility and, least of all, to a country called "Europe" which in some respects

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comprises partners who are quite willing, if the opportunity is there, to do you down if they do not get their way.
6.43 p.m.
Lord Ashburton: My Lords, it is a great pleasure for me to follow the noble Lord, Lord Bruce of Donington, in congratulating the noble Lord, Lord Sheppard of Didgemere, on his maiden speech. I never had any doubt when he joined this House that we should enjoy his contributions and find them not only substantial but amusing.
I speak as another member of the sub-committee of the European Communities Committee which produced the report. Our chairman, the noble Lord, Lord Barnett, introduced the debate and ably chaired the committee. I add my thanks to those already expressed to the noble Lord by the noble Lord, Lord Roll. I was not a member of the committee for the whole period of its existence, but I did hear the majority of the evidence given to it and I participated in the production of the report.
It was an extremely interesting process. I am happy to have been part of it and to have signed the report. I am also happy to say that, since its publication, a number of people whom I have met and who are very knowledgeable of the subject and who are professionally interested in what happens over EMU, have said that they thought it a good report.
The sub-committee's terms of reference were precise and tightly worded. They explicitly excluded the question of whether or not the United Kingdom should join EMU, assuming that it is set up on the timetable now envisaged. Inevitably, the views on membership of EMU of those who gave evidence—and the views of the members of the committee—were, as noble Lords are beginning to hear, diverse and often strongly held. I was extremely interested to note that the opinions were often subjective and proceeded from exactly the same premises to precisely opposite conclusions. Indeed, my own discussions in the business world reveal wide differences of opinion to a surprising extent.
However, later I should like to touch on the possibility of discriminatory acts which might be levied against us, as it were, particularly if we choose not to join EMU at this stage. In doing so, like others, I shall stray a little from the content of the report and say where I stand on the issue of membership.
While there is no time limit to this debate, I would like to proceed in a backwards order by setting out my conclusions and then describing briefly how I arrived at one or two of them. My conclusions are as follows: first, the single market is the most precious achievement of the EU and damage to it would be a severe blow. Damage to our membership of it would be a severe blow indeed to the interests of this country. Secondly, a common currency is not essential for the single market. There are examples of markets elsewhere in the world which demonstrate that. Thirdly, a common currency would nevertheless bring some advantages, mainly in transaction costs, but they are nothing like as large and important as those flowing from the single market. Fourthly, a partial EMU can perfectly well go ahead
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without us participating. Fifthly, our wholehearted participation in the processes leading up to the establishment of EMU and the European central bank, is useful to our partners and essential to our own interests. Sixthly, Germany and France have a political agenda that we do not wholly share. It looks to me as though they are prepared to embark on a large act of faith in pursuit of this agenda. Seventhly, in no circumstances should the UK rule out joining EMU at some stage. Eighthly, we can and should delay any final decision for as long as the present timetable allows while participating to the full in the preparatory process. Ninthly, it should not be difficult for us to join EMU at a later date provided that we have helped to design it.
As to the future of ERM, I understand—and I hope I am right in this—that agreement has largely been achieved on a broad band ERM giving bands of plus or minus 15 per cent. If that is so, I can see no great problems to our being members of it, nor indeed any great advantages in its existence. We have a hard decision to make and there are many strongly held differences of opinion within all sectors of society including business. I believe that the electorate at large is woefully unprepared for that decision.
I reach these conclusions because I want this country to be fully involved in Europe. "At the heart of" still seems to be a good phrase. I do not believe that for us there is any other game in town. I have never heard a convincing or coherent description of what, or where, another such game might be. There are plenty of irritations in being members of the EU and there are worse than irritations which get up our noses. But in the end it is up to us to help Europe from the inside to get things right. Surely, none of us ever felt that full membership of the European Community was not going to involve some acceptance of changes.
I believe that our membership of the world, as it now is, and the fact that we are part of the global interdependent economic system, enormously curtails our freedom of action in economic and other spheres. Sovereignty does not lie entirely with us; it cannot do so. It is not simply membership of the European Union which curtails sovereignty. It is no good our expecting to be able to cherry-pick the most convenient and comfortable aspects of the system for ourselves. It is more than arguable that in the past we would have done well to choose some of the better parts of other nations' systems.
The Franco-German relationship has always been at the heart of the European Community. At its beginning the concept was a political one and it had political ends. It proposed economic means to achieve those ends. It was about the binding together of Germany and France and their neighbours so that conflict would henceforth be impossible. We must always remember that if we are to understand some of the motivations. I have come to the conclusion that the political steam that drives Germany and France to embark on this process—which as far as I am aware has never been attempted before—must be accepted as an extension of the process of Franco-German assimilation.

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I know that what is proposed is fraught with risks. At times there will be terrible political difficulties when governments in any participating country come under pressure from strong local interests to bring about changes in the policy which do not suit participants in EMU as a whole. It will be remarkably difficult to maintain the degree of economic convergence that will be necessary to preserve EMU. I know that the enlargement of the European Union will complicate matters enormously. Germany and France will not make a final decision for a while yet, but I understand what drives them, even if I regard the process on which they are embarking to be one of high risk. I must accept that against all odds they will probably go ahead.
Where does this leave us? In all the circumstances, it will be more likely than not that we will stand aside at this stage. If we do so I hope that we shall wish those who go ahead well, recognising that if their great enterprise succeeds as they hope we may well want to join later. To this end, we must regard the preservation of the single market as our paramount interest. There is no question but that discrimination against those who do not participate in EMU is illegal. The sub-committee had ample confirmatory evidence of that. But there will be temptations aplenty for the "ins" to be swayed by commercial arguments to take action put forward by their own citizens. We all recognise that in the real world discrimination is not easy to police. For example, delays can be just as damaging as refusals and are much more difficult to prove.
We shall have to run our economic affairs in a way that does not provoke retaliation in any way. It seems to me that as a member of all the European institutions other than EMU it would be only sensible, and in our best interests, to do so. We must avoid at all costs the kind of bitterness and misunderstanding that some of our actions have provoked in the past. We must remain at the heart of Europe and keep our options open in respect of EMU. This does not mean that I dissent from the remarks of the noble Lord, Lord Bruce of Donington, as regards willingness to speak up where our interests are crucially threatened. We do not have to be mealy-mouthed about it; we can be grown-up.
As so often happens in life, the decision that one faces is not simply between the right decision and the wrong decision but between the wrong decision and one that is less wrong. I shall not make up my mind finally until nearer the time. But, as of today, for all of the reasons that have been given, I believe that to stay out is right, while I accept willingly and publicly that in due course joining will probably be the right choice for this country. If someone can think of a new name for the Euro, that would be a bonus.
6.55 p.m.
Lord Cockfield: My Lords, my noble and learned friend Lord Howe of Aberavon, who responded so eloquently to the wide-ranging and interesting speech of the noble Lord, Lord Barnett, in introducing the report of the sub-committee, has asked me to apologise to the House for his inability to stay for the remainder of the
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debate, particularly for the closing speeches, because of a long-standing engagement. Perhaps typically, I was rash enough to ask him what the engagement was. I can assure noble Lords that it was an absolutely genuine reason why he could not stay.
As I suspected—and indeed feared—the report of the Select Committee has become a peg on which to hang a wide-ranging debate on every aspect of the United Kingdom's relationship with the European Union, even to raise matters relating to the policy of the Labour Party. (I had hoped that on this occasion as on others we might have been spared that.) I have some reservations about the report, not because I disagree with it—I believe that what it says is absolutely splendid—but because I do not believe that it has tackled the job that essentially it was asked to do.
I believe that from the outset the sub-committee got off on the wrong foot. In paragraph 30 the sub-committee reports:
"The Committee's terms of reference involve making three working assumptions: about whether EMU will go ahead, when, and which Member States will join".
With respect to the sub-committee, its terms of reference did not ask it to investigate those matters at all or to come to any conclusions upon them. On the contrary, its terms of reference told it specifically what assumptions it had to make. It was told to conduct its inquiry on the basis that EMU would go ahead, and it was to assume that a significant number of member states would not be able or willing to join at the outset. This is not mere logic-chopping. Neither this Select Committee nor any other can forecast the future. That is a matter for prophets and soothsayers—or, at a pinch, the editor of Old Moore's Almanack. All that the Select Committee could do was to make assumptions, and its terms of reference clearly told it what assumptions it had to make.
It may well be asked why I should object to the Select Committee wandering down these pleasant leafy lanes, particularly as at the end of the day it came to very much the same conclusions as I myself would have done. My answer to this question—although it is a very unfortunate answer it is nevertheless an important one—is that the report runs to 45 pages and, for the most part, the first 37 and a half pages deal with matters which the Select Committee was not specifically asked to address and on which it had to make certain assumptions. It is only when one looks at the last half dozen or so pages, beginning with the heading "Implications of a partial EMU", that the Select Committee seriously gets down to the job it was asked to do. As a result, while what the Select Committee says is fine—for the most part, I agree with it—inevitably it is sketchy, incomplete, insufficiently argued and sometimes open to question.
I was fascinated by the fact that in his speech the noble Lord, Lord Barnett, asked the Minister to reply to about 20 specific points. I should have thought that it was the job of the Select Committee to have considered those points and suggested answers to them. But no doubt, as the Select Committee has not guided us on

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those matters—I shall deal with this in some detail in a moment—we shall fall back on the good offices of the Minister, who I am sure will not let us down.
Lord Barnett: That is optimistic!
Lord Cockfield: My Lords, the noble Lord thinks that I am unduly optimistic, but then, after all, hope springs eternal, even in this field.
Let me start with a preliminary point which has been touched on and which I believe is important. The committee has recognised that most of the "outs" will in fact be what are commonly called "pre-ins"; that is, chaps who want to come in and are doing everything they can to meet the requirements of membership. In the early stages, where that is so the attitude of the "ins" is likely to be benevolent. Under the doctrine of solidarity, they will go to considerable lengths to smooth the path of the "outs"; but if finally the "outs" are reduced to a small core, and if that core consists primarily of those who refused to join on political grounds—the limiting case of course would be that of the UK standing out on its own—the attitude is likely to change. That poses a real threat to this country. But, so far as I can see, nowhere is it dealt with in the report.
The committee is entirely right in considering that what happens to the single market is of paramount importance. That point has been made by a number of noble Lords this evening. The committee says, quite correctly, that discrimination between the "ins" and the "outs" would be illegal, but it recognises the risk of covert discrimination.
But there is another and, I suspect, even more important risk here. It is well illustrated by the case of TARGET, to which the committee refers in the penultimate paragraph of the report. TARGET, of course, is an EMU issue, not a single market issue, but it illustrates the point that I want to make. TARGET is the inter-banks payment system which will be set up to deal with Euro payments. The dispute centres essentially upon overnight risk, and what facilities the Bank of England may be permitted to make available. If at the end of the day the EMI, or its successor the ECB, refuses to allow the Bank of England to provide the facilities it wants to provide, and in the way that it wants to do it, we shall no doubt allege discrimination.
The ECB would no doubt claim that it was doing no more than protecting the integrity of its monetary policy as it was required to do under the terms of the treaty. Interestingly enough, the Financial Times on Monday 22nd July seemed also to take that view. I have little doubt that the Court of Justice would support the ECB on that issue. The matter may yet be settled by negotiation. I hope that it would be, but I cite the case to illustrate the kind of problem which will arise in the single market as well as elsewhere.
In much the same way, there will be substantial problems affecting the CAP. Here again the committee does not appear to touch on the matter, let alone suggest answers. There will be problems also in relation to the regional funds—a matter of real significance to the UK as this country is a major beneficiary. There will be
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problems in relation to state aid; in relation to competition policy; in relation to cross-border trade in taxable goods; and in the field of the taxation of enterprises—a matter which is now just beginning to come on the agenda.
It is impossible in a speech of this kind to spell out those points in detail. The move to set up a new exchange rate mechanism is, in part, an attempt to address those problems, but, with the wide bands proposed, its effectiveness so far as that is concerned will be limited. The UK proposes to stand out from any new ERM anyway.
Many of the problems that I have mentioned exist at present, but they will be greatly exacerbated by the division of the Union into "ins" and "outs". The longer that division lasts, the worse the problem will become. The fewer the "outs" compared with the "ins", the less likely is it that solutions acceptable to the "outs" will be found.
I should like to touch briefly upon the question of competitive devaluation, about which concerns have been expressed. The committee seemed to dismiss those concerns as ill-founded. It is true that taking a long-term view devaluation is self-defeating—that, indeed, I have argued in your Lordships' House on many an occasion—but that has not stopped countries resorting to it. This country is a prime offender. I know that we claim we are now reformed characters, but whenever I find a sinner of long standing saying that he is a reformed character it always reminds me of the alcoholic's lament in the Rubáiyát of Omar Khayyám:
"Indeed, indeed, repentance oft I swore, but was I sober when I swore?"
Leaving that on one side, the country pressing the point is France. Its criticism has been directed at Italy, not at this country. With open frontiers you can gain a large, if temporary, advantage, particularly in relation to agricultural produce, if you undervalue your currency. It is that that the French were trying to stop the Italians doing.
Finally, one of the significant advantages of the single currency is that it greatly simplifies the operation of the Union itself. It reduces the opportunities for manipulation and fraud. While I would anticipate a honeymoon period during which the "ins" will do everything possible to help the "outs", that will not last, and the more the "outs" are reduced to a small core, consisting of those who cannot or will not join, the more the costs arising from the continued existence of fluctuating currencies outside the single currency will be passed on to the people with those floating currencies.
I fear that this is a somewhat critical speech, but my reason quite simply is that if the worst comes to the worst and we opt out of the single currency, we must at least have thought through the problems in depth, and be ready and prepared to deal with them.
7.8 p.m.
Lord Grenfell: My Lords, may I add my own words of congratulation to the noble Lord, Lord Sheppard of Didgemere, on his authoritative maiden speech. He may have felt himself to be a sheep as he stood up, but in

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the course of delivering his speech he shed his sheep's clothing to reveal the lion that we know is underneath. We look forward to hearing him on many future occasions.
I am grateful to my noble friend Lord Barnett for so excellently introducing the debate on this report, and I congratulate him and the committee on what I consider to be the outstanding quality of the report. It is balanced and highly readable. As the noble and learned Lord, Lord Howe of Aberavon, said, it is full of wise and compelling advice. There is a pressing need for such a report at this time. I hope that it will be made widely available, in some appropriate format, outside your Lordships' House. It is critical that EMU be explained objectively to the British public if there is to be a meaningful national debate on the pros and cons of being in or out, or, if out, whether we are "pre-in" or out for good.
I ask your Lordships to forgive me if briefly I introduce a small new element into the debate. Regrettably, if not irresponsibly, the Government appear to have privatised by default the presentation of EMU to the general public, a dereliction of duty that has left it largely to a few powerful tabloids to flood the public mind with a distorted, prejudiced, fear-mongering interpretation of what EMU is all about, a travesty of a right to know, aided and abetted by a motley band of Little Englanders.
If the Government believe that possession of an opt-out clause excuses them from informing the public what it is they may want to opt out of, I must beg to differ very strongly. There is a responsibility to inform, whether the clause is eventually evoked or not, and we are less than two years away from the spring of 1998 when the first EMU entrants will be identified. Even the introduction of decimalisation into this country some 25 years ago was preceded by a four-year explanatory campaign.
If a new government decide to opt in, they will have a perilously short period to run a massive popular campaign on so complex an issue. Without prejudice to the eventual decision, the public need the basic facts and they need them now. It is encouraging that bodies such as the TIC, the CB and the Bank of England, to mention but three, are taking on the responsibility of informing those who most immediately need to know what the implications of "in" and "out" are going to be and what they need to do now to prepare for either eventuality. But meanwhile, despite the grassroots efforts of organisations such at the European Movement, the mass of the broad public remains deprived of the most basic, objective facts. And yet it is they who will eventually be called upon to make one of the most momentous decisions for this country in this century.
I shall dwell no longer on that point because I wish to turn to the substance of the report. I add only that ignorance and the exercise of democratic rights make poor partners. The committee's opinion, as expressed in the report, strikes me as mostly very convincing, and there is neither time nor need for me to enumerate my point-by-point agreement with its various conclusions. I prefer instead to address three points in the report
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about which I have some reservations, and I hope to put them in the same constructive spirit that permeates this very even-handed document.
First, I am convinced that the political momentum in continental Europe to proceed with EMU on 1st January 1999, as indeed the committee sensed in its informal contacts with French and German officials, is growing and a decision to delay is looking less and less tempting. A growing interest on the part of our European partners in the flexibility written into the treaty in Article 109J and its protocols on the matter of convergence criteria suggests that, under the circumstances, this may be a legitimate and politically more sensible alternative to delay. I share the view of those for whom the dangers to EMU's future inherent in delay loom larger now than the risk of a possibly slower build-up of confidence in the Euro if the criteria are applied with a little less than absolute strictness.
The report even-handedly records some of the arguments for delay, or at least the acceptability of delay. Reasons for not delaying which have been offered by witnesses have also been fairly recorded in the report. I would add one other. I believe that delay will be dangerous, because history has too many times proved electorates ultimately right when governments have said that they need a little more time to get something right before a launch and the electorate has seen in this the first signs that the launch will never take place. Whether such doubts would be justified in the case of EMU is rather beside the point. Where there are doubts there will be lack of support, and that can prove fatal to the project.
It can be argued, as the report justly notes, that a loosening of the convergence criteria would confirm the fears of the many German citizens who already believe that they would be giving up the deutschmark for a weaker Euro. I do not disagree that their fears could be thus exacerbated—and to some extent already have been—but I still believe that the greater danger to the project lies in the doubts, not least in the markets, created by delay. If one looks at where the financial markets expect short-term interest rates to go in France and Germany, the two key EMU states, and also at what the markets are telling us about long-term interests rates in these countries, one can only come to the conclusion that the markets have already decided that EMU is going ahead and on schedule.
The difficulties that Chancellor Kohl's austerity package has been facing in Germany's SPD-controlled Upper House might tempt Euro-sceptics to conclude in the spirit of schadenfreude that Germany is now bound to miss the fiscal deficit convergence targets and that EMU is therefore a non-starter in 1999.
I believe that that is a dangerous assumption to make and we should hesitate before drawing such a conclusion. If the German Government fail to push through the entire 50 billion deutschmark package of public expenditure cuts, which are deemed essential by any test and not just as a means of bringing the fiscal deficit down to 3 per cent. of GDP, would not a flexible application of the convergence criteria look even more appealing to a government for whom the

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1st January 1999 starting date appears to be as sacrosanct in Bonn as it is in Paris? In short, I would not count on Germany's fiscal deficit problem scuppering the EMU timetable.
That should certainly be applied to France too. We should take good note of the fact that the French Government—like all French governments, a champion of the nation state—are nonetheless deeply committed to monetary union. As the noble Lord, Lord Ashburton, said, that may be an act of faith, but this is not some aberrant rejection of Cartesian logic, still less a case of schizophrenia on the part of the French. It results from what has been a profound analysis of the monetary union project in the light of what is best for France domestically and for its position in Europe.
For my second point I come to the question of how EMU will affect unemployment. In paragraph 117 the report states:
"On balance, we think that EMU, of itself, is neither deflationary nor likely to reduce unemployment: its effect will depend on whether the ECB achieves price stability and whether national governments achieve a high level of employment as, in our view, is required by the Treaty".
I feel that this wording sells the employment-creating potential of the single currency rather short, or at least undervalues the directness of the linkage, particularly in the case of the United Kingdom. Its potential for reducing unemployment is, or at least should be, one of its biggest selling points and without it the "outs" will be deprived of an important potential benefit.
There seems to be a strengthening consensus that convergence criteria are not in themselves deflationary and that the cuts in government borrowing required of EMU members will reduce real interest rates. In addition to what is noted in the report, the Public Policy Research Institute in a study published at the end of May sees the possibility of a 1 per cent. cut in government borrowing bringing real interest rates down by 0·3 per cent., leading to the creation of a million jobs in the UK within a decade of EMU membership. Christopher Johnson, the United Kingdom adviser to the Association of Monetary Union in Europe, sees the possibility of even deeper falls in interest rates raising growth in our economy to 2·5 per cent., 2·75 per cent. or even 3 per cent., with the actual rate going higher as spare capacity is brought into use. Under these conditions, he says, it should be possible to reduce the unemployment level to around 6 per cent. On that basis, it would seem that the link between a single currency, with its attendant disciplines, and levels of employment is rather more direct than the report allows.
My third and final point relates to trade. I have a slight difficulty with paragraph 123 of the report which states with reference to the UK as an "out" that:
"We can see no compelling reason why its extra-EU trade should be affected, positively or negatively, except in so far as the United Kingdom's general competitiveness will be affected by the economic and political fortunes of the 'ins'".
It is the "in so far as" which is the real point. The wording seems to suggest that the jury is still out on whether Britain can maintain, let alone improve, its competitiveness as an "out". Perhaps the jury is still out for some. But I feel that the risk of a fall-off in inward
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investment if we stay out of EMU is very real indeed. And fall-off in a country where inward investment has, according to the CBI, provided 700,000 jobs since 1979 would translate into a noticeably negative impact on our global competitiveness as we struggle with the social costs of a return to rising unemployment. Therefore, on that point I find the report rather too serene.
As at the outset of my remarks, perhaps I may urge once more that all the facts about EMU should be put on the nation's table now and not at the last moment, so that the debate is truly an informed one. It will not be easy because these are complex issues. But I am certain that those who, like myself, would wish to see Britain as a full member of a well-run European monetary union must press the case vigorously, as does the report, for the maximum British influence to be brought to bear on the design of stage three, as many noble Lords have already said, and for our own technical preparations for EMU to go ahead whether we are to go in or stay out.
The Chancellor's memorandum to your Lordships' Select Committee once again reminds us that the Government cannot make the decision on EMU as a number of factors are still unclear. So be it, although similar factors have not deterred many of our European partners from reaching a decision, at least in principle.
Above all, let no British Government abdicate responsibility by saying that they cannot make up their mind and will therefore act on the basis of what the people think. The Government must lead.
Finally, I am certain that if we are to convince sceptical British public opinion that British participation in a well-run EMU is very much in their interests, we must convince them of the great benefits to be gained from the single market and the benefits which have been gained already from our participation in the single market. If convinced of that, I am sure that people will come to understand that if one of the core purposes of the single currency is to ensure the success and sustainability of that market, it is in their interests and that of Britain to embrace it.
7.22 p.m.
Lord Boardman: My Lords, I had been disturbed by the lack of debate in any depth on this very important subject. But recently the issue has come to life and we now have a growing interest in the key decision as to whether or not we should join a single market. I hope that the report of the Select Committee will provide a good basis from which many judgments can be formed from the debate.
I congratulate the noble Lord, Lord Barnett, on his chairmanship of the committee. We produced an unanimous report on a fairly divisive subject with some fairly divisive characters on the committee. It is a great credit to him that he brought us all together with that result. I am sure that he would be the first to acknowledge that had we expressed any judgment on the implications of various matters, the divisions might have been more prominent.
First, I wish to indicate how little is known generally about what is likely to happen. The noble Lord, Lord Grenfell, said, with some confidence, which

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countries will take part in this. However, I wonder whether we are right to make that assumption and whether this will take place at all. There are wise voices who are expressing considerable doubts about that. The Germans and the French say that it must happen on a certain date or not at all. But I do not think that we should jump to those assumptions or to the assumption that we shall be in it. The noble Lord, Lord Jenkins of Hillhead, referred to Belgium joining the EMU. Belgium certainly does not observe the criteria. It is important to know whether, when the terms of entry are decided, they will be fixed on the criteria or whether there will be a glorious fudge. That will have a massive effect upon the credibility of the scheme if it goes forward.
Secondly, we have an option to decide. That has not been mentioned today. Even if the Government were of the view today—as, indeed, I may be—that it is most unlikely that we shall want to join, at any rate initially, I ask why we should want to close that option which was negotiated brilliantly by the Prime Minister. For goodness sake, we should keep open that option until all the material facts are known. Whoever closes an option which is free and gives one the choice to wait and hear what is developing before making a decision?
The option gives to us, while we still have it, the right to be in, participate in and be involved in the preparations for EMU. That is very important, whether we are in or out. I believe that it would be absolute madness to throw away that option.
The media have been having a delightful field day on this subject for a long time now. They have been playing the supporters against the sceptics. They have been taking leading names and misquoting or quoting them. They have had great fun. But I urge a responsible media to think again about their approach. I believe that they should be analysing all the material which is available. They should be devoting their best brains to writing about this matter and educating the public on the issues which arise. They should not merely be playing A versus B. There is so much that they can and should be doing and, in their historic role, would have been doing.
Perhaps I should try to point the media in the right direction. There are two major issues upon which they should be concentrating. The first issue is the cost of staying out; and the second issue is the price of going in. Those are the issues which should be studied rather than what the Chancellor of the Exchequer, or John Redwood, or even Tony Blair said. I cannot in fact remember Tony Blair saying anything. The media should not be taking sound bites from those people but should be looking at the real issues.
The first of those issues is the cost of staying out. We have heard a lot about that in this debate. We have heard about the risk of discrimination. Although that will be illegal, there is no doubt that there will be covert discrimination. It will be difficult to prove and the available remedies will be slow. The European Court is not always entirely sympathetic to those who wish to stand out against the Community. Any exclusion from
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the single currency or limitation on our entry in any way would be very costly for this country and we must not allow this to happen.
Our position as regards world trade should not be affected provided that we remain as competitive, lively and entrepreneurial in trading with America and the Far East and so on as we are at present. How much I welcomed what the noble Lord, Lord Sheppard, said on that in his excellent maiden speech. I believe that we can and will retain our status in world trade whether we are in or out.
The next subject at which to look is internal investment. Shall we lose the investment coming into this country, investment which has been coming in on a massive scale for years past? Shall we lose that if we are an "out"? The indications are that we shall not lose it. Korean investment and so on has been coming in and continues to come in at a time when it must be known that we are a very doubtful starter for EMU. Therefore, although we should be alert on those matters, I do not believe that the situation will necessarily be as serious as some predict.
There have been doubting voices about how the City will be affected. Most experienced voices—the Governor of the Bank of England and many other leaders of the City—believe that the City can and will prosper, although we should be mindful of the point which my noble friend Lord Cockfield made about TARGET. That is a very important point indeed and I am sure that the City is well aware of it.
I suggest that it would be irresponsible for any of us to underrate the very real risks that industry and commerce may suffer in this country if we stay out. They will be there. I believe that they will be there for us to overcome, if we stay out.
I turn now to the other side of the coin which has hardly been mentioned in today's debate; namely, the price of going in. Indeed, there has hardly been any reference to that. Perhaps I may lead in that respect by adopting some words used by the noble Lord, Lord Jenkins of Hillhead, in his evidence to the committee. I should add that I have told the noble Lord that I shall be quoting his words. In answer to Question 297 he said:
"I would not for a moment try to pretend that it does not move us down the road towards a more united Europe, towards if you like, political union, and obviously this is one of the attractions of it for quite a lot of people".
That is a very fair comment. If we decide to go in, we must be aware that such experienced voices as that of the noble Lord believe that it will lead us to political union.
Next, I should like to repeat what the President of the Bundesbank said, as reported on page 340 of the evidence. He stated that,
"for EMU to be credible, it must be followed by fiscal union".
Moreover, my noble friend Lord Lawson of Blaby confirms in answer to Question 445 that he says in his book that,
"the inspiration of the EMU is not economic but political".

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Indeed, on page 126 of the evidence, Professor Congdon said that,
"you cannot have monetary union without political union".
I should point out to the House that I picked such quotes at random last night; indeed, there were many more that I could have chosen.
Sir Peter Middleton, who was formerly the Permanent Secretary to the Treasury and who is now chairman of one of the leading banks in the City, said in answer to Question 600:
"I think the two [fiscal and monetary policy] go hand in hand in any individual country's economic policy".
In answer to Question 204, my noble friend Lord Tebbit said that,
"there cannot be more than one finance minister for any one currency".
So it went on. As I said, I could have picked many more examples and, indeed, noble Lords reading the evidence will find that to be true. Therefore, according to those quotations, the cost of going in will lead us into an inevitable political and fiscal union with those who we are joining in the EMU.
Sir Leon Brittan, who is of course a Commissioner, also gave evidence. When that proposition was put to him his very partially contrary view was not very convincing. Indeed, noble Lords who read his answer to Question 685 will see what I mean. So the issue remains: is it in our long-term national interest to bear the cost of staying out? Noble Lords have referred to that cost, and there is no doubt that there would be costs involved if we stay out. Is it in our long-term interests to bear those costs or, alternatively, to pay the price of going into a market where our long-term fiscal and political integrity may well be subjugated to the control of others? In that respect, I draw on some of the quotations to which I referred earlier.
I have a view today—but I believe that it would be very foolish to close any option without waiting to see what develops. We have another year or two before the whole matter is firmly closed, and there could be many developments in the meantime. However, neither of the choices will give us a free run. There is the possibility of substantial economic cost if we stay out; but there would be a very substantial political cost if we go in. Those are the areas which I believe must be fully debated, not just in this House and the other place but also widely throughout the country. I believe that the Select Committee has provided so much high-class and experienced evidence that that should indeed help us.
7.34 p.m.
Lord Dahrendorf: My Lords, like other speakers, I had the pleasure and the benefit of serving on Sub-Committee A which prepared the report now before the House. Again, like other speakers, I should like to congratulate the noble Lord, Lord Sheppard of Didgemere, on his outstanding maiden speech. I believe that the committee would have benefited from his presence, and especially from the views that he expressed tonight.
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Serving on the committee meant for all of us that we enjoyed the experience and came to love our chairman the noble Lord, Lord Barnett. However, one must not make a mistake in that respect. Behind the noble Lord's gentle smile there lies a hard taskmaster who took us to this unanimous conclusion. He was so much of a hard taskmaster that 10 of the 12 members of the committee felt that they had to use the freedom of your Lordships' Chamber in order to escape from the constraints of such a well-chaired committee. Indeed, I am no exception.
I have mentioned other members of the committee. In doing so, I am conscious that I have to part company with some in your Lordships' House whose judgment I respect and in some cases whose friendship I value. However, I do so cheerfully and in the spirit of being prepared to be persuaded that I am wrong in my views.
It is widely recognised that a monetary union in Europe is as much a political as an economic objective. The main protagonists of EMU have always argued in terms of the "ever-closer union", and both proponents and opponents have pointed to the political consequences of a European central bank, a common monetary policy, the sharing of reserves and the actions needed to defend the stability of the Euro. Permit me therefore to comment on the political significance of an EMU of "ins" and "outs" for Europe, and, indeed, on ever-closer co-operation of the countries of Europe, which I strongly support. It is precisely because I support such co-operation that I am profoundly concerned not about EMU as such but about the prospect of the divisions which it will create.
EMU as presently conceived means that Europe will be divided in the name of unity. It will either set the process of rallying around common interests back for a long time or it will create an inner core which arrogates to itself the name of Europe and leaves the rest in a state of dependence or exclusion.
Four sets of "outs" deserve consideration. The first consists of those who by choice are not part of the European Union, though they would naturally belong, above all, Norway and Switzerland. The Swiss franc is one of Europe's strong currencies. It is also the first victim of EMU. Already many Germans have transferred their savings to Swiss banks, despite low (and soon probably negative) interest rates, in order to escape the risks of monetary union. That has pushed the Swiss franc up to a level which threatens to damage indigenous industry and Swiss business generally. Incidentally, the same could happen to others who are out, even to sterling, especially during the precarious transition period in which the Euro is half there and half not.
The second set of "outs" consists of those countries which are members of the EU and want to move forward to ever-closer union but may be deemed ineligible by the self-chosen few. Greece is likely to be among them, although the former Finance Minister (and EU Commissioner) Palleocrassas has told your Lordships' committee that Greece wants to meet the criteria. Portugal will probably be out, and so will Spain, despite the efforts of the new Spanish Government and those of their predecessor.

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Then there is Italy, one of the original members of the EEC and a consistent supporter of European integration, with a strong economy and a serious policy of bringing public expenditure, as well as inflation, under control. The noble Lord, Lord Roll, with whom I share a great love of Italy and respect for the country, has already spoken of this. When the Italian commissioner, Mario Monti, hinted recently that Italy may not be in at the creation, he caused consternation in Rome, although he merely reflected what everyone says in Brussels. Rumour has it that Belgium will be forgiven its sins of public debt because it would be awkward to keep the seat of Europe's institutions out, but Italy's participation would make it difficult for some governments to persuade their electorates that the Euro will actually be as stable as the German mark. If such rumours turn into facts, this would be an odd way to promote European co-operation.
It is said, of course, that those who do not join EMU on day one can do so soon after or at any time later. That is fine so far as it goes, but it may not go very far for at least three reasons. The first is that, unlike a customs union which others can join in stages, monetary union marks a qualitative jump which requires all-or-nothing decisions from latecomers. Secondly, there is the fact that the "ins" will try to impose strict disciplines on the "outs", and those who see themselves as "pre-ins" may find it hard to resist such disciplines. France, in particular—it has already been mentioned—still smarting from Italy's last devaluation, insists on a tough ERM 2, at any rate for the "pre-ins". This, however, will rob the "pre-ins" of the most important adjustment mechanism which they have in order to comply with the criteria for membership. In the absence of massive transfers, what are they to do but allow their currencies to float downward? An ERM 2 makes future membership less rather than more likely.
The third reason for scepticism with regard to the openness of the early EMU is that the project is bound to be precarious for quite a long time. The Euro has no track record; nor does that unique construction, the central bank, which, contrary to other "independent" central banks, is removed from any democratic context. Moreover, the first members of EMU will have suppressed contingent liabilities which are bound to affect deficits and thus stability within the next decade. Just think of German pensions, my Lords. Thus the probability must be high that "pre-ins" will have a long and painful wait.
So will a third set of "outs" which we have already shamefully neglected: the new democracies of east central Europe. The report before your Lordships' House makes only a passing reference to enlargement. It rightly endorses the Chancellor's view that,
"EMU and enlargement should each be treated on its merits";
and it also emphasises the warning by one of the Chancellor's distinguished predecessors, my noble friend Lord Jenkins of Hillhead, that failure to proceed with EMU may block progress with enlargement. But what if a partial EMU does take place? Surely it is clear that, with the possible exception of the Czech Republic,
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none of the east central European countries could become a part of EMU for some considerable time. They would remain in the outer circle, having been in the waiting-room for a long time already. The European Union may have failed in Yugoslavia, though there must be doubt whether it was ever equipped to intervene effectively as a union; but the Union has most definitely failed in the task of using its treaty-based instruments for offering the post-communist democracies of Europe a lifeline of support for freedom and prosperity. EMU will turn this failure into a deliberate policy. Can anyone be surprised that a growing number of Polish, Hungarian and Czech politicians look to other horizons, notably to NATO, for support?
Then, fourthly and finally, there may well be some voluntary "outs". So far as concerns 1999, I agree with others that Denmark, still referendum-scarred, is probably one, and the United Kingdom another. I have heard it said that one or two others may not be too unhappy about not meeting the convergence criteria in time. The UK is likely to follow policies which would keep it as close to the Euro as it is today to the stable currencies of continental Europe without necessarily being dogmatic about the highly arbitrary "Maastricht criteria". In that sense, the door to membership of EMU—if indeed it happens and if it survives the first three years—would remain open, although a reminder is necessary that joining it would not be a unilateral decision but a process of negotiation and agreement.
However, my final point is a different one. EMU will split Europe because it will be a partial EMU, an EMU of "ins" and "outs". Those of us who are concerned about this split will have to make every effort to hold together a Europe which deserves the name. The single market is a part of this Europe; and it certainly needs defending. The "habit of co-operation", as Andrew Shonfield called it in his 1972 Reith Lectures with the appropriate title, "Europe—Journey to an Unknown Destination", is another achievement worth preserving. Settling disputes is easier between those who have established and proven relationships, with much give and take over time. Enlargement remains high on the agenda of the creation of the real Europe. There are other goals. I for one find more merit in the attempt to integrate the European Convention on Human Rights into Community law than in merging the EU and the Western European Union.
EMU is troubling to supporters of European union precisely because it is an EMU of "ins" and "outs". If some core countries cannot be prevented from embarking on this divisive course, others will have to champion the cause of Europe in areas of common interest. This might well be a purpose which takes the United Kingdom out of its present largely defensive policy towards Europe and into the lead for a new Europe of active co-operation.
7.48 p.m.
Lord Stoddart of Swindon: My Lords, first, I should declare an interest, although it is not a financial interest, as chairman of the Campaign for an Independent Britain. I suppose that that makes me one of the Little Englanders to which my noble friend Lord Grenfell—he is just

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leaving the Chamber—referred. However, sitting as I do on this side of the House, I am not too concerned about that since I understand that the term "little Englander" was used as a term of abuse against those, usually on the Left, who were opposed to British imperialism. The noble Lord also asked for a debate on the issue. Perhaps I may say that the Campaign for an Independent Britain has just published a new pamphlet entitled, There is an alternative: Britain's relationships with the European Union, and I commend it to all noble Lords.
I wish to congratulate the Select Committee on its report. The chairman and its members have put in a good deal of hard work; and I sincerely hope that the report will be of some help in the debate on EMU and a single currency. I am sure it will, we have had a good debate so far today.
Before I proceed, perhaps I may correct a remark made by the noble and learned Lord, Lord Howe of Aberavon. He is not in his place, for the reason he explained. During his speech he referred to 66 per cent. of our trade being done with the EU. He used the figure in support of his arguments. I refer him to the table on page 333 of evidence from Economic Trends 1995. It shows that total trade, including visibles and invisibles, was 46.6 per cent. not 66 per cent. Even if visibles alone were taken—and that would be absurd since services, invisibles, are increasing—they constitute only 55 per cent. So the figure of 66 per cent. does not hold water.
It is perhaps a useful coincidence that we should have this debate the day after the resignation of Mr. David Heathcoat-Amory, the former Paymaster General. There is a man who has been at the heart of Europe both as a Minister for Europe in the Foreign Office and as a Treasury Minister. Having been there, he does not like what he sees. In his resignation letter he refers to the relentless drive to political union. He is also convinced that joining a single currency would be disastrous, both politically and economically. That comes from a man who has been at the heart of Europe. Of course he is right. The drive towards a country called Europe is relentless and the demand for the completion of EMU and a single currency becomes more strident every day, particularly from France, Germany and the institutions of the European Union itself.
Demand is not based on any reasoned economic case but on blind political opportunism and ambition. Two witnesses—the noble Lord, Lord Kingsdown, and Mr. Gavyn Davies—said that they were unaware of anything like economic and monetary union ever having been achieved previously in monetary history. So what is being proposed is a leap in the dark. There is no precedent for it. So EMU and a single currency is a leap in the dark. Let us not forget it.
But despite that proposed leap into the dark and the unknown—which is most likely to lead at best nowhere and at worst to chaos and confusion—the siren voices of the pro-Europeans, the Europhiliacs if you like, urge us onward and onward, although the end product is either obscured or deliberately concealed, as so much of the argument has been deliberately concealed since about 1962. Noble Lords do not need to believe me, they should merely ask the BBC to allow them to watch the excellent programme called "The Poisoned Chalice".
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The Europeanists, aided by the querulous whimperings of those who are afraid of retaliation if we do not bend to the will of the people who believe in economic and monetary union, lack confidence in Britain's ability to make it in the so-called global economy. They ignore the fact that smaller countries, including Switzerland and Norway in Europe, do extremely well and that our ability to take full advantage of the burgeoning global market is constrained by our membership of the EU, not assisted by it.
At least the Governor of the Bank of England, in his evidence, had some confidence in Britain. He at least is prepared to concede that this country can survive and prosper in the harsh competitive world, provided we have confidence in ourselves and apply sound economic and monetary policies.
What is being proposed—economic and monetary union and a single currency—is not some kind of souped-up ERM. That was an unmitigated disaster. Everybody agrees with that now, even those who urged us into it. It caused the worst recession since the 1930s and lost at least 600,000 jobs. Britain left the ERM in ignominy and defeat and the baleful effects are still being experienced by our economy.
But of course the single currency is quite another thing. It is the abolition of the pound and of our own currency. It is irrevocable. It says so in the treaty. It is not a pilot scheme. Once you are in, there is no way out. Make no mistake about it, the treaty says that it is irrevocable. The treaty is right. Our reserves to begin with will be handed over to other control than the Bank of England. Any major country leaving a single currency or attempting to leave would cause chaos, not only in Europe but worldwide. So once we have lost the pound, we cannot get it back.
We are told that the single market will collapse without a single currency. I do not believe that to be true as a matter of fact, but I say that any benefits from the single market will not be worth giving up our currency and our reserves, our power over monetary policy and eventually, I fear, over fiscal policy as well.
On the economic front, the gains from a single currency would have to be absolutely overwhelming for us to give up our currency. Even to contemplate giving up our currency, they would have to be overwhelming, and with that, we would have to give up control over our own economy. But the report shows no evidence at all of overwhelming gain to the United Kingdom's economy. Indeed, the report is very critical about any possible gains, as those who have read it will agree. So on economic grounds alone, it would be criminally foolhardy to take such a leap in the dark. The Government and the Opposition should say now that they will not take such a leap.
But even on the most optimistic basis, with complete convergence, could it work? Again let me quote from the report and the evidence of Sir Peter Middleton on page 25 that there are,
"only three ways of allowing regions to adjust: 'You can adjust by government transfers, by letting your exchange rate move, or by moving businesses and people'".

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Let us look at those three. First, government transfers of any great note are ruled out. We are told—and the report refers to it—that there is no possibility of those huge transfers being made. Germany wants to cut its net contribution. It is demanding a cut in its net contribution. So apparently the differences cannot be evened out by fiscal transfers.
What about letting the exchange rate take the strain? That is ruled out as well, because individual regions will not be able to set their own exchange rate; it will be set centrally. So there is no means of correcting economic differences in that way.
Then there is the question of moving businesses and people. People are reluctant to move from Manchester to Birmingham, let alone from anywhere in Spain, for instance, to London. Those policies are not possible. There are not enough banks to transfer the people who would need to be transferred if we are to correct economic differences that way.
If none of those adjustments is to be made to secure regional balances, what happens as poor regions become poorer and greater numbers join the dole queue? Will there be joint action? Will there be marches? Indeed, will there be revolution? Certainly in parts of the Union there are sometimes volatile situations which could lead to great difficulty. This is a political matter. It is not an economic matter at all. In the words of Herr Kohl, Herr Lammars and Herr Brok, it is a proposition to create a country called Europe. It is a dream that they have which I believe will inevitably turn to a nightmare. Every new policy is a further ratchet to that country called Europe.
As I say, some people believe in the concept of a country called Europe. I doubt whether there is anybody in this Chamber who believes in that concept. That is where economic and monetary union and a single currency are leading. I sincerely hope, as I said, that not only the Government, but the Opposition and all people who believe that this country should have self-government by its own elected representatives and its own elected government will resist any further moves towards a single currency, EMU and further European integration.
8.3 p.m.
Baroness O'Cathain: My Lords, I am most grateful to our chairman for handling such an emotive issue through many meetings with aplomb. I know that everyone else has said that, but the fact that we have a unanimous report is a tribute to his painstaking approach. He remained calm at every turn, and kept us all in order. "Masterly" was the word that I had written down, but it was used by the noble Lord, Lord Roll. I must also add that the experience of serving on the committee was tremendously enjoyable. It has been a great privilege to be a member. It was a singularly interesting assignment to consider the likely effect on the UK of the terms of reference of this investigation.
As has been said many times, the general level of knowledge in relation to EMU is abysmal. This report will help repair that deficiency. It should be required
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reading for anybody involved in the economic and political life of this country. Indeed, I support the wish of the noble Lord, Lord Grenfell, that the report should have a very wide circulation outside this House. More heat than light has been generated on this subject, particularly during the past 36 hours or so. The report casts much light on the subject and should lead to an informed debate, not only in this Chamber.
The EMU issue is an ever-changing scene. What was current in May this year when we finished our investigation is not necessarily current now. I venture to suggest that if some of the witnesses who were before us in the months leading up to May gave more evidence now, they would present many new angles. The situation is truly dynamic. To that end it is quite right that we should infer from the recommendation that this is such an important issue that it should be understood and kept "front of mind" but not necessarily at the top of ill-informed speculation.
I wholeheartedly endorse the words in paragraph 111 to the effect that,
"this report can be no more than a contribution to a fast-moving debate on issues on which the EU's detailed plans and the public's view of them are continuing to evolve".
That underlines the validity of the position taken by my right honourable friend the Prime Minister in refusing to move from holding the opt-out until the situation is a lot clearer. Any other stance would he foolhardy.
This report is remarkable in the balance it achieved between the choice of witnesses. That is a characteristic of House of Lords Select Committees. As a member of the committee I found my knowledge base expanding by the day (not directly in proportion to the mound of paper that was generated!). Close examination of the evidence will almost certainly aid one to arrive at conclusions, whatever one's prejudices.
My close attention to the words, both verbal and written, of the witnesses helped me to hone my views of the relationship between the United Kingdom and other members of the European Union and led to firmer views as to what I feel the United Kingdom should do. I stress that these views are largely from a business stance and are encapsulated in seven points.
First, membership of the European Union has been beneficial to UK business. One has only to examine the inward investment record which has resulted in so many jobs being created. In the past 12 months, for example, 48,000 new jobs have arisen from some 477 projects. We very often forget that the United Kingdom accounts for some 38 per cent. of all inward investment in the European Union.
Secondly, the single market has been particularly successful in what it has achieved so far. From the point of view of UK business it has effected a sea-change in the focus of our exporters. I cannot envisage any contemporary tabloid newspaper carrying a banner headline: "Fog in Channel, Continent cut off".
Thirdly, the convergence criteria are just the sort of targets that any responsible government should set (or, at least four out of the five are; namely, inflation rates, long-term interest rates, budget deficits and public debt ratios. I am not so sure about membership of the ERM

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for two years in advance of membership of EMU). These criteria are similar to those that any successful business would want to follow. The question must be asked: Would these criteria be achievable and sustainable if the United Kingdom continued to exercise the opt-out?
Fourthly, in the oft-repeated words (but none the worse for that), the United Kingdom must be seen to play its part at the centre of Europe. As an aside, I do believe that the influence of the UK in the corridors of Brussels is much greater than is either realised or acknowledged. Perhaps we should be more "up front" in praising the achievements of the EU and less ready to reach for the megaphone when things go somewhat haywire.
Fifthly, in all our relationships with the EU, let us continue to work on the areas of consensus and sort out the differences. Surely we must work to make Europe work for all. I was very heartened by the words of the noble Lord, Lord Dahrendorf, who introduced into the debate the subject of enlargement. The report makes only passing reference to it; but we had many a long discussion about it. All members of the committee were unanimous in believing that it is extremely important. It caused us great concern that we might perhaps not be able to manage both membership of the economic and monetary union and enlargement of the European Union.
Sixthly, the whole EMU issue is so very complex that I find it difficult to accept that a referendum question could be formulated that would give rise to any meaningful response from the public. The public does not have, nor do I think it really wants, the facts of the pros and cons—the argument about the "ins" and "outs", for example. Playing my personal game of limited market research on the subject among people who would consider themselves to be well-informed, I find huge ignorance of what EMU is all about. Even the initials are more often than not misinterpreted as European monetary union rather than economic and monetary union, and one must not fall into the trap of asking such people to describe the difference between monetary and fiscal policy. As an economist by training I fear I have to admit that we economists have done precious little to explain such issues in understandable terms. That further underlines the need for more information about the issues, which is what this report does.
The Government will need all the skills of Merlin the magician in forming the question to be asked in a referendum. Having lived for the lesser part of my life in a country where referenda were quite common, I came to accept, probably cynically, that referenda were undertaken in the same manner as business employs management consultants: you know what to do but you would like someone else to take the stick for suggesting it. If, politically, a referendum is seen to be necessary, then so be it, but let us not fool ourselves that we shall get a proper steer from the electorate from the use of such a device. On a purely personal note, the use of a referendum smacks of a lack of decisiveness.
Seventhly, we cannot possibly withdraw from the EU now. Frankly, our younger generation would not stand for it. I have been looking at the young people up there
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in the Gallery today, and I am constantly struck by the ease with which today's young people relate to the peoples and situations in other member states. There has been enormous benefit to the wider education of very many of our youth through Erasmus projects, courses taken abroad as part of a normal degree course at our universities, and work experience gained in other member states. All of this would have been quite extraordinary when I was at university; all of it is accepted as normal by contemporary youth; all of it builds up links and understanding which are invaluable to the businesses in which these young people will work; all of it is as a direct result of membership of the EU and is just one more, but seldom mentioned, reason why we cannot possibly withdraw now.
Business does, however, have concerns. There are two fundamental concerns, both of which need addressing. The first of these centres on the uncertainty surrounding the chant, "Will we, won't we join the EMU?". The lack of certainty leads to difficulty in forward planning and I know that investment decisions are being scaled down or delayed during this period of uncertainty. There is a strong body of UK business which does not believe that EMU will ever happen. The attention of that group should be drawn to the statement in paragraph 111 of the report, namely, and I quote:
"EMU is not a whim or a fashion that will pass."
An equally strong body of business opinion does believe that EMU will come about, but that body of business opinion is probably too busy keeping its eye on the ball in the highly competitive world of international trade to spend much time taking positive action to meet the future challenges.
That observation leads me on neatly to the second major concern of business, namely, cost. The cost involved in the preparation of computer and other systems has not been mentioned before. Very little so far has been written or said about the serious cost implications of reaching the millennium, and I am not talking about the celebrations in the year 2000 or 2001, whichever is regarded as appropriate.
Computers are the mainstay of practically all social and economic activity now. When computers were first programmed in this century, and ever since, it was considered correct to allow just two digits for the entry of a year. For example, 1963 appears as 63; 1996 as 96, etc. So far so good. If today some computer wishes to make a calculation of when a pension should be paid the date of birth will be subtracted from 96, so a person born in 1931 will appear in the workings of the computer as 96 minus 31, i.e. 65. Come 2003 a person born in 1938 will appear in the workings of the computer as 03—the year only ever having two digits—minus 38, and the answer will be minus 65. This must all seem cuckoo to your Lordships, but it is very serious.
Only this morning we heard why the recent Ariane 5 rocket exploded. The computers, which had been adequate for Ariane 4, were fed more digits than could cope with the demands of Ariane 5, and this led to the spectacular explosion.
The cost of changing all the computers in the business of food retailing alone to cope with the millennium is estimated to be in the region of £300 million, and if that

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is translated into total UK business the figure could be approaching £8 billion. Such a level of "dead cost"—cost incurred without any additional benefit—will almost certainly lead to company failures.
The real point is that if the changeover to a single currency is added to this confusion at the same time the costs could be astronomical, and utter chaos would almost certainly result.
I do not want to indulge in scaremongering, but in taking note of this report we must also decide to take heed of the likely cost implications of the introduction of the single currency and perhaps consider the possibility of getting a consensus to postpone the European-wide introduction of the single currency until the effects of the millennium changes are absorbed.
I should like to make a suggestion arising from what I have just described. My noble friend Lord Haslam as a member of the committee, continually pressed for more witnesses from industry and business. We were greatly assisted by those we did examine but perhaps in future Select Committee deliberations greater emphasis should be placed on making sure that the voice of industry and commerce is more strongly represented. Our knowledge of the likely implications of EMU membership on the banking sector is good because we had a lot of witnesses, but we should not forget that it is the makers of things and the providers of services who create the wealth for our economic well-being.
I return to the reference in paragraph 111 concerning the evolving nature of the fast-moving debate on the issues of EMU. There is a danger that when one looks at something under the microscope, as we did in the course of this investigation, one can become myopic. It takes time to adjust to the surrounding world and realise that it is not only in the EU amphitheatre that things are changing. The Asian tiger, as my noble friend Lord Sheppard of Didgemere mentioned in his excellent maiden speech, is not exactly standing still. There is a constant pattern of change in the economic, monetary, fiscal and business fields, all developing apace, yet all having an interlocking effect on each other.
We should also remember that the economic giants of today are not necessarily likely to be the economic giants of, say, thirty or forty years hence, and the whole issue of EMU must be considered in the context of long term planning and not just in planning the next 18 months.
Since we completed our investigations I have been concerned to read of a study undertaken by the economic adviser to Lloyds Bank on the pensions position in developed countries in the next few decades. It appears that due to a combination of ageing populations and "pay as you go" pension schemes the majority of developed countries will suffer major public finance crises during the next fifty years. The study shows that in Germany and France indebtedness as a percentage of GDP is likely to be over 100 per cent. above the Maastricht limit of 60 per cent. Many smaller countries would be hit in a similar way. Incidentally, the UK can take comfort from the fact that it is an exception
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to this doom-laden prophecy, partly because of the relatively low future elderly dependency ratios and also due to the relative generosity and wide coverage of other countries' public pension systems. This underlines the fact that although some countries appear to be in the economic ascendancy just now that can change, and we must mark that.
Nothing stands still forever. This report emphasises that point. We must keep aware of, and participate in, the future of the European Union if we are not to be left behind. I endorse this report completely.
8.18 p.m.
Lord St. John of Bletso: My Lords, I had intended to talk today about the cost implications of EMU, but after listening to the eloquent presentation of the noble Baroness, Lady O'Cathain, with all her personal commercial experience, particularly her experience as a non-executive director of Tesco, I decided to scrap all that.
At the outset I should like to congratulate the noble Lord, Lord Sheppard of Didgemere, on a fine maiden speech, an authoritative maiden speech, and a maiden speech which gave us all the wisdom of his vast experience in commerce. I agree entirely with the noble Lord, Lord Dahrendorf, when he said that it is a pity that we could not have had the noble Lord, Lord Sheppard of Didgemere, with us on the sub-committee.
I was enormously privileged to have been able to be part of the committee, and I should like to express my appreciation and my admiration for the manner in which the noble Lord, Lord Barnett, chaired the sub-committee. I have no hesitation in saying that on such a complicated, highly divisive and far-reaching subject the noble Lord steered a masterly tack to achieve completion of the report.
I used the word "divisive". I was somewhat amused when the noble Lord, Lord Haskel, said that the Labour Party was united in its views on Europe. I looked at the noble Lords, Lord Bruce of Donington and Lord Stoddart. I thought that it was a debatable comment and I noticed a few shakes of the head when it was made.
As arguably the most junior member of the sub-committee with little experience or expertise on European Union affairs and with City experience as a consultant in one of the largest investment banks, I approached this inquiry with an open mind. I did, however, have a number of strong reservations. With such an impressive array of witnesses giving evidence to the committee, all with compelling and in many cases differing arguments for and against joining EMU, I found myself swinging like a pendulum from side to side, wondering whether the opportunities of joining European Monetary Union were, in the words of the noble Lord, Lord Stoddart, "a dream" for the ultimate completion of the single market or a potential "nightmare" if it did not succeed.
I have certain reservations about EMU but I am totally in favour of the single market, more specifically in favour of dropping trade barriers and achieving free trade. I believe that we, in the United Kingdom have

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made considerable advances in our economic and competitive attractiveness through deregulation and privatisation and that we have, in fact, done much more than many of our partners in Europe. That point was well made by the noble Lord, Lord Sheppard.
There is a compelling argument that the rationale for achieving economic and monetary union is more politically motivated than based on sound economic logic. The drive to EMU is in sharp contrast to Asia, which is achieving economic integration without, as one economist in the City recently put it, "needing to put a huge political roof on its economic house". It must be remembered that the concept of EMU was devised at a time when economic conditions in Europe were very different from those which prevail today. That was before German reunification and when the European economies were growing healthily; there was no serious problem with budget deficits and the ERM was functioning smoothly.
Sir Leon Brittan, addressing the Federal Trust Conference in November last year on the subject "How to make EMU work" commented:
"Europe now needs a single currency, if it is to reach its full economic potential."
We need to ask ourselves four very simple questions. Are we currently able to operate efficiently in the single market as it is at the moment? Can a single market be completed without a single currency? Finally, on the two points raised by the noble Lord, Lord Boardman: what is the cost of staying out and what is the price of staying in?
My simple argument is that there needs to be adequate and more extensive public debate on this extremely important, irreversible and far-reaching issue. I do not believe that it would be prudent to rush into trying to join in the set timetable by 1st January 1999.
I totally support the objective of achieving exchange rate stability in Europe. To that end, I support a strict interpretation of the convergence criteria. As the report concludes (in paragraph 128):
"the achievement of sustainable convergence is the critical condition for exchange rate stability".
Any fudge would show that the move to proceed with EMU by the timetable set, is more of a political move than one based on sound economic policy. After the debacles in 1992 preceding our departure from the exchange rate mechanisms, it is no wonder that in evidence the Treasury was somewhat sanguine about the idea of joining ERM 2. However, the report continues (in paragraph 130):
"If the United Kingdom decides to stay out of ERM2, and to remain out of the Social Chapter, it is likely to be viewed by other Member States as having chosen deliberately to limit its involvement in the future development of the EU".
Clearly there are many political and informal risks, if we opt not to join the group of "ins".
Many noble Lords have spoken today about the possibility of discrimination, but this is specifically not allowed under the Treaty of Rome. If there is discrimination, it will more than likely be in an informal manner. As Sir Michael Butler explained:
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"We could find ourselves in a position where our power to influence decisions, not only on EMU but on other issues, would be much diminished".
Several of those who gave evidence, and several noble Lords today, have mentioned that the "inner club" would strive to deal with many other important issues wider than pure monetary policy. Certainly, I found it alarming that many of the witnesses believed that the United Kingdom had already lost influence in the European Union.
But whatever choice the United Kingdom takes, the market—and here I refer to direct inward investment into the United Kingdom—investors will need to be convinced that, in the words of the report, we are:
"set on a path of exchange rate stability and not currency depreciation".
One of the main criticisms against EMU by leading economists in the City is obviously the concern that by joining the so-called "inner club", the UK will be giving up its control over monetary policy and with it, the flexibility to handle its own domestic monetary affairs, as well as giving up its currency reserves. There is the natural concern that the European central bank will take some time to build monetary policy credibility. Until such time as that credibility is established, in all likelihood there will be a substantial risk premium attached to the Euro and Euro-denominated debt.
My other concern is that it is questionable that the ERM has made the single market operate more effectively. I have not heard any evidence to suggest that non-ERM members have failed to make the most of the single market by virtue of not being members of the ERM. There is a commonly held view that, if we were to opt into EMU, we should have lower interest rates in the United Kingdom. I fear that that is a pipe dream. Certainly it cannot be guaranteed.
Another concern, which many may argue is unjustified, is that by opting into EMU we may be swamped with excessive legislation. As a lawyer by training, I have always been committed to more deregulation. It is a view shared by the noble and learned Lord, Lord Hailsham. I fully support the recommendation in paragraph 145 that:
"opportunity should also be taken to examine the case for making the Bank of England operationally independent, within a statutory framework, if the United Kingdom decides to stay out of EMU".
As for the City—even though my noble friend Lord Roll of Ipsden may not agree with me—as long as we continue to pursue sound fiscal and monetary policies consistent with low inflation, I do not believe it will be affected in any major way, whether or not we are part of EMU. Clearly, however, the City will need to make the technical preparations for EMU whether or not the United Kingdom eventually signs to join.
Finally, of course, there is the concern as to how EMU will affect unemployment. As it appears that Germany and France will be the major players in the "inner-club" it is worth noting that they both have unreformed labour markets, with German unemployment as high as it was when the Berlin Wall fell. However, over the past few years most European countries have managed to reduce their unemployment by between 5 and 10 per cent. I refer to a typical

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example in the motor industry where the hourly labour cost of a qualified motor mechanic in Germany is 45 deutschmarks. The same qualified motor mechanic in the United Kingdom would earn approximately 21 deutschmarks. To give an example from the Far East, in Indonesia the rate would be a mere 5 deutschmarks. I believe that no amount of growth and no social pacts will stop increased unemployment in EMU core countries.
I am afraid I have been far too general in my comments in this extensive debate. It is worrying that several of the leading economists believe that there is a 60 per cent. chance that EMU will not occur on time, and an even higher chance that it will blow up if it does. In the words of the report at paragraph 131:
"If EMU goes badly wrong, and breaks up, there will be exchange rate instability and a serious risk to the continuance of the Single Market".
However, if, as many predict, it does work well for the "ins", there will obviously be much more incentive for the "outs" to apply to join. I hope, and I am sure, that no hasty decisions will be taken by Her Majesty's Government without full reflection of the pros and cons of this important, far-reaching and possibly irreversible move.
8.32 p.m.
Lord Renfrew of Kaimsthorn: My Lords, the noble Lord, Lord Barnett, has done us a great service by chairing your Lordship's sub-committee which has produced this report. I certainly consider it a great privilege to have served on the committee and to have come to appreciate that these are indeed complex and uncertain matters. It might be said that never has a subject given rise to such a considerable range of perceptions. It is about perceptions that I wish to speak principally this evening.
First, it astounded me that this report on this delicate and important matter received such minimal attention from the national press. Yet every pronouncement by dissident or Eurosceptic Back-Benchers is treated as an important news item. It is indeed extraordinary that there seem to be two debates going on in this country: one hyper-politicised, trivialised, based on preconceptions, expressed in sound bites and slogans, and another, more measured, more thoughtful, such as we have heard this evening, and no doubt with a wider divergence of views but in some senses more realistic.
I have to say that I think there is somewhere a failure of leadership in our national system in that I fear that the true debate is going on in the tabloid press and the debate weighing up the issues, as we have been doing this evening, is largely ignored. This country risks misjudging a series of crucially important decisions through slipshod political manoeuvring, through pandering to populist xenophobia, and through the misleading use of worn-out clichés with which we are all familiar—remarks about national sovereignty—usually without troubling to define such terms.
It is clear that EMU is likely to go ahead, probably in 1999, and, as a number of noble Lords have said, France and Germany will either meet the Maastricht
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convergence criteria or otherwise achieve agreement at the Council of Ministers that they have come close enough. Reference has been made several times to the paradoxical case of Belgium which is not going to meet the criteria but will be deemed to meet the criteria. They will take with them Austria and the Benelux countries, as we have heard. The noble Lord, Lord Grenfell, was right in pointing out that the strict criteria may not be met but will be deemed to be met. My noble friend Lord Boardman used the word "fudge" and I think he may be right.
There is nothing much that we can do about that and, I was going to say that there was little point in debating it, until I heard the very interesting speech of the noble Lord, Lord Dahrendorf. In a way I wish we had asked him to give evidence to the committee on which he sat and asked him for those observations which I found interesting. At the same time, if EMU is likely to go ahead (which I believe to be the case), his analysis, although perceptive, does not necessarily advance us in the question as to what our own response should be.
It is clear that this country too will come within striking distance of meeting the convergence criteria. If Belgium can get in on an interpretation of the convergence criteria, there is not much doubt that the UK too could get in if it wanted to and if it was supported at the Council of Ministers. The decision, probably in 1997, could be our decision and the Prime Minister at Maastricht achieved a brilliant success in leaving that decision to us. We are in the unique position—perhaps along with Denmark—of being able ourselves to decide the matter. Clearly there is absolutely no benefit to anyone in throwing out that freedom of decision.
Remember, my Lords, if I may invite you to do so, that if Britain were to decide to remain out in 1999, surely we would wish to retain flexibility of action for the future. Otherwise, this issue could all too easily become a re-run of Britain's disastrous failure to enter the Common Market when we wished to do so. If we were to rule out now any option for entering in the next Parliament, how do we then retain an option for a future date? I believe that the Eurosceptics are leading Britain up a blind alley, pretty much the same blind alley as gave General de Gaulle the opportunity to veto Britain's entry into the Common Market.
My right honourable friend who, until two days ago, was Paymaster General, published only yesterday a pamphlet entitled Why the United Kingdom Must Say No. I must say I am constantly impressed at the publicity skills of the right wing of the party of which I am a member. I have to say that for the Bruges Group to commission this pamphlet from my right honourable friend, then to give him time to write it, and for the Bruges Group to publish this pamphlet, all in 24 hours was a remarkable feat indeed. In that pamphlet he conjures up the spectre of "a huge federal European budget" which would be required. Our committee, in the evidence which was taken and published, makes clear that there are very few who would hold that view and there are indeed safeguards against it.

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Sitting on your Lordships sub-committee, I was impressed by the highly contradictory nature of the opinions offered in evidence, as the noble Lord, Lord Ashburton, has also pointed out. My noble friend Lord Boardman's doubts on EMU, for instance, were supported by a number of witnesses from the City who emphasised Britain's role as a global financial centre as opposed to a European financial centre. I was considerably impressed that there was a clear sentiment in the City—not a unanimous sentiment but a legitimate view—that the City could manage well enough without, thank you. On the other hand, my noble friend Lord Haslam was consistently keen that we should hear the views of industrialists. When we did so we found them in general concerned about the disadvantages for Britain of being "out" and above all of being a voluntary "out". I think this is related to the point which my noble friend Lord Sheppard made in his admirable maiden speech this afternoon.
On any reading of the evidence it is clear that this is not just a monetary question and indeed not primarily a monetary question. There are, of course, purely economic arguments in favour of joining, but the decision Britain will have to make in due course is whether we still want to be an effective part of Europe and of a Europe of nation states. I think we should remind ourselves of that phrase "L'Europe des patries" which was a favourite phrase of General de Gaulle. I do not think that the suggestion that the French are now seeking a unified Europe of a completely different kind is warranted.
We must ask whether, by being an "in" we shall be able to ensure that the Europe which emerges corresponds to the vision which we have and which my right honourable friend the Prime Minister has a number of times set out. He said yesterday that it is still important that Britain's voice be heard in the negotiations until they are concluded. While I agree with that, I detect a slightly defensive note in the term, "until they are concluded". Moreover, I am concerned at the extraordinary circumstance that when Britain's policy in this matter is enunciated by the Prime Minister, by the Deputy Prime Minister, by the Foreign Secretary and by the Chancellor of the Exchequer, it is still portrayed in the press as a minority view and those not insignificant figures in our public life are regarded as a beleaguered minority. I find that extraordinary. We must make no mistake; it is clear from what we have heard that if we are "out" and voluntarily "out", and if we choose to stay "out", there will be no favours towards Britain.
Much consideration was given in our report as to the likely sentiments on the part of the "ins" towards Britain if we are a voluntary "out". It is of course the "ins" who will be the inner group shaping the future of Europe. The relevant paragraph of the report is 139 and my noble and learned friend Lord Howe made the same point much more effectively in his extremely interesting speech. There is perhaps hope that goodwill might prevail towards us—a voluntary "out"—on the part of the "ins", but not a few witnesses took the view that an underlying competitiveness or even hostility might prevail.
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Those views were enunciated and the report took its shape in the month of May and was published on 11th June. Since then we have had that upsurge of xenophobia which accompanied Euro '96. It is not irrelevant to quote the tabloid press at that time because the view of the nation is sometimes reflected and sometimes shaped by the tabloid press. The same prejudices apply, though it may be that the nation in general understands football better than it understands the intricacies of monetary union.
Since that time also we have had the policy of non-co-operation—mercifully short-lived—during the early BSE confusion. Like others who have spoken I was embarrassed by the policy of non-co-operation and I am sure it has left a significant legacy. Who today could count on the goodwill which is anticipated in the report published on 11th June? As my noble friend Lady O'Cathain, was saying, times move on; we are in a dynamic environment. Well, times have moved on and we cannot count on such goodwill.
The message of the report is that these are complex issues. If the EMU happens on time, it is not entirely clear that Britain would be wise to stay "out". But what is clear is that we should be concerned today at the limited impact of our report. The noble Lord, Lord Grenfell, was saying that it should be widely circulated. We have done our best, but I do not think that it has had much impact.
First, we should probably be concerned at the limited impact that this debate will have. I found it a most profitable debate, but I am not sure how widely the profit will be experienced. Secondly, we should be deeply concerned at the level of discussion on this topic in the national press. The wrong issues are being addressed. We shall be told once again, "the pound in your pocket will be a Euro" and that will be sufficient to garner negative votes towards the enterprise. Thirdly, and most significantly, we should be concerned at the level at which these topics are being treated in our two main political parties. I know that there is apparently more unanimity among the Liberal Democrats, but that may only be because I am not so aware of their deliberations.
We should be deeply concerned at the trivialising level at which this subject has been treated by our political parties. It is pretty certain that, if and when we come to make the decision, we will probably not make it for the right reasons and it is possible that we shall not make the right decision. The lesson from the report—it is a good one—is that the decision will not be guided on the principles enunciated in the report and your Lordships should be extremely concerned.
8.45 p.m.
Lord Desai: My Lords, I am the tenth member of the sub-committee to speak this afternoon. When the noble Baroness, Lady Williams, speaks, all but two of the members of the committee will have spoken. Let me therefore repeat in a different way what other members have said. Our chairman was excellent. He was good and firm at keeping in control what was not a very orderly mob. All I can say is that I recommend to the

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Minister that if his right honourable friend needs someone to chair the Cabinet and keep its members under control, I offer the services of my noble friend.
The problem we have is that there is a fine balance between the arguments for and against. The economic case has never been strong one way or the other. There are all sorts of probabilities which can be attached to it and many of them have been mentioned this evening. We can mention factors like illegal discrimination. We can exaggerate its probability and its impact or we can downplay it: inward investment; the City's position; how important the markets are. As people go for or against, they put probabilities on the arguments. It may seem as though all hell will break loose or tremendous benefits will be achieved by either going in or not going in.
It is difficult for me as a professional economist—I shall turn to my personal views in a moment—to believe that there is a substantial balance of advantage either way. The industrialists, as we have heard, would very much like to be in. The City is divided: some people think it can manage without and others believe it to be important. On the other hand, among economists there is a substantial difference of opinion. I can recall when the debate was taking place in 1972 and someone took a survey of professional economists in the UK. They were almost exactly divided down the middle as to the advantages and disadvantages of going in.
I do not believe that, no matter how much more information we collect, on technical economic grounds there will be an overwhelming case for one side as against the other. As many people have said, there are many important political issues to consider. Again, to those political issues we must attach probabilities to various outcomes. Because the whole programme of a single currency is a political programme, we have to judge the issue in a political way.
Is it to our advantage to be into this programme, judging the probabilities of its success and so forth; or is it perfectly feasible to stay out of the monetary union but accept the European Union; or to go out altogether, as my noble friend Lord Stoddart said? He had a strong argument for going out of the European Union altogether, but we are discussing a narrower issue.
My personal position was for a long time strongly that of a Europhile, if not a Eurofanatic. I believed that a single currency should happen. Indeed, I would not only have waited for convergence but I would have had a "big bang" solution and taken the convergence costs later. But I always thought that a single currency was feasible only in a federal context. We need a powerful fiscal instrument centrally administered if we are to have a single currency. Bankers are paid to be deflationists; that is their job. Bankers will always tell you that if you do anything there will be inflation.
It would have made a great deal of sense if the centralising dynamic of the European Union had continued, as appeared likely, when Jacques Delors drew up his plans. Since then two things have happened. As noble Lords have pointed out, when the plans were drawn up the European economies were doing much
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better. All the fiscal numbers were good and the growth rate was fine. There was also a push towards centralisation. In the past five years the European economies have had many fiscal problems, including the recession. Whereas in 1992, nine out of 15 countries qualified for all the criteria of Maastricht, today about three qualify.
The European economic situation has deteriorated and at the same time the federalising programme has lost steam. I believe that happened at Edinburgh, which more or less stopped the federalising programme in its tracks. The Delors plan of running a Euro-Keynsian employment scheme by borrowing from the European Investment Bank and having trans-European networks and so forth was stopped. I believe that if you have a weak centre with a very limited budget and a single currency, there are problems. Unlike many other noble Lords, I do not fear that a federal budget will rise. I wish it would. If it does not, we shall not have the transfer capabilities which are required to correct for the loss of one instrument that a country has, which is fiscal policy sovereignty.
One of the important political judgments to make is whether the federalising dynamic will resume itself. If it is not going to do so, one has to hold back and ask, "What will be the set of instruments that people may have for correcting the problem of distortion?". Many of my fellow economists talk about "an optimum currency area" and ask, "Do you believe that the European Union is an optimum currency area?". I do not believe that there are any such areas at all. The United Kingdom is not a optimum currency area. We have a great deal of regional unemployment. Italy is not an optimum currency area.
Countries compensate partially for distortion through regional aid or various other policies. Therefore, unemployment remains unequal across regions. There is also unequal income across regions, but that is mitigated slightly by people being part of the same political entity and maybe there will be compensation.
Currently, the European budget is 1.2 per cent. of the European GDP. If it were to reach about 3 or 4 per cent., that might just about do it. But I do not know that that is likely. I do not know whether it is likely that the European Commission, ECOFIN or the Council will be able to undertake investment projects which will tackle the very serious problem of unemployment.
My position, even before I come to the question of the UK, is whether it is even a good idea for the European Union itself to go down this path just because it was written down 10 years ago. I was deeply impressed by the speech of the noble Lord, Lord Dahrendorf. His European credentials are entirely beyond doubt. He said that the partial EMU project is likely to be destructive of the European programme rather than constructive. One should consider the list of "ins" and "not-ins". Apart from the UK and Denmark, the "pre-ins", including Ireland, are the poorer countries. They are the countries which are relying on a lot of transfers. The "eager-ins", if I may call them that, are the richer countries.

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There has already been an official proposition made by the head of the European Monetary Institute that the "ins" should act en bloc in ECOFIN and thereby set the conditions for the "pre -ins" or the potential entrants. There is the suggestion of the stability pact, which is not part of the Maastricht Treaty. That can be imposed by the "ins" on the "pre-ins", which would be a rich nations club making further obstacles for those who are likely to be hurt.
I began to have my doubts when the convergence conditions were put out. It has been pointed out for a long time that the Maastricht conditions do not take care of the cyclical fluctuations against a 3 per cent. deficit. The convergence conditions are proving extremely costly for the countries which want to join and which are likely to do so. For the likely "ins", such as Germany, France and Italy, the biggest problem is that to fulfil the convergence conditions there has been a great deal of unemployment. The remarkable thing is that, given all the talk of solidarity and co-operation, it should have been possible for these countries to come together and arrange a convergence package which would have minimised the unemployment cost for each other, but that has not happened. So the European co-operation that one relies on has gone away and the costs of convergence are very large.
That is where my reservations start. However, those people who believe that staying out and having monetary sovereignty is a great prize have to remember that we have not used it very well. Indeed, monetary policy in this country has been a disaster. If devaluation had done anybody any good, we would have been very prosperous by now because we have done nothing but devalue since 1973, except for the brief episode in 1980 when we had the overvaluation of sterling. We have continually devalued. Every time we have had a problem we have devalued. That has not raised the long-term growth rate of the country by even one-quarter of 1 per cent. Devaluation has definitely brought the sterling value down from 11 Deutschmarks to 2.36 or whatever it is today. Although people think of the ERM episode as a great horror, when this country was in the fixed exchange rate system of Bretton Woods we had our best growth record.
There are other reasons for that. There is a great tendency, when faced with the problem of competitiveness and structural change, not to take the path of structural change but that of monetary ease. Although the past three years since our exit from the ERM has been almost a miraculously good episode, as is the fact that the Chancellor and the Governor of the Bank of England find some sort of agreement on monetary policy, the people are not convinced that the United Kingdom will not once again resort to perpetual devaluation.
The proof is that currently we are paying one to one-and-a-half percentage points extra in interest rates on the long-dated gilt. That means that there is a cost both to the Budget, because it takes more to finance a deficit, and also to businessmen. Therefore, the one argument for going into the scheme would be that, if the Euro were to prove to be a stable currency, the United Kingdom policy-makers would turn their
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attention to real structural changes which are required to make the economy competitive and not go for the soft option of devaluing early and often, as we have been doing. If one looks at the history of the devaluation that has been undertaken since the breakdown of Bretton Woods, this country has had an abysmal economic performance.
I conclude where I started. At the moment there is probably a political balance between postponing the decision and saying that we are interested in participating and will not give up our option of joining but will wait and see what happens to the Euro. It may not be as good a currency as the deutschmark. At the same time, we should make quite sure that the modicum of monetary discipline that we have acquired is not lost. Whether or not the ERM or the Euro dictates it, it is in our interests to forgo laxity in monetary discipline, certainly in a globalising world. Therefore, while I do not favour entering the Euro immediately as I would have done five years ago, I would not back any of the wild devaluation schemes that are often put forward.
9.1 p.m.
Lord Hamilton of Dalzell: My Lords, I very much welcome the report of the Select Committee. I am one of those noble Lords who frequently ask questions in this House about the single currency only to be told that the question is hypothetical. Of course, the reason for saying that it was hypothetical was that it was thought to be superfluous because of the opt-out. But an option always represents indecision. I cannot see how you can ever make up your mind about anything without hypothesising. I have enjoyed the hypothesising in which we have indulged this evening.
The terms of reference given to the Select Committee were economic. I agree with the noble Lord, Lord Desai, that the matter is very evenly balanced and that there are strong opinions on both sides. However, I agree far more with my noble friend Lord Boardman, who says that what we ought to consider is the political price of being in. This is a political question which will not go away.
I strongly believe that we are discussing one of the most important decisions that this country has had to make in its modern peacetime history. The same can be said of all nations which decide to join the single currency. We are being hurried into this decision by the Germans for political reasons. I liked the comments of Sir David Scholey in his evidence to the Select Committee. He said that this process was like building an arch from the keystone down.
In addition, Professor Issing of the Bundesbank has delivered a number of warnings about trying to force monetary union before the states have reached a situation in which they are prepared to join together in a single government. It has never worked before, and I do not believe that in the end it will work this time. I cannot see how those who adopt the single currency can be doing anything other than entering an association with each other which involves the acceptance of unlimited liability for one another's liabilities and debts. It is impossible for any country which uses the single

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currency to have its currency collapse unilaterally regardless of the irresponsibility of its government. In his evidence to the Select Committee my noble friend Lord Lawson issued a warning to the effect that this was more inclined to lead to irresponsibility because of the safeguard that nothing could happen to one's currency. In this regard, it is prudent when considering unlimited liability to look at the possible downside as well as the upside.
Therefore, the work that is being done on the stability pact is of prime importance. No member of the single currency could be allowed to imperil the hard-earned reserves of other states. We have the views of Herr Waigel on how it should work. The penalty for budgetary waywardness should be higher interest rates and perhaps fines for those countries that offend. The Select Committee has agreed that this solution is unacceptable to it, but I doubt whether the Germans will settle for very much less. Short of assuming total budgetary control, which is the more likely outcome, it does not seem possible that such a system can be avoided.
My right honourable friend the Chancellor of the Exchequer has emphasised that the level and composition of taxation and expenditure should remain matters to be decided by member states. This view was also expressed in the evidence of Sir Leon Brittan. What would be the result if a high-spending, high-taxing country found itself in a vicious downward spiral of falling taxation due to recession, or to what is referred to as an asymmetrical shock? The central bank would be bound to move to defend the assets of the other nations. One would then have the situation where a country in trouble would find itself forced by the pressures placed upon it to take measures which it did not wish to take.
I can hear the proponents of this theory saying that all of this is very wholesome economic stuff. But what about the electorate? This is the essence of the political problem of monetary union. A number of countries, notably France, agreed the Treaty of Maastricht by the narrowest of margins. Substantial numbers of people throughout Europe have never agreed to this process, and the same may well apply to us if the idea is ever dealt with here in a referendum.
I should like to illustrate the point with the following analogy. The narrow channel of economic rectitude has on either side of it a minefield of political mines waiting to explode under the government of any ship in the convoy which strays from the course. The actions of the central bank will have the effect of destabilising governments at exactly the moment when the going is toughest for them. It means that on occasions governments will be in office but will not have power over the prime responsibility of managing their economies to the satisfaction of their electorates. If this country decided to be in, the intrusions of the central bank could make it impossible for the government to deliver their electoral manifesto. As a result, Members of Parliament might have to acclimatise themselves to shorter periods in office than those to which they have become accustomed. For that reason, far from
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introducing stability in Europe and reducing the chance of war—a point that has often been made by the noble Lord, Lord Jenkins—monetary union would tend to destabilise the relative political calm that the countries of Europe have enjoyed since the war. If we joined it would threaten the stability provided by our well-tried and tested democracy over the centuries.
Therefore, in examining the evidence given to the committee, we should not confine ourselves to considering only what the best choice might be for the country's or City's financial balance sheet. The evidence given to the committee is, in any case, ambivalent on that subject. We should be asking ourselves whether we should ever respond to a request to put a financial price on our ancient democracy which has bent with the political wind for centuries and kept us free from revolution. Is there a price which your Lordships would care to put on that, or is it beyond price? I believe that it is.
9.8 p.m.
Lord Monson: My Lords, I very much agree with what the noble Lord, Lord Hamilton, has just said, and in particular the last part of his speech. I hope that the noble Lord, Lord Barnett, will not think me discourteous if I touch only tangentially upon the excellent report over which he presided and which of course I read when it came out, because there are other aspects of monetary union which have not yet been referred to.
First, I shall refer briefly to the condemnation by the noble Lord, Lord Renfrew, of Her Majesty's Government in connection with their non-cooperation over the BSE crisis. He may have forgotten that in their time France, Italy and Spain have all indulged in non-cooperation policies. Indeed, the Spanish went so far as to veto the entry of new states into the EU until they—that is, the Spanish—were given more money. Few people resent or condemn those countries now and, curiously enough, few condemned them at the time. I do not see why Her Majesty's Government should have been singled out for particular opprobrium.
I do not need to remind your Lordships that the UK is the only oil-producing country in the EU and that we export twice as much to the USA as does any other EU country. Those two facts alone should prompt us to regard with the gravest suspicion any suggestion that we should irrevocably lock ourselves into a monetary union dominated by countries with different resources, orientations and priorities from our own.
EMU would not only be disadvantageous to the UK but also, albeit to a slightly lesser extent, to most other EU countries. Contrary to what Euro-enthusiasts may imagine, most of us in the sceptic camp wish our Continental cousins well, for emotional and sentimental reasons every bit as much as hard-headed, pragmatic ones.
I shall try, first, to dispose of the transaction costs argument arising from the deplorable attempt to rip off the noble Lord, Lord Jenkins of Hillhead, about which he told us and which I am glad had a happy ending. If he were here, I should tell him that there are many ways

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of limiting one's transaction costs to less than 1 per cent. of the amount transferred, but there is not time to go into that now.
To opt for EMU merely on the grounds of lower transaction costs is like voting for Mussolini because he promised to make the trains run on time. Both low transaction costs and punctual trains are highly desirable things in themselves, but both are essentially trivial compared to the main issues at stake.
I turn now to one of the main issues: 18 months ago the Evening Standard ran an extensive article entitled "New Europeans", featuring a number of youngish Britons who are living on the Continent and doing very well out of the single market. One of them, a Mr. Paul Hooper, attributed the success of his pan-European architectural practice to the fact that slumps hit different European countries at different times so that there is always work available somewhere; in other words, if business is poor in Denmark, one can always find something to do in Holland; if Spain is going through a difficult patch, Italy may turn up trumps; and so forth.
However, once EMU is in place those escape routes will dry up. There will be no more nipping to the country next-door to avoid a recession. A single European currency will mean a single European business cycle, and Mr. Hooper, and tens of thousands like him, will be out of luck.
There is another potential consequence which has not so far been mentioned. It is not unduly cynical to point out that all democratic governments the world over try to massage their economies so as to be able to loosen the purse strings in the year or nine months before the next general election so as to create the famous "feel good factor". Once the general election is safely out of the way—assuming that there is a working majority—the brakes are slammed on and then is the time for the inevitable retrenchment and the painful measures which all countries need to take every so often. Those are taken soon after the election in the hope and expectation that by the time the next election comes round the electorate will have forgotten all about the hard times.
Once EMU is in place the chances of any one country being able to stimulate a feel-good factor at the right moment from its point of view is almost nil, except by a lucky coincidence. Imagine for a moment that we have moved on six-and-a-half years to the beginning of the year 2003. General elections are due in the United Kingdom, the Republic of Ireland, Portugal, Italy, Greece and Sweden some time in 2005 or early in 2006. However, by an unlikely, but theoretically possible, coincidence general elections in the other 9 countries are all due earlier during 2004. In theory, of course, the European Central Bank will be Olympian, impartial, detached and immune to all blandishments—the Maastricht Treaty says as much. In practice we know differently, remembering well how the supposedly Olympian, impartial, detached Bundesbank had its arm twisted by Chancellor Kohl at the time of German reunification. Against its better judgment, the Bundesbank was forced to accept an artificial and unreal exchange rate for the Öst mark, vis-à-vis the Deutschmark.
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It is hard to see in practice France, Germany, Spain and so forth not doing the same behind the scenes and persuading the Bank to trim interest rates towards the end of that year (2003), thereby inducing a feel-good factor across the Community which would be enough to secure the re-election of the incumbent governments in France, Germany, Spain, the Benelux countries, Denmark, Austria and Finland. However, the inevitable monetary brakes will have to be slammed on shortly afterwards at the end of the year, thereby ensuring that the governments of the United Kingdom, Ireland, Italy, Sweden and so forth are toppled at those counties' elections which are due in 2005 or 2006. They will not have been able to trim interest rates nor increase their budget deficits over 3 per cent. of GDP—if the Bundesbank has its way it will be reduced to 1 per cent. of GDP—which would have allowed a certain fiscal relaxation which cannot now take place.
Member states will then rapidly get the message that everything possible must be done to harmonise general election dates right across the Community in so far as their respective constitutions can allow. Assuming that the latter can be stretched so as to permit a common fixed term, ultimately you are likely to end up with all general elections being held in the same week of the same month of the same year. The British will probably maintain their eccentric preference for a Thursday polling day while the Continentals will stick to Sundays. But that will not make much difference.
What then? Will not people soon think, "What is the point of 17 separate elections simultaneously for 17 separate legislatures, none of which retain many residual powers"? Why not be realistic and have one election for one massive legislature from which can be chosen one administration presiding over an entity which might well be "christened", if that word has not fallen foul of the political correctness lobby, the USE?
Some of your Lordships, though not the noble Lord, Lord Stoddart, and others, may consider that a somewhat fanciful scenario. However, we should not forget that not long ago an experienced Conservative MEP was gleefully—he is a great Euro-enthusiast—predicting a single European Army and Air Force by 2020. Of course, being a frequent visitor to Brussels and Strasbourg, he knew much more about what was going on in the heads of the zealots in those cities than do most of us here.
It may be conceded, on reflection, that the picture which I have conjured up is one possible logical medium or long-term consequence of EMU, against which everyone throughout Europe, not only in this country, who values the Gaullist concept of a Europe of nation states should be on their guard.
9.18 p.m.
Lord Harding of Petherton: My Lords, it is not only the Conservative Party which is divided and confused by EMU—the whole country is. The division cuts across parties, generations, the sexes and, dare one say it, class. Within the two main political parties that division has been seen today in this Chamber. The Labour Party is just as divided as the Conservative Party, but that is not

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so apparent to the electorate as the Labour Party is in opposition. It appears that the Liberal Democrats are wholly in favour of EMU.
Across the generations, the young tend to be more in favour of EMU than their elders. On the whole, women are virulently against it, as they are anything to do with the European Union. Middle England, which is a horrible term—I never know quite what it means but it certainly does not mean anyone living in the Midlands, although some media commentators appear to imply that it might—is said to be absolutely against it.
Therefore, I was delighted that Sub-Committee A of the European Communities Committee of this House inquired into the matter of an EMU of "ins" and "outs". The evidence and report have clarified many of the questions which have been clouded by emotion, patriotism and even xenophobia and the syndrome of not upsetting our partners in the European Union.
As other noble Lords have done, I wish to commend the noble Lord, Lord Barnett, and his committee on an excellent report. There is no one better qualified in this House than the noble Lord to be chairman of the committee. He asked questions of high powered witnesses which tried to get behind the rhetoric, evasions and prejudices so that it was possible to see the reality of the issues upon which Parliament and the public will have to decide in a referendum in the next few years if the government of the time recommend that we should join.
I turn now to the party political angle of EMU, in particular within my own party. I do not believe, as many of my Conservative friends do, that by ruling out our entry into a single currency in the next Parliament we shall win the next general election. The public are not complete idiots, as some politicians seem to assume. The electorate will know that such an announcement by the Prime Minister would be a cosmetic exercise in deception. Even if the Cabinet and a majority of Conservative MPs could be persuaded that it was an election winner, which I am certain they would not be at this stage of the European negotiations, it would be seen to be, as indeed it would be, a completely cosmetic exercise in deception.
It is extraordinary to believe that if we all say the same thing, even though many of us do not agree, the majority of the electorate will put their cross against the name of their Conservative candidate. At the risk of making enemies, I should say that it beggars belief that some politicians and Conservative journalists can be so naive. We Conservatives will win the next election on our record in government and on the excellent economic conditions which have been created by my noble friend Lady Thatcher and my right honourable friend John Major and not by using that sort of gimmick. I am sorry if I have gone away slightly from our excellent discussions on EMU and its implications.
It would be disastrous for this country and, indeed, for the European Union if our participation in EMU, of whatever sort, should be ruled out during the next Parliament by either of the main political parties. None of our European partners would listen to us at all in the
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negotiations and discussions to set up how EMU would work. The very valuable work which the Governor of the Bank of England and Mr. John Townend have been and are still doing in Frankfurt in working parties of all kinds would go by the board.
Mr. George made it very clear in his evidence to the committee (on page 27) how valuable is their advice and how the other central bankers are listening and willing to take that advice. I am not in favour of joining EMU, in any event at the start. Having read the report of the committee and a great deal of the evidence, I do not think that it is necessary at all for the single market, as other noble Lords have said before. The transaction cost savings which are cited by some as the most important reason for joining would be comparatively small. Again, that has been said by other noble Lords. There is very little, if any, danger of barriers to trade being erected against us if we do not join. Such barriers would be completely illegal under the single market treaty, let alone GATT and World Trade Organisation agreements. The only tangible advantage, it seems to me, would be the transparency of prices within the EMU-participating countries. Those can also be exaggerated: only consumers travelling for short periods between this country and other participating countries on the Continent would benefit. Manufacturers which export must be very well aware now—and, indeed, will be in the future—of the figures dependent on the exchange rates at the time, so I suggest that that factor would be comparatively small.
The only major disadvantage in our not joining would be political. As my noble friend Lord Lawson put it very clearly in his evidence, the whole motivation for EMU is political. We will have to persuade our European partners who participate that it is not in our interests to devalue the pound against the Euro. We will also have to persuade the financial markets. That can only be done by continuing the Government's policy of keeping inflation very low. That is within the power of the Government.
The disadvantages of our joining EMU are plain to see, at least to begin with. We would be joining an untried system. As has been said by other noble Lords, a single currency set up between independent nation states has never been tried before. The analogy with the United States of America is completely false. There you have a central Federal Government, with democratic institutions which work and are respected by all Americans; you have a people 99 per cent. of whom speak the same language and share the same culture; you have a tradition of labour mobility, which, apart from a few building workers and others, is non-existent between Britain and the Continent.
There would be a real danger in our belonging to EMU, as, indeed, there would be for any country which joined; that is what economists call, "asymmetric shocks"; for example, the collapse in the demand for an important product or products in one country. That could happen over a period of time, as was the case with shipbuilding in this country and with other industries in which demand was fading. They are best handled by interest rates and exchange rates moving. That would not be possible within EMU, where the European

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Central Bank will be in sole charge of interest rates. That may cause a great increase in unemployment and in business failures in one country or another.
I am doubtful whether EMU—even a small one or one restricted to include France, Germany and the Benelux countries—will occur in 1999. I simply do not believe it. I believe that the Bundesbank will insist on the strict criteria of the Maastricht Treaty. If the Bundesbank finds that the criteria have not been met, I do not believe that the German Parliament will be able to agree. Whatever Herr Kohl and his government say, I simply do not believe that it will happen in any event in 1999. I may be proved wrong but I would almost put a bet on it.
In conclusion, I am not in favour of our joining EMU, at least when it starts, even if the start is delayed. I am, however, against ruling ourselves out of joining. My noble friend Lord Boardman put that point very well. Most importantly, we must ensure that we can influence how EMU is to be set up. That will affect our position whether we are in or out, and, indeed affect the whole cohesion of the European Union. We may in future years see it in our best interests to join EMU if it is working well.
9.29 p.m.
Lord Leigh: My Lords, I must crave your Lordships' indulgence in that I was not present in the Chamber at the beginning of the debate. However, I have very strong feelings about the common market which, I am sure, will not be popular with the Conservative Party. Nevertheless, I believe in those feelings as, indeed, do many of my fellow countrymen. Probably I should not be sitting on this side of the House, as I am right of the Conservative Party; but where should I sit? I am not a Cross-Bencher because I am too right for them.
Noble Lords' parents and ancestors, together with mine, fought two world wars this century to free Europe from the oppression of Germany. I know that my ancestors, and quite probably some of your Lordships' ancestors, would be shocked at the path that the present day Conservative Party is taking. Many of our fellow countrymen gave their lives in the two world wars so that we would be free and not live under the thumb of Germany. Germany, having failed twice, is now trying to gain what it failed to achieve in two world wars by the back door entry through the common market: supremacy over the rest of Europe. I can assure noble Lords that partnership does not come into it. Germany wants supremacy. Why should we surrender all that our ancestors achieved in preventing Germany over-running us just to appease a few politicians?
I am not a political creature; nor am I an economist. I do not know the monetary "ins" and "outs" or benefits. But why cannot we drop Germany, which only wants to rule us, and the Benelux countries (as I believe they are called), which have to agree with Germany or else? I leave the "or else" to your Lordships' imagination.
Surely we would be better trading with China which, as a nation, is an emerging giant. We could also trade profitably, or more profitably if we tried harder, with
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the other eastern nations. I am sure that we could influence the stability of the Middle East if we increased our trade in that region.
I was brought up under Winston Churchill, and Anthony Eden was our local Member of Parliament in our constituency of Warwick, Leamington and Kenilworth. Like those two eminent politicians, I shall not succumb without a fight.
I leave your Lordships with this thought, borrowed from our late head forester's widow, who greeted her husband on his return from a night out drinking with the words, "Are you a man or a mouse?".
9.31 p.m.
Baroness Williams of Crosby: My Lords, first let me admit immediately to being a mouse—but a mouse that can roar, I believe is the right description. I was about to say that this has been an excellent debate and reflected the fact that in your Lordships' House we usually deal with rational argument. I shall stick to that statement on the basis of the majority of those who have spoken.
I wish also to pay tribute—with, I believe, every other member of that committee who is in the Chamber at the end of the debate—to my noble friend Lord Barnett. I probably know him better than most. I know that he is the highest quality of iron in the deepest level of velvet glove because I knew him as Chief Secretary. Therefore, I know a strong man when I meet one and I am not a bit surprised that he was able to steer this ship to the harbour that he had probably thought of at the very beginning. I congratulate him on the excellent way in which he chaired the committee.
I wish, too, to join in the many tributes paid to our maiden speaker Lord Sheppard. I believe that the noble Lord, Lord Sheppard, the noble Lord, Lord Renfrew, and the noble Baroness, Lady O'Cathain, reflected an extremely important factor in the debate: that whether or not we like it, we now live in a globalised economy. We live in a world where almost all the barriers to trade have been swept away, at least so far as concerns the developed world. We live in a world where we have to get used to the idea that the concept of national sovereignty has changed a good deal. We cannot determine how the tides will flow—whether they are the tides of money or of geographical ebbs and flows. The truth of the matter is that since the larger number of constraints on capital movements were raised in the 1980s, every single developed country is in the same position. It has to persuade the market of the orthodoxy and common sense of the financial policies that it follows. That is a very tough discipline indeed.
I congratulate those who have made this point. I believe that it could be made more widely in the debate in this country because, alas, it is not fully understood, as the noble Lord, Lord Renfrew, pointed out. I somewhat disagree with the criticism made by the noble Lord, Lord Cockfield, of the fact that the committee considered who might or might not be members of the future European Monetary Union. It seems to me highly relevant to the committee's discussions and conclusions that we thought deeply

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about who might or might not join. The reason for that was that the number and weight of potential members would to some extent influence the effect they could have on this country. If the membership were to be small and insignificant and if the weight of numbers were on the other side, the impact on this country of a decision would be less than if a substantial number of members—especially the economically stronger members—of the European Union decided to embark on European Monetary Union. Despite the usual excellence of his speech, I thought that the noble Lord, Lord Cockfield, was being hard on the members of the committee and the noble Lord, Lord Barnett.
I believe that in 1999 European Monetary Union will go ahead. I agree with those like the noble Lords, Lord Ashburton and Lord Renfrew, who said that the reasons for it will not be purely economic. They will not. In substantial part they will be political. I do not find that shocking; unlike the noble Lord, Lord Leigh, I find it extremely encouraging that Germany is now anxious to work with its European partners and does not seek military domination of Europe. Germany has consistently attempted to follow its ambitions and goals within the framework of Europe—not, as Thomas Mann famously said, a German Europe but a European Germany.
Those like myself and others in the House who have been part of an attempt to create a new kind of Germany with strongly democratic roots since the Second World War ended recognise that Germany is a much changed country today. It is important that we in this country pay tribute to that fact. It is no good pretending that Germany is still a country of storm-troopers and so on. To do so is to return Germany to the most dangerous aspects of its history and not recognise the serious, sincere and, I believe, successful attempt that Germany has made to be a model democracy. I emphasise that last phrase.
Germany will enter the European Monetary Union to a great extent not because of its wishes but because of those of France. As noble Lords know, the Bundesbank is not enthusiastic about European Monetary Union; it never has been. But voices in favour of European Monetary Union which go back to the Werner report of 1970, the Padoa-Schioppa report of 1987 and the Delors committee report of 1989 are not new voices. It has been part of the aims of the European Community almost from the beginning. As my noble friend Lord Jenkins of Hillhead said, it is not something that suddenly came down the track at Maastricht. It was a part of the concept of the European Community long before it became the European Union. The reason is simple. I am not saying whether France is right or not, but it is important to put the fact on the record that, unlike us, France has always believed that it would exercise more influence as part of a European structure than it would as the weaker member of an intergovernmental structure. It read into that the lesson of what happened when the French franc was almost broken at the time of the ERM breakdown in 1990.
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I wish to make two more points. Some of the issues raised by the noble Lord, Lord Desai, and my noble friend Lord Dahrendorf are ones which we should take on board in a House like ours which can discuss them seriously and rationally. As the noble Lord, Lord Desai, said, some of the implications of the convergence criteria could be deflationary, even seriously deflationary. I agree that there is a case for saying that there should be some budgetary counterweights in order to offset the effects on an individual country if they are serious. That point needs to be considered, especially in the case of new members. I agree with the noble Lord, Lord Dahrendorf, that the new members from eastern Europe are important. I believe that one of the most important roles Britain could fulfil if it decided to enter the European Monetary Union in 1999, as I still hope that it will, would be precisely to pave the way for the new member states of central and eastern Europe to join also within a reasonably short period. That would mean throwing our weight as a country behind a monetary policy that was able to encompass their needs as well as the needs of the original member states.
I conclude with a comment on the debate in this country. I find that debate profoundly frightening. The level at which we have conducted the debate on this next great step in European integration, whichever side we may be on, is no credit whatsoever to this country. In the Eurobarometer Report of 31st May this year (only just over a month ago) 82 per cent. of the British people said that they wanted a referendum; 12 per cent. said they did not; 61 per cent. of the British people said they either knew nothing or very little about the European Union. So the very people who wanted a referendum freely admitted that they knew nothing about it. It is not the case, with great respect, as one noble Lord said, that there is a strong majority of the British people against the European Union. The figures are approximately 36 per cent. for, 26 per cent. against and then the key figure, the 27 per cent. who say to the Eurobarometer that they do not know—the implication being that they do not know because they do not know enough.
Our tabloid newspapers have a very great deal to answer for. When one of them declares war on Germany across the whole front of its paper, with pictures of helmets and old pictures drawn from the Second World War, and when another declares that it is going to pay out money to those who are most effective at knocking the Dutch out of the sea, one begins to wonder at what level we expect to conduct one of the most important debates of our existence.
The politicians, including all of us, have not adequately given a lead towards rationality. I wish that one or two noble Lords who have used strongly emotional arguments had been here to take part in this debate. We need to make it clear that in the next few months we must get this debate back on a more serious, balanced and sensible basis. We owe that to our own people. We owe it to our partners in Europe. We owe it not least to the future of this country.
9.42 p.m.
Lord Eatwell: My Lords, it has been made abundantly clear in the course of this debate that we are

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all enormously indebted to the noble Lord, Lord Barnett, and to his committee for their valuable report. Among other things, it has given us the opportunity to hear the interesting maiden speech of the noble Lord, Lord Sheppard of Didgemere.
What distinguishes the report is its practicality. It does not argue the labyrinthine rights and wrongs of monetary union—a subject which has tempted some noble Lords this evening. Instead, it confronts the issues facing this country should a single currency be formed among some of the European Union countries whether or not this country is part of that monetary union. It is exactly that kind of careful, practical consideration that has been notable by its absence in the approach taken by Her Majesty's Government to the question of monetary union. There was nothing of any practical consequence in the Chancellor of the Exchequer's thin little memorandum which he presented to the committee. There was no response to the issue so carefully and judiciously spelt out in the report of the lack of preparation for monetary union whether in finance or industry. The Chancellor of the Exchequer, in his evidence to the committee, simply declared that he "did not know", and apparently did not care, to what extent preparations were being co-ordinated in finance and industry.
Why are the Government not taking steps to ensure that British companies are prepared to deal with the single currency whether Britain is in or out? Have the Government taken any heed of the recent warnings by IBM that there will be major deficiencies in data processing which cannot be made up in the time available and that those deficiencies will jeopardise the integrity of the banking system? That point was elaborated by the noble Baroness, Lady O'Cathain.
What is the Minister's reaction to the report in the Financial Times of the 18th July that British banks are the least well prepared of any of the banks in the Union, and that only a little over a half of British banks say that their information technology systems can deal with the EMU timetable?
The committee's report, and the published volume of evidence, contain increasingly desperate pleas from all sides of industry and finance for the Government to take a lead in co-ordinating the preparations for EMU, and yet the report tells us:
"the Government has indicated that it is not willing to take the lead".
I suppose that is hardly a surprise. The Government are not prepared to show leadership on anything. I can only assume that the Government's paralysis on such essentially practical, non-controversial issues is a function of its internal strife over all relations concerning the European Union.
Yet these matters are entirely independent of whether Britain is in or out of EMU, and entirely independent of whether the noble Lords opposite are supporters of the Chancellor of the Exchequer, or supporters of the Secretary of State for Defence or supporters of the Home Secretary, or any of the other faction leaders in the Cabinet.
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The debate and the report are about the factors that will affect this country's well-being, whatever one's individual views on monetary union might be. In these circumstances, I believe that that policy should be guided by two practical propositions, which I believe would be accepted on all sides of the argument.
First, whether Britain adopts the single currency or not, it is of the utmost importance to this country's economic well being that EMU should be a success. In the past 18 months we have seen just how damaging is the impact on the British economy of a recession in France and Germany. Stagnation in the European economy, our biggest market place, has produced stagnation in British exports, a large slow-down in UK growth and, as the inevitable counterpart, a sharp deterioration of the public finances.
That has been but a passing breeze compared to the storm which would be unleashed upon the British economy, whether inside or outside the single currency, should a monetary union be formed and then collapse. That is why it is vital that those who have this country's interests at heart should do everything they can to ensure that, should there be a monetary union, it is a success.
My second proposition is that whether Britain adopts the single currency or not, it is imperative that all necessary preparations are made now to ensure that this country is ready to take full advantage of all the benefits that may flow from EMU, and equally is well equipped to avoid or, if necessary, to deal with the disadvantages and any disruption which may occur.
Should Britain not join, these preparations must include the establishment of a firm groundwork for cooperation between the "ins" and the "outs", which will prevent, or at least discourage any discrimination against the "outs". That ground work must include the total avoidance of all rhetoric that suggests that the "outs" are intent on securing a competitive advantage over members of the monetary union. For example, whatever the rights and wrongs of the social chapter, the Government's persistent boast that its policy on the social chapter is designed to steal a competitive advantage over European partners, is doing nothing but harm. It causes maximum offence and provides ammunition for those who would discriminate against Britain, overtly or covertly.
The report makes clear that there exists a common means of achieving both the goal of a successful monetary union and the goal of a successful relationship between the "ins" and the "outs". It is that there should be a degree of what we might call camaraderie between the "ins" and the "outs". All members of the Union should be involved in a common mutually supportive enterprise.
A point which has not been made this evening is that Britain will hold the presidency of the European Union in the first half of 1988, when many of the vital operational decisions must be made. So the British Government will be peculiarly well placed to sustain Britain's national interests by establishing that atmosphere of mutual support, by helping to ensure the success of EMU, and by ensuring that Britain's interests

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are protected, whether in or out. That will not be an easy task. What will be needed will be strong and clear political leadership.
It is political leadership that is needed because the problems which the European Union is facing, and will face if the single currency is created, are, I believe, essentially political. The problems do not stem from predominantly narrow technical economic issues. One of the most significant dangers that we face is pretending that they do. Indeed, one of the greatest vices of the European Union has been to pretend that political issues are purely technical and accordingly to abrogate those decisions to technicians, whether those technicians be officials in Brussels or the governors of central banks.
Political issues are issues which require judgment. They are issues which are not fixed in aspic, but develop and change as history rolls along, with its usual tendency to throw up surprises. Rules which may be perfectly appropriate for one time and place can, in other circumstances, become codified folly. Let me take a relevant example: the gold standard served this country well in the 19th century; the Conservative Party's decision to return to gold in 1926 was an unmitigated disaster, plunging Britain into recession.
Rules can be very important but they must be appropriate rules and what is appropriate requires judgment. There is no such thing as invariant sound economic policy relevant at all times and in all circumstances. The greatest failing in the entire history of monetary union in Europe is the way in which rules have been substituted for political judgment.
First, there are the so-called convergence rules built into the Maastricht Treaty. Of greatest significance are the debt and deficit requirements. Those are totally arbitrary goals. The debt goal was fixed at just what happened to be the average debt ratio among the major Community members at the time. That is how it was determined. The deficit goal is derived mathematically from that debt goal. There is no other rationale. Yet in the name of those requirements, most of the European Union seems today to be locked into a frenzy of competitive deflation, each round of which makes the deficits worse, not better. Yet with a little common sense and political judgment, it would be recognised that it is the recession which is causing the deficits to rise and that debt and deficit rules which are appropriate in a boom are damaging in a slump. But no lessons seem to have been learned from this episode. Indeed, Herr Waigel wants to tighten the fiscal rules within the monetary union.
All the nonsense about debt rules is made possible because of that other fashionable obsession, the total independence of the European central bank, charged with the pursuit of price stability by monetary means alone. Ideally, monetary and fiscal policy need to be managed jointly. So, even if monetary policy alone could deliver price stability, which is a very dubious proposition, making monetary policy the exclusive responsibility of an independent central bank would be highly inefficient.
Attempts to justify that by reference to the much vaunted independence of the Bundesbank are unconvincing. Not only does the Bundesbank's charter
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demand that it supports the economic policies of the elected authorities, but also it faces the political legitimacy of an elected federal government. There is no such political authority in the design of monetary union. The proposed European central bank would operate in a political vacuum. It would face no political authority and there would be no identifiable policy-making body for it to support.
That political vacuum is being filled by rules: the Maastricht rules, the Waigel rules—rules which are the negation of a creative, flexible economic policy. That is a point made by the noble Lord, Lord Boardman, and it has also been made by the noble Lord, Lord Lawson of Blaby. They both argued that a successful monetary union requires a political authority—I think they are right—and that this must involve a political union, in which respect I think they are wrong. A less radical political solution is possible which is compatible with the development of a Europe of nation states.
The Labour Party has persistently argued that the Council of Economic and Finance Ministers (ECOFIN) should be developed into a permanently sitting established body, the political counterpart of the central European bank, charged both with surveillance and co-ordination of fiscal policies throughout the Union and with monitoring the inter-relationship between monetary and fiscal policy. The members of ECOFIN are not officials but elected politicians, responsible to national parliaments and accordingly will be sensitive to the impact of monetary and fiscal policy on national well-being.
The virtue of this approach is that not only does it reintroduce judgment into economic policy exactly where judgment is needed; it also provides a common forum in which the "ins" and "outs" can reconcile their economic policies and devise common reactions to changing circumstances. Something of this sort seems to have been proposed in the report in the form of a Fiscal Stability Council, mentioned in paragraph 135. But there is no need to create a new body. ECOFIN exists already and is already charged by treaty with the management of the European exchange rate.
My noble friend Lord Bruce seems to have failed to notice that there is indeed democratic control over external monetary policy written into the Treaty. Given the fact that the "outs" have a role in the general council of the central bank, the development of ECOFIN would in the manner proposed complete a seamless structure of policy making between the "ins" and the "outs", providing the "outs" with the potential of the priceless bonus of enhanced policy credibility. This would be particularly true in the circumstances in which a country, say for example Britain, meets roughly all the various criteria for monetary union but decides not to join. In those circumstances the markets will inevitably believe that the "outside" country is intent on devaluation. Arguments for an independent monetary policy are meaningless other than in the presence of exchange rate uncertainty. But then monetary independence is bought at a price—the price of higher interest rates. Although it would be unlikely to eliminate the interest premium entirely, positive, even enthusiastic, participation in the co-ordination of fiscal

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and monetary policy through ECOFIN and through the general council of the bank would increase credibility and bring British influence to bear on policy formation throughout the Union.
Of course there are a number of aspects of discrimination which cannot be avoided. A successful monetary union will inevitably be a magnet for investment and for the location of financial activities. It is highly improbable, as was mentioned by Lord Cockfield, that British institutions could be members of TARGET as is hoped by members of Lord Barnett's committee. As the noble Lord mentioned, the Financial Times leader argued this point on Monday. It is also inevitable that a successful monetary union will tend predominantly to pursue its own interests in the economic and monetary fora of the world, however closely other Union members attempt to align themselves with it. The Euro, even if it is only the currency of six or seven member states, will be one of the world's great currencies. Indeed, on current calculations more world trade will be invoiced in Euros than will be invoiced in dollars. Those who manage the Euro will foster the interests of that currency, whether or not those interests are in accord with the needs of the "outs".
The report makes abundantly clear that the Government should be taking steps now to mitigate any and all of the harmful effects which might arise should Britain decide not to join a single currency. The Government should be taking steps now to ensure that British finance and industry are well prepared for a single currency, whether we are in or whether we are out.
I look forward to hearing what the Minister has to say. Exactly how do the Government propose to fulfil the responsibilities of the spring 1998 presidency which must manage the creation of a European single currency? Of course the Minister may feel that he is under no obligation to make any proposals, knowing, as he must do, that the party opposite will not be in office in the spring of 1998.
9.58 p.m.
Lord Mackay of Ardbrecknish: My Lords, we certainly have had an interesting debate. I felt a great deal of sympathy with my noble friend Lord Cockfield's suggestion that the noble Lord, Lord Barnett, in introducing it had asked me a lot of questions which in fact his committee ought to have made some attempt at answering. It certainly has been a privilege to listen to this debate; it has been hugely interesting. I am not going to be tempted to follow in the footsteps of the noble Lord, Lord Eatwell. I shall try to answer as far as I can the various points that have been made in the debate and not indulge in any political knockabout. I have had my ration of that this week, and some of your Lordships will perhaps agree with me on that.
It has been a privilege to listen to this debate, and in particular to my noble friend Lord Sheppard in his maiden speech. He did not seem to me to be very much of a sheep. That is especially true when one realises the extent of his career. He seems to have done a great deal
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of leading. Indeed, I felt that he made some interesting points, and I underlined two of his questions. He said that it was not so much a question of whether Britain could compete in Europe but whether Europe could compete in the world. He asked whether the EMU would help our competitive and unemployment position.
My noble friend also made a point to encourage us. He said that British business was doing quite well in Europe. I suspect that he used that expression as an understatement and that we are actually doing pretty well in Europe. He said that we are out in front in many entrepreneurial ways. The noble Lord, Lord Bruce of Donington, in his tribute to my noble friend, said quite rightly that it was nice to hear somebody being positive and cheerful and seeing things that we could applaud in what we were doing. I am sure that we all look forward to my noble friend's contributions in the future.
The noble Lord, Lord Bruce of Donington, always takes part in these debates. I envy the certainty of some noble Lords. I envy the certainty of the noble Lords, Lord Stoddart and Lord Bruce; I envy the certainty of the noble Lord, Lord Jenkins of Hillhead, and I envy the certainty of the noble Lord, Lord Grenfell. However, all that happens when I listen to the noble Lords, Lord Bruce and Lord Stoddart, is that the pro-European in me comes out. When I listen to the noble Lords, Lord Grenfell and Lord Jenkins, the anti-European in me comes out. But at least when I listen to them I can do so in balance and not just from one side rather than another.
The noble Lord, Lord Jenkins, sometimes paints a most dismal picture of our country, quite in contrast to the speech of my noble friend Lord Sheppard. He paints us somehow as poor supplicants in this great European experiment—Johnny-come-latelies. If we are poor supplicants, I wonder why we are the second biggest contributor to the European budget. That does not make us poor supplicants. I would hope that if it comes to a referendum on this issue—and the noble Lord, Lord Jenkins, wants the "pros" to win—he will moderate some of his expressions in order to persuade some of our fellow countrymen that they should vote "yes".
Two really interesting speeches were those of the noble Lords, Lord Dahrendorf and Lord Desai. The noble Lord, Lord Dahrendorf is dedicatedly pro-European. He clearly told us how profoundly worried he was about what the EMU could do, if it was not handled sensitively and carefully, with four different categories of "outs"—not just the "outs" that may include ourselves if we wish to stay out with Denmark; not just the "outs" of Spain, Italy and Portugal, who may not meet the convergence criteria; but the other "outs" of Europe, those of east and central Europe, and the "outs" of Switzerland and Norway.
Now I come to the noble Lord, Lord Desai. It has been an interesting debate in that I am the fourth speaker of a group of working Life Peers who came to the House in May and June of 1991—my noble friends Lord Renfrew and Lady O'Cathain, the noble Lord, Lord Desai, and myself. Far be it from me to say, but I shall, that it was quite a reasonable vintage for working Life Peers.

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The noble Lord, Lord Desai, laid out the fact that there were considerable differences of views. He mentioned that business was not uniform in its view; neither was commerce, the City or professional economists like himself. Indeed, he is correct about that. The Treasury's six wise men are divided on these lines: two for, two against and two sitting on the fence.
The third economist to speak was the noble Lord, Lord Eatwell. I was interested to hear his dissertation on the demerits of an independent central bank. I found that extremely interesting, as I did his use of ECOFIN as a kind of elected counterweight to that central bank. I thought for a moment that he was going to say that the policy we have developed in this country whereby my right honourable friend the Chancellor and the Governor of the Bank of England meet once a month to decide these weighty matters and their minutes are published a few weeks later, was a good idea; but clearly he could not go quite that far.
In the debate this evening we have had an excellent opportunity to listen to the various aspects of what is a hugely important subject not only for our country but also for Europe. Economic and monetary union will affect us whether we go in or not. It does not matter whether we are in EMU or not. That is why the report of the Select Committee is such a valuable contribution to this debate.
I believe that we are in an enviable position in the single currency in that, thanks to the opt-out that my noble friend Lord Boardman mentioned, and which my right honourable friend the Prime Minister negotiated at Maastricht, we have the opportunity to decide for ourselves whether or not to take part. That decision will be taken, as I have said on a number of occasions from this Dispatch Box, on one basis only and that is in the national interests of the United Kingdom and the balance of advantage for our long-term success. My noble friend Lord Renfrew of Kaimsthorn underlined the fact that that seemed to him to be the right way to decide this issue. Indeed, I go further. Despite the pessimism of the noble Baroness, Lady Williams, it is right that an issue as important as this is settled in a referendum, for a number of reasons. Above all, as I have mentioned before, it is mainly that if we do not take the peoples of Europe with us, and not only the people of Britain, into this enterprise it will fail. I believe that one of the problems throughout the Community is that we are not taking the people with us even as far as we have gone. It is all very well for people to say that—
Baroness Williams of Crosby: My Lords, perhaps I may make it absolutely plain. I strongly favour a referendum. My concern is simply that a great many people who will take part in it have so far received very little information about what is going on.
Lord Mackay of Ardbrecknish: My Lords, that will be up to those of us who join in the debate, from whatever side, and the way in which we put the case across. However, I have more faith in the electorate than that. It can make decisions on matters of considerable
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importance. After all, it is allowed to make a decision every four or five years on who should govern the country. That seems to me to be a pretty important decision. We rely on the electorate to make it and, by and large, over the past 17 years it has come to the right decision.
I return to the decision that we have to take some time in the next two or three years. There are a number of facts which are unclear. As my noble friend Lord Sheppard said, we cannot decide until we know more of the facts. It is an important decision and we need to get it right. If we were to jump one way or the other now—the "pros" would have us jump in now or the "antis" say that right now we shall not join—that would be a mistake.
As my right honourable friend the Chancellor said in is evidence to the Select Committee,
"It is too soon to say whether EMU will start on 1 January … I am quite sure that Member States will continue to prepare on [that] basis".
That leads me to the other important point, which I want to make about the lead-in period. Just because we are not making a decision now does not mean that we should not, and do not, play a full part in all the discussions which are going on. I do not know which countries are likely to join in 1999. I believe that the noble Lord, Lord Desai, mentioned that in 1992 nine out of the 15 qualified under the convergence criteria. I would not argue with the noble Lord, but today he thought that about three countries qualified.
It is difficult to know who will meet the convergence criteria. It is an important part of our decision-making. Until we see that clearly, I do not believe that it would be right for us to make a commitment now to join if we met the criteria. Now we continue to play a full part with our European partners in the preparations that are necessary for the single currency. It is essential that our voice is heard. I believe that the noble Lord, Lord Ashburton, underlined that. He said how important it was because EMU will affect us hugely whether we are in or out. Involvement in those preparatory discussions has no bearing whatsoever on the UK opt-out. My noble friend Lord Harding of Petherton underlined that. The Prime Minister himself said on 18th December:
"It is very important that this country's voice … is heard in the negotiations right up to the time when a decision is taken as to who should join and who should not. Whether we exercise the right to opt in or to opt out, this country … will, in one form or another, be affected by the decision to proceed to a single currency, even if only a minority of countries proceed".—[Official Report, Commons; 18/12/95; col. 1228.]
I completely agree with the points that have been made in the report and by a number of your Lordships about the importance of the United Kingdom being in the discussions and building the fundamental foundations of any EMU that may emerge.
The Select Committee chose to focus in its report on the relationship between the "ins" and the "outs". These are vitally important issues. It is clear that not all countries will join EMU in 1999. Not a single noble Lord who spoke even suggested that that might be so. The noble Lord, Lord Dahrendorf, took us beyond the existing 15 members and what they might do to other players in the European scene and what they might do.

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It is important that we work hard on the question of the relationship between the "ins" and "outs". That relationship will be important to Europe on whichever side of that divide we fall, whether we are in or out. In particular, the noble Lord, Lord Dahrendorf, mentioned the divisiveness of the "ins" and "outs". In the Chancellor's letter to the then President of ECOFIN in January 1996 he said that these questions were important for all countries whether in or out. EMU would affect everyone and we must plan for difficulties that might arise so that Europe's achievements were not undermined. He said to your Lordships' Select Committee that it could not be in the interests of anyone inside the European Union to allow friction between the "ins" and "outs" to start to develop. I hope that that is a sufficient response to those who feel that there may be bitterness with regard to the "ins" and "outs". My right honourable friend the Chancellor made that absolutely clear. This is an important point. The work that goes on is of vital importance.
My noble friend Lady O'Cathain referred to the interesting question of the millennium problems in relation to IT. I am responsible for making sure that the computers in the Department of Social Security do not have a problem in the year 2000. To date, I am reasonably satisfied that somebody a few years ago foresaw that the year 2000 would arrive and took precautions so that the machinery would work when the changeover occurred. My noble friend is quite right. There are many other points to be addressed and worked upon by us in this country, and in partnership with our friends, if the transition to a single currency by some or all members of the European Union is to work successfully.
It is a matter of priority that any move to a single currency does not jeopardise the single market. The single market has been a great success story, as the noble Lord, Lord St. John of Bletso, has said. It is important that the gains which are generated are protected. It is imperative that they are not compromised by a single currency. It would be unfortunate if a single currency introduced to reinforce the single market was the force which led to its demise by creating tensions between the single market trading partners.
The noble Lord, Lord Grenfell, appeared to believe that the convergence criteria should be flexible and we could rub them away in order to allow people to join. My noble friend Lord Boardman called that a glorious fudge.
Lord Grenfell: My Lords, I said that flexibility was written into the treaty. It is not a question of the Government, Commission or anyone else deciding that they would like to expand it beyond what had been agreed.
Lord Mackay of Ardbrecknish: My Lords, I am interested that the noble Lord desires to reinforce that point. I did not take notes of his speech along those lines. I took it he was suggesting that a bit of fudging
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could take place and the rules could be bent. They will jolly well have to be bent to make sure that the Belgians get in given their 150 per cent. debt on GDP. If Belgium is not there I do not believe that the process can start for the reason that it must include more than just France and Germany. I shall be interested to see how that can be wished away.
I agree with the noble Lord, Lord St. John of Bletso, that it is important that the criteria are adhered to faithfully otherwise people will not have confidence in the system. The very pressures that most people believe the convergence criteria are necessary to prevent will then emerge. It will be as my right honourable friend the Chancellor said—if it went ahead on an ill-conceived basis he would probably be one of those who would argue that we should not join but should stay outside and seek maximum stability through our own efforts. Because if the criteria are not met, that could easily introduce into the system the kind of instability that none of us wants to see.
The best way to avoid those stresses and strains is for member states to continue to pursue sound economic policies. All countries need to bear down on inflation. All countries need to control their fiscal debts. That ensures stable economic conditions where business and individuals can plan on a long-term basis.
Some people have suggested that joining an ERM would help us to achieve that stability, and that ran through some of the debate. As noble Lords know, ERM 2, as it is called, is on the drawing board, or wherever it is, but membership of it is voluntary. I think I can say that our experience last time tells us that we should not return to any kind of rigid, old style ERM. Our experience shows that that does not work. It does not guarantee stability. The best way to guarantee stability, and lasting exchange rate stability, is to get the fundamentals of an economy right. I have already mentioned some of them: low inflation, sound public finances, and the like.
That allows me to move on to another point which came up on a number of occasions. It is the question of devaluation. My noble friend Lord Cockfield suggested that the French worry about devaluation was that the Italians would do it for reasons connected with the CAP. The noble Lord, Lord Haskel, mentioned what is called competitive devaluation. My right honourable friend the Chancellor gave considerable evidence to the committee about that. On page 278 he made it clear that:
"I do not believe the so-called competitive devaluation has any lasting advantage to a country that devalues".
I shall not read the rest of the paragraph, but it continues in that vein. It shows clearly that we do not believe that the concept of competitive devaluation is a sensible one. It is fundamentally flawed. We do not accept that there are any long-term benefits. They are at best short-lived and are soon eaten away by higher inflation. I commend those noble Lords who are interested in this to read the reference I made to the evidence given by my right honourable friend.
It is also important, as I said, that all member states continue to pursue sound financial policies, whether in or out of the EMU. The German Government have

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already put forward proposals for a stability pact. The committee mentioned some of the points relating to it. I thought the best description was in paragraph 135:
"The effects of automatic financial sanctions would he perverse".
The words of my noble friend Lord Kingsdown were quoted. He said that they:
"would he like imposing a heavy fine on a debtor in court".
One has to think carefully about what kind of fiscal controls one puts in place for people who are in the system, because one could put in controls which would work in a perverse way and make it more difficult rather than easier for a country to do the right thing.
The implications for the EU budget were raised. In his usual refreshing way, the noble Lord, Lord Desai, said that the only way that that would work would be if there were a federal budget of 4 per cent. I am not an economist, as I have told your Lordships before, but I understood the picture he was painting. It was in contradiction to the picture painted by the noble Lord, Lord Monson, who warned us against a united states of Europe a little like the United States of America. I do not believe that the countries of Europe were ever going to go that far. If an attempt were made to go that far the worst predictions of the noble Lord, Lord Dahrendorf, would rapidly come true. I want your Lordships to be clear that we see no reason for the EMU requiring increased amounts of money in the European budget. My right honourable friend the Lord Chancellor said to the inquiry:
"The start of EMU should not in itself be any reason for any new transfer payments whatsoever. A lot of Finance Ministers, not just me but a good block of Finance Ministers, have no enthusiasm whatever for raising the cost of the European Union any higher at all".
On that point, perhaps because of my interest in social security and pensions, I must say to my noble friend Lady O' Cathain, who mentioned the issue of unfunded pension liabilities, that the treaty is clear that member states are not liable for others' commitments. There is no bale-out clause set out in Article 104B. Certainly that is a point which we, given the position that we are in with a private pension provision of £600 billion—as I told your Lordships some hours ago—must watch that matter most carefully indeed.
The noble Lord, Lord Barnett, asked whether governments would be able to maintain their own tax and spend policies. Paragraph 138 of the report states:
"We think that any attempt further to reduce fiscal autonomy should he resisted on the grounds that the power to tax is essential to the nation state and that national fiscal flexibility is essential to deal with cyclical pressures and economic shocks".
That is absolutely right and echoes the words which my right honourable friend the Chancellor used in his evidence to the committee.
Perhaps I may turn to the impact of a single currency on industry and the City. I welcome the comments in the report about the strengths and flexibility of the City. They show the excellent position that the City is in to prosper further, whether or not we participate in EMU. It is of course important that the City is ready and able to participate in the new Euro market, whether or not we are in or out. A number of noble Lords mentioned that matter. The Bank of England has established a regular briefing
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mechanism to ensure that firms, in particular in the financial sector, are kept abreast of developments. The bank seeks to ensure that practical issues arising from the single currency, whether the UK is in or out, are properly addressed and co-ordinated. The Treasury stands ready to offer advice and to answer questions on practical issues.
It is up to the private sector to take its own view on the work that needs to be done. Businesses will need different work to be done, depending on where their markets and interests lie. I do not believe that it would be appropriate for the Government to co-ordinate preparatory work until a decision has been taken on whether the UK will participate. I know that a number of noble Lords have had to leave, partly because we have gone on a little long—
Lord Dean of Beswick: Some of us have to stay!
Lord Mackay of Ardbrecknish: My Lords, I apologise for my contribution. It was partly due to the fact that we took a long time to start the debate. I believe that London as a centre of international financial excellence will survive in or out. However, we must ensure that whatever the arrangements they are sensible and they work.
As regards raising trade barriers against those who are out, I simply quote what was said by the Chancellor:
"It would be illegal to erect fresh trade barriers against those outside the Euro-bloc. The single market has a Treaty basis, raising fresh barriers would be contrary to the Treaty".
In March 1966 an EC single market commissioner, M. Monti, said:
"The Commission has already rejected, and will continue to reject, demands for compensatory measures that would amount to new trade barriers. In fact, the only appropriate response to such pressures within the single market is budgetary discipline and convergence of economies".
I have tried to give a flavour of the Government's response to this important issue. I appreciate that at least one or two of your Lordships wish to get on to the next piece of business. This is an important report. I wish that more people would read the reports of your Lordships' House. One or two people thought earlier in the week that there were arguments for your Lordships' abolition. Today's debate, which is in marked contrast to anything which would happen in the other place or in the media, will perhaps reassure your Lordships that this House and noble Lords who take an interest in these matters at least have a major role to play.
The noble Lord, Lord Ashburton, said in his speech that the driving force is the desire of the French and Germans, along with their immediate neighbours, to make sure that conflict will never again happen in Europe. I believe that that is a more important driving force than that mentioned by the noble Baroness, Lady Williams.
I was at a barbecue in Italy, where my daughter lives. There were a number of Europeans, from various countries, and we were discussing these weighty matters. It occurred to me that that was indeed one of the driving forces which I could clearly understand. Obviously, there were more people there of my daughter's generation than of my generation. I asked some people there whether they could guess when was

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the last battle which was fought on the soil of my country. They looked at me rather blankly and I told them that it was in 1746 and that that was a civil war. I should say for clarity's sake, speaking as one of the Mackay clan, that the right side won. I told them that before that there were many battles and civil wars but it is nearly a millennium ago since people invaded our country. Therefore, we take a slightly different view.
I understand their view but I just wish sometimes that they would understand that we have a different view. If we could achieve more of that understanding, then whatever happens in relation to EMU, whether we are in or out, whether or not we meet the convergence criteria, at least we could go on to build on the very successful single market and the working together that has been accomplished in the years during which we have been together in this great enterprise.
10.28 p.m.
Lord Barnett: My Lords, I have a feeling that the most popular speech that I have ever delivered in either House will be a very brief one, as now. I thank all noble Lords who have contributed to the debate. In particular, I thank noble Lords for the kind personal tributes which have been paid to myself and to the committee.
As has been said, we have had an excellent debate and I am most grateful for that. The noble Lord, Lord Cockfield, told me that I should not bother to ask the questions because the committee should have answered them. I paid tribute to the Minister earlier in the debate when I said that he should receive overtime for being both a social security Minister and a Treasury spokesman. I believe that I would now change that slightly. He would do much better as a Treasury Minister in view of the way he avoided answering any of my questions.
I pay tribute to the maiden speech of the noble Lord, Lord Sheppard of Didgemere. It was an excellent speech, as many noble Lords said. We shall all look forward to hearing from him again on many occasion. He would have been a very useful member of our committee and, who knows, that may yet be a problem which he will have to face. But we are very grateful to him.
I was surprised by one or two of the remarks made in the debate. For example, I did not know that I had such influence over my noble friend Lord Bruce of Donington. He said that I had persuaded him and influenced him so that he did not wish to press any of the votes. I am most grateful to him.
My noble friend said also that he thinks that it is quite wrong that we should bow the knee to Europe. We do not have to bow the knee to anyone, whether we are in or out of EMU. That is totally unnecessary.
The noble Lord, Lord Cockfield, said that he agreed generally with the committee and its report but that there were various omissions; for example, we had not looked in depth at the CAP. If we had looked at all those matters, we should not he having this debate today, because the committee would be working on those matters until 1999. Therefore, I hope that he will understand why we did not consider all those issues.
I also thought that my noble friend Lord Eatwell made a very good point when he said that the
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convergence rules in Maastricht on indebtedness were created in the strangest possible way in the sense that that was the debt situation at that time. I am sure that he is right. However, I am bound to say that I think that that will be one of the reasons why the rules will be stretched a little to allow some countries to become members of EMU which would not otherwise be able to join. That might even include France, and certainly Belgium, because they will be coming down from 150 per cent. to 149 per cent.
I am delighted to be able to agree with the noble Lord, Lord Mackay of Ardbrecknish, in one respect—and I shall get the pronunciation of his name right one of these days. There is no need to decide now because the rest of the members of the European Union have not done so. The likelihood is that they will decide before 1st January 1999; indeed, about the time when Britain will have the meeting here in this country. Therefore, we will have to come to some kind of conclusion; we cannot leave it in the air for ever. I believe that that point was made by the noble Baroness, Lady Williams. I nearly said "my noble friend", as indeed she did. We have been together, as one might say, for so long in Cabinet and so on. I have no regrets in saying so. I believe that I know the noble Baroness very well, as, indeed, she said she knew me. As Chief Secretary to the Treasury I almost certainly would have had to stop her spending some money.
We have had an excellent debate. I should point out to the noble Lord, Lord Renfrew, that the press seems to have gone to bed, or somewhere. That is a pity because I have a feeling that we shall not get the reporting of this debate that we would have liked. As the noble Baroness, Lady Williams, said, some of the reporting in the tabloid press is particularly awful. However, in the major press, as we call it in this country, we equally have not had the serious coverage that the subject deserves. I fear that the noble Lord, Lord Renfrew—and, indeed, all of us—will be similarly disappointed about the reporting of today's debate. I hope that I am wrong in that respect. The debate deserves to be more widely reported.
We have heard some excellent speeches today; for example, that from the noble Baroness, Lady O'Cathain—I always like to pronounce that name because I can get it out so well—and those from many others. My thanks go out to all speakers who participated in today's debate. I hope that they will forgive me if I do not take too long now in simply saying that I trust that the House will take note of my Motion.
On Question, Motion agreed to.

Royal Assent
10.34 p.m.
The Deputy Speaker (Lord Burnham): My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Acts:

Appropriation Act 1996,

Armed Forces Act 1996,

Trusts of Land and Appointment of Trustees Act 1996,

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Damages Act 1996,

Asylum and Immigration Act 1996,

Nursery Education and Grant-Maintained Schools Act 1996,

Social Security (Overpayments) Act 1996,

Housing Act 1996,

Housing Grants, Construction and Regeneration Act 1996,

Statutory Instruments (Production and Sale) Act 1996,

Broadcasting Act 1996,

Education Act 1996,

School Inspections Act 1996,

Deer (Scotland) Act 1996,

Allied Irish Banks Act 1996,

City of Westminster Act 1996.

Public Order (Amendment) Bill
Lord Dormand of Easington: My Lords, I beg to move that the Bill be now read a second time. It was piloted through another place by my honourable friend Estelle Morris and, in view of its importance, I am pleased to be able to ask your Lordships to give it the unanimous support that it had in another place.
The Bill arises from what must surely be a flaw in Section 5 of the Public Order Act 1986. As it is written, Section 5 requires that the police officer who gives the warning in a case of disorderly and intimidating behaviour must be the same police officer who made the arrest. It will be agreed that usually scenes of disorder involve many people and are attended by many police officers. It is surely clear that the police officer who gives a verbal warning cannot always be the same officer who makes the arrest.
In my county of Durham, in October 1993 police were called to a doctor's surgery where two men were behaving in a threatening, abusive and insulting manner. They were arrested under the Public Order Act 1986 but were later acquitted of all charges because the officer who gave the warning was not the officer who subsequently made the arrest. The case went to appeal and was rejected by Lord Justice Kennedy. However, he said at the time that he was unable to discern any parliamentary purpose in the working of the Act as it presently stood. He went on to say that the matter would merit further parliamentary consideration at an early date.
Similar cases have occurred in other parts of the country. I do not believe that I need give the details now. Despite other warnings, no action has been taken by government; and the result is that the police do not have the power to deal with a serious and growing problem. In 1980 one in five crimes resulted in a conviction or a caution by the police. By 1994 the figure had slumped to one in ten. Unless the law is amended the situation will deteriorate further.
I understand that the Home Office supports this measure; and it has all-party support in another place. It is now 10 years since Parliament passed this flawed
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piece of legislation. It is nine years since warnings were given, and two years since a High Court judge effectively suspended the use of that section and called on Parliament to reconsider it. All that is required is for one word to be changed in Section 5(4). That one change is the substance of this Bill, and the time has now surely arrived to make the change. It is simply that Section 5(4)(a) of the Public Order Act 1986 should be amended by leaving out the word "the" and inserting the word "a". I commend the Bill to your Lordships.
Moved, That the Bill be now read a second time.— (Lord Dormand of Easington.)
Lord Graham of Edmonton: My Lords, from the Labour Front Bench perhaps I may warmly congratulate my noble friend Lord Dormand on his good fortune in being able to persuade the business managers in a very tight schedule to find the five minutes (the time that he was allocated) for this Motion. As he says, it is a quirk of the draftsman. In practice an improvement has proved necessary.
My noble friend is right to draw attention to the fact that this measure has the support not only of all parties but of the Government too. My honourable friend in another place, Estelle Morris, is grateful for the manner in which the Bill's progress has been facilitated. Even though the Summer Recess will intervene, there is every prospect that the Bill will reach the statute book before the end of the parliamentary Session. We congratulate my noble friend on having the good fortune to move the Bill this evening. It has our full support. I look forward to hearing an endorsement of it by the Minister.
The Earl of Courtown: My Lords, first, I congratulate the noble Lord, Lord Dormand of Easington, on the way he introduced the measure. I also congratulate his honourable friend in another place, Estelle Morris.
The Government support the amendment to the Public Order Act 1986. The noble Lord described the measure very well. The proposal would overcome an apparent anomaly in the existing public order legislation whereby a police officer has the power of arrest only if he personally has warned a person about engaging in offensive conduct but that person continues to do it.
There is no change to the police warning which has to be given; that is right and proper. But the proposal would mean that any police officer could arrest the person if they chose to ignore the police warning about their conduct. The Government support the measure.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Manchester Bombing: Restoration of City Centre
10.40 p.m.
Lord Dean of Beswick Lord Dean of Beswick rose to ask Her Majesty's Government what progress has been made so far towards the architectural and economic restoration of Manchester city centre following the recent bombing,

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and whether they will pay compensation for acts of terrorism in Great Britain on the same basis as in Northern Ireland.
The noble Lord said: My Lords, while the recent outrage in the city of Manchester features in the Question, it is not only about Manchester. For people who are bombed out of their businesses and houses in Manchester I wish to obtain recompense based on the format used in Northern Ireland. The latter is far more generous.
If it had not been for the success of the security forces a few weeks ago in managing to raid a bomb manufacturing cell in the London suburbs, where I understand about 18 bombs were primed ready to be planted, we might have been talking of a multiplicity of bombs like the one in Manchester.
Before I go further, I must apologise as the noble Lords, Lord Barnett and Lord Fitt, will not be speaking in the debate. The noble Lord, Lord Barnett, is busy and has had a hard day and the noble Lord, Lord Fitt, is not well. However, he indicated to me that he fully supports the concept of my Question and what my noble friends Lady Dean and Lord Monkswell are trying to do.
I must make it clear that I speak as an individual, looking at the situation as I evaluate it. I have been to the site of the explosion and was shown round by Mr. Challenger from the department of the City Architect, Mr. King. I am grateful to Mr. Challenger who showed me in detail the tremendous amount of damage. In my youth I was on fire-watching duty in Deansgate, Manchester, but I never saw surface damage like that inflicted by the bomb. Bombs from aircraft penetrate, explode and leave a crater, but this was almost total surface damage, scything everything in front of it. The prompt action of the police and fire brigade was magnificent, shifting 80,000 people in a short time out of an area 800 metres or half a mile in diameter. My daughter was working 50 yards the other side of the wall from the site of the bomb.
I also wish to express my appreciation to Mr. Alistair Burt, the Minister, who today sent me a brief on what is happening in Manchester. We are not so much concerned at present with the long term and the rebuilding of Manchester, which is of great interest; we are more concerned about the 600 small traders who Mr. Burt says are at risk. He states:
"The immediate priority has been to ensure that these small traders have easy access to the support they need".
I do not believe that is the case. It is probably on record—and the noble Lord, Lord Monkswell, will deal with this matter—that Manchester City Council is saying that it wants immediate funds to deal with the situation.
I know of at least two individual cases. The first relates to a small jeweller who employs five people. He is not allowed back into his business. A safety element may enter into it; but he does not even know what has happened to his stock. That case can be multiplied in relation to certain properties that are affected: the Arndale Centre, the Corn Exchange and the Royal Exchange. The second two were badly hit. I hope the Minister will listen carefully to the points that we
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make, and that he will not read from a pre-prepared brief which sets out what is perceived to be the situation in Manchester at present. We might have a slightly different perception, even though our goal is the same.
Why have I decided to take this course in relation to Manchester and—God forbid—other cities that may suffer these bombings? On 17th July I tabled a Written Question in the following terms. I asked Her Majesty's Government,
"How much financial compensation has so far been paid in respect of terrorist activities in Northern Ireland and Great Britain respectively".—[Official Report, 17/7/96; col. WA 62.]
I received the following information:
"Responsibility for compensation in Northern Ireland has been delegated to the Compensation Agency under its chief executive. Mr. Dennis Stanley. I have asked him to arrange for a reply to be given … There is no comparable scheme for Great Britain".
I eventually received an answer from the Compensation Agency. It stated that during the years 1978–79 to 1995–96, £500 million was paid in Northern Ireland by the Government in compensation for bomb damage. I was told that no figures were available for the years 1971–78, which were much more violent than the years quoted. I therefore believe it is safe to say that we are talking about £1 billion or thereabouts.
It is not good enough to tell Mancunians that they have to put their hands in their pockets when Northern Ireland receives that sort of compensation. I make no attempt to diminish what is happening in Northern Ireland, but as I believe we are part of the same country, it is a bit thick to treat Manchester and possibly—as I said, God forbid—other cities in this country in that way while more generous amounts are being paid in Northern Ireland.
I received some other information which is widely known, but which ought to be more widely known; namely, that, in addition, other sums of money are being paid in Northern Ireland in connection with terrorist damage. That means that payments to Northern Ireland represent a debt of £3 billion a year to the rest of the UK. That might sound all right—and perhaps no one would want to interfere with it—but it is not widely known in this country. People will start to wake up and ask why we should pay when we cannot get money to put right an act of violence perpetrated in this country that was spawned in Northern Ireland.
The leader of my party came to Manchester a week last Thursday and gave certain undertakings that would bear on Manchester. He said that the case would be looked at sympathetically. But, first, we have to win the election in order to implement that; secondly, as I understand it, we are talking in terms of £500 or £600 million to repair the physical damage caused. I do not know where that is going to be conjured up from because the local authorities in Manchester have been told that there is no extra money for anything. That is unfair on a city like Manchester which throughout its history has been a generous and stable city and has accepted immigrants from all over the world of any creed and any colour. They have been welcomed in Manchester and have settled into the community, and have, in fact, played an important part in developing that city into the fine city that it is.
As regards the Government taking the view that Manchester City Council should provide a lot of money, I remind the House that Manchester is now a city of only 400,000 people. It had well over half a million when I was the leader. It also has an ageing population. So how the hell can Manchester suddenly conjure up huge sums of money to rebuild the city centre that has been destroyed, quite deliberately, through no fault of its own?
I have said most of what I want to say, and I do not want to go into other statistics tonight because they are pretty long on time. One of the main reasons I decided to table this Question tonight is that it will be the last chance to speak on this matter before Parliament rises for three months. I am grateful to my colleagues on these Benches, and to the noble Lord, Lord McNally, who have decided to stay at this hour to give some support to what I believe is indisputably a genuine case. I have some information, regarding the compensation office of the Northern Ireland Office. The information makes quite clear that in Northern Ireland compensation is payable by the state—not by insurance, but by the state—under the Criminal Damage (Compensation)(Northern Ireland) Order 1977, in respect of loss arising from any one of four categories of damage to property. That means bombing, personal injury and so on.
I do not see why our submission on behalf of Manchester—following the outrage it has suffered—should not be considered. Only a few weeks before the outrage Irish games were held in Manchester with enormous success. However, this is how the terrorists repay that. I believe Manchester's case is indisputable. I hope the Minister will convey our views to the Secretary of State or, if necessary, to the Prime Minister, and that Manchester will receive justice and be dealt with in a fair way.
10.53 p.m.
Baroness Dean of Thornton-le-Fylde: My Lords, I would like to thank my noble friend Lord Dean of Beswick for putting his Question down this evening. I know that we have all the talk about the oxygen to terrorists, but there is another side of the coin—that of a major city facing an atrocity being, quite frankly, forgotten when the issue is not debated here in Parliament. The IRA bomb was a cynical, evil act. It was a miracle beyond comprehension that in that city, on that Saturday, with 80,000 people in the vicinity, not one was killed. I gather it was the largest bomb ever on the United Kingdom mainland, and in the words of the Manchester Evening News, the area is like a Beirut war zone. How right it is. This IRA activity was an act of war against the citizens of Manchester and against the British Government and the British people: 1,200 buildings over a quarter of a mile radius were either completely wrecked or severely damaged.
With that destruction of the city of Manchester, it would be grossly unfair to the people to allow their plight to become a political point-scoring exercise between the parties. It has not become that and this
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debate is not intended to be that either. I should like to say that very loudly and clearly. The people of Manchester deserve better than that.
However, there are questions that need to be asked and, I hope, answered by the Minister this evening. There are two issues: the immediate issue and the medium and longer-term issue. I am a Mancunian and proud of it. Mancunians are proud people, independent and determined. In some ways that is manifested by the fact that none of us taking part in the debate this evening has been approached by people in Manchester to raise the issue in Parliament. We are doing it as individuals in our own right because of what we feel.
Over their history the people of Manchester have faced great adversity with much courage, not least during the Blitz on Manchester in the Second World War. This IRA atrocity has seen the emergence of that kind of courage again. The city council, its workforce, the emergency services, the fire services, the police, the employees of small businesses affected, the Chamber of Commerce, large and small businesses and the voluntary organisations—even the Prince's Trust, in which I declare an interest as a trustee—have all come together; and Manchester's own newspaper, the Manchester Evening News, has come behind them to support the people of Manchester.
Lord Dean of Beswick: My Lords, does the noble Baroness agree with me that the Manchester Evening News has led a very prominent campaign so far? We hope that it will continue; otherwise, the pressure may die down.
Baroness Dean of Thornton-le-Fylde: My Lords, I thank my noble friend for his intervention. I come from the newspaper industry. I have an in-bred feeling for campaigning newspapers and there are not enough of them today. In this situation we have seen the Manchester Evening News becoming a campaigning newspaper. I smile at the sight of the noble Lord the Deputy Speaker this evening. We have shared some experiences of the newspaper industry in the past, not all of them positive.
Manchester needs help to help itself in this situation. This is a national issue, not a city issue or concerned with one small geographical area. I suggest in perhaps the gentlest way that the help that Manchester needs has not been recognised by the Government. That is one of the reasons for the debate this evening. That help is needed especially by small traders. Of course, visits by the Deputy Prime Minister are very welcome indeed. I applaud those visits. But the gloss soon disappears and the people of Manchester realise that the wonderful announcement of £20 million in support that has been found for them is, in fact, merely relocated money. I gather that it is not new money but comes from the European Fund allocation for the area of Greater Manchester, Cheshire and Lancashire over the 1996–97 period.
That £20 million is just 4 per cent. of the assessed £500 million needed to rebuild Manchester in the medium and longer term. My concern is that it is not new money and because it is not new money, the

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schemes calling for that money, money which they were allocated, are now losing out. Will Manchester be rebuilt at the expense of money that was to be spent in Hulme, an area which desperately needs regeneration? I gather that the £20 million comes from the fund for meeting and maintaining the long-term regeneration tasks ahead in that area.
So when the Minister responds to this debate, could he tell us what schemes have had the money relocated from them? Also, what assistance will be given from new money? Of course, we welcome the city centre task force that has been established, which is very broadly based. But that first key issue in rebuilding Manchester is crucial and I ask the Minister to give an assurance this evening, if he is able, and if not to come back to us afterwards.
If that relocated £20 million has added to it the private funds which no doubt will be available—or maybe PFI initiatives—and the insurance money that will be available through the normal insurance measures, particularly from the large companies, and we find that there is still a shortfall, will the Minister give an assurance this evening that money will be found to help the people of Manchester in the rebuilding process?
Another problem that concerns the city is that it made an application for a scheme that I have only learnt about this week, I confess, the Bellwin Scheme. Apparently the Bellwin Scheme provides emergency financial assistance for local authorities. The problem is that, even if Manchester gets the maximum, the maximum is only 85 per cent. and it will still have to find £1.5 million. Could the Minister tell me whether that shortfall will be made up by the Government?
My noble friend referred to small businesses. He is so right. It is the small businesses that are the most vulnerable in all this. The large businesses such as Marks & Spencer and Mothercare have been absolutely marvellous to the city of Manchester and its people and have responded very well. But it is the small businesses which are really feeling it.
Many do have insurance; and we are told that the Northern Ireland scheme is not appropriate because in Northern Ireland you cannot get insurance. But in Manchester and elsewhere on the mainland the situation for a number of small businesses is impossible. They are too small. They are crammed together. They cannot get at their stock to replenish and start up as new businesses. We are heading for what would have been a very busy period for them in the lead-up to Christmas. What are they going to do? They are out in the cold. They face genuine hardship. They face relocation costs. They are facing pressure from the banks. I exclude from that the Co-operative Bank which I gather has been very good with loans to these small businesses. But creditors need paying. They do not go away. And then there are suppliers and customers. What do these businesses have to help them in Manchester? They have the Lord Mayor's Emergency Fund.
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I would like to read out a letter that was in the Manchester Evening News last night:
"The Manchester bomb exploded yards from my flower kiosk - I was the closest retailer to the explosive device. Mine is a lock-up kiosk in the middle of Manchester's city centre, and insurance of any kind has always been refused for my premises.
I insured myself to some degree by reserving monies to pay for repairs against fire and vandalism, which is presumably why I was refused cover in the first place.
So when I need help the most, why do all concerned - the government etc. - try to pretend the problem does not exist, although there is a significant number of business people involved? There remain approximately 100 who could not get insurance or were limited to what was available.
Statistics show that over 660 businesses were affected to different degrees. The government's contribution to the Lord Mayor's fund to help small businesses was £50,000. If this payment is split evenly between us all, it's less than £76 each. I generated more VAT each week than this paltry sum".
That is quite a telling story. I know the flower kiosk. When I lived in Manchester I used to buy flowers from it every week. It is right in the heart of the city where this bomb exploded. That lady, Mrs. Hayes, represents many small companies.
Of course it is not just the small retailers which are so badly affected. The Royal Exchange Theatre, housed in one of Manchester's landmark buildings, the Royal Exchange, would this year have ended up in a healthy financial position. It is now estimated to be in deficit to £600,000. It could close. Where is it to get the money from? Not only that, but 50 people have been laid off. There are no jobs. The Government gave £50,000, which is exactly the same as the Co-operative Society in Manchester gave. The airport gave £25,000. Marks & Spencer and other businesses gave considerable moneys. One million pounds is pledged to that fund at the moment. Can the noble Lord the Minister give me an assurance that more money will be given by the Government to that emergency fund? It is short-term, pump-priming money which is desperately needed by these small businesses.
I ask the Minister to do all he can to help Manchester. If the Government give a little help, the people of the city will sort themselves out. They do not ask for everything; just a little help—what we used to call a leg-up to get on with things and look after themselves. I hope that during the imminent visit to Manchester of the Prime Minister he is able to announce new money and new support for the city.
When my right honourable friend the Leader of Her Majesty's Opposition visited the city last Friday he said that Manchester would remain high on his agenda. That will be a medium to long-term issue, but I have confidence that he means what he says. When he is in a position to deal with government funds—as we all hope he will be—I am sure that he will keep that commitment to Manchester.
I conclude by quoting from Michael Unger, the editor of the Manchester Evening News. I believe he spoke for all Mancunians when he wrote an open letter to the Prime Minister in the Evening News on 21st June:
"Simply because no one died we fear that we will become another Westminster statistic and in a few weeks' time be forgotten by the Whitehall civil servants and London politicians, who will inevitably

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get bogged down in bureaucratic red tape—arguing over small print, fighting over who pays for what, squabbling over whether or not Europe should help out".
I suggest that Manchester deserves better than that. The Government have a responsibility and now the opportunity to ensure that Manchester receives that help. I await with interest the Minister's response to this short but well deserved debate.
11.6 p.m.
Lord Monkswell: My Lords, we all owe a debt of gratitude to my noble friend Lord Dean of Beswick for introducing this debate. So far we have heard two eloquent speakers. I cannot hope to emulate that eloquence, but as an adopted Mancunian of 25 years and as someone who was born and bred in London, perhaps I may be allowed to make a few remarks. I should like to make three points: first, I wish to pay tribute to the people of Manchester; secondly, I wish to pay tribute to the city council of Manchester; and, thirdly, I wish to request that we all accept our responsibilities.
In paying tribute to the people of Manchester we need to recognise that they have displayed fortitude and understanding of their situation; they have gone through a terrible ordeal. It is worth pointing out that, following the tragedy a few weeks ago, there was virtually no antagonism towards their fellow citizens who were of Irish extraction. That is an important fact that we need to recognise and it is a tribute to the people of Manchester that they have taken that viewpoint.
We must also recognise and pay tribute to the city council of Manchester, not only for the immediate action that it has taken to help alleviate the difficulties associated with this incident, but also for the policies that it has espoused for many years in terms of anti-discrimination and recognising the multi-cultural nature of our society, particularly in the city of Manchester. Through all its departments and in numerous different ways, the city council recognises the different cultural groups that play their part in the development of the society of Manchester; for example, the Chinese community, the Afro-Caribbean community and, as my noble friend Lord Dean of Beswick pointed out, the Irish community with its celebration of the Irish events only a few weeks before this incident. That emphasis on the multicultural realities of our society has played a very great part in the ability of all Mancunians to pull together in the face of this tragedy.
Speaking for the nation, we in Parliament need to recognise that we have a national responsibility for what has happened. We need to accept that and realise that we must play our part as a nation by ensuring the support that my noble friend Lady Dean identified and recognising the iniquities of the Bellwin formula whereby the national exchequer pays only 85 per cent. of expenditure incurred by a local authority, and that is only expenditure above a fairly high threshold. We need to recognise that.
Although our debate centres on Manchester, it is not just about Manchester; it is about all the citizens of London and any other of our communities which may suffer in this particular way. I listened earlier to the
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debate on the "ins" and "outs" of EMU. I was very interested in a remark made by the noble Lord, Lord Mackay of Ardbrecknish. He pointed out that the nation state needed to have the fiscal freedom to accommodate economic shocks. This is exactly the sort of occasion when the nation state needs to respond to the economic shocks.
I refer not just to the shock to the economic heart of Manchester, because it is also a very personal and individual matter. My noble friend Lady Dean has already referred to small businesses, the flower seller and the newsagent, who are particularly affected by their inability either to obtain insurance or to afford it. We need to recognise that some of the small traders who operated in the Corn Exchange were operating at the margin of economic survival. It is probable that a number of them could not afford insurance even if they could get it and yet they provided a very important element within the economic heart of the City of Manchester.
We also need to recognise that individuals are affected. My noble friend Lord Dean of Beswick referred to individual's homes being affected. It may not be apparent to many of your Lordships that within the Arndale shopping complex, which was affected by the bomb, there is a major residential tower block. Anyone who goes near the centre of the City of Manchester now can see the blank windows where there is no glass. The people who lived in that tower block are unable to go back. They were allowed back to obtain a few essential items of a personal nature, but they cannot live there. Effectively, those people have lost their homes.
If we think in terms of the businesses which have been dislocated and unable to trade, it is a fact that they will suffer, but what about the employees of those businesses? They are effectively out of a job. I am sorry for the fact that across virtually every industry and aspect of our national life there is insecurity. It faces all of us. In the early 1980s it was manufacturing industry and as the 1990s continue, it is the financial services sector which is affected. Every element of our lives in this country is faced with insecurity. It is rather curious that the only secure operation is the so-called "intelligence community" where, even after the demise of the cold war and the collapse of the Berlin Wall, with the expectation of a peace dividend and the emergence of some element of peace in Northern Ireland, the one group of people which has retained job security is the the so-called "intelligence community". That says a good deal about our responsibility in this matter.
I return to the fact that we are responsible. We must recognise that over the past two years as the peace process has developed in Northern Ireland a bi-partisan, not party political, view has been taken of the situation. On that basis, as a nation we have a responsibility for the unfortunate breakdown of the peace process. Surely, it is wrong to ask individual parts of the community, whether it be Manchester, London—or, heaven forfend, any other small part of the nation—to pay the price for our failure as a nation, bi-partisan in Parliament, to deal with the problems that beset us as a result of the difficulties in Northern Ireland.

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We have a responsibility—dare I say it?—not just to the Republican element but to the Unionist element in Northern Ireland to show that we are prepared to listen to and respect their point of view. We must recognise that responsibility.
I hope that the Government, in speaking for the nation and all of us in Parliament, will recognise the particular difficulties now being experienced in Manchester both by individuals and by small and large businesses and will respond to that need. Further, I hope that the Government will develop a facility to respond not just to the people of Manchester, whose needs are greatest at the moment, but, if it arises, to the needs of other communities in our society that may require support and assistance. I make that plea and beg the Government to listen to it.
11.17 p.m.
Lord McNally: My Lords, a few months ago I had cause to visit Manchester Town Hall. I spoke to an official of many years standing who asked after the health of the noble Lord, Lord Dean of Beswick. I told him that it was robust. He said that Joe Dean was the best leader that the City Council had ever had. I shall leave it to history to judge whether or not that assessment is accurate. But the debate this evening demonstrates that the noble Lord still has a keen interest in and concern for the City of Manchester. This debate is very timely. It is the last chance that Parliament has for three months to consider this issue.
It is extraordinary that after 25 years of terrorist threat to mainland Britain almost every act of terrorism is treated on an ad hoc basis. There was a curious hiatus of several days before the Government's responses emerged. For example, six days after the event the Manchester Evening News carried an open letter with the heading "Please help". This would be true of any other city that suffered such an attack. It is extraordinary that over 25 years we have not established a national task force funded and ready to go into action so that local authorities, business and individuals can receive immediate counsel and assistance following terrorist attacks. I believe that is important to the individual. But in a certain way it would also diminish the terrorist threat. An element of the terrorist threat is that when an attack occurs one is on one's own. If there was a national response to terrorist attack and an immediate sharing of burdens terrorists would not have the ability to pick off targets city by city and community by community. The noble Lord, Lord Dean, has raised a fundamental issue which has not been raised during the past 25 years.
Let me say where I stand in this matter. I am a native of the North West. In the other place I had the honour to represent Stockport, Manchester's neighbour. I speak this evening from the Liberal Democrat Benches. The Liberal Democrats are the official opposition on Manchester City Council. I shall quote the unanimous statement put out by the city council after the bomb. It states:
"Speaking on behalf of every member of this council, every one of the 84 Labour councillors and each of the 15 Liberal Democrat councillors, the actions of these terrorists can only be described as despicable and cowardly".
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It continued:
"We speak with one voice when, as a City Council, we utterly condemn the actions of these insane fanatics. We speak with one voice when we say that Manchester will fight back".
I have said before in this House that those of us with experience of Manchester politics in its most robust form, where there can be keen debate not just between parties but within parties, know that to have that unity of response is some kind of perverted triumph for the IRA. The IRA has not furthered its cause one inch; it has united Manchester in its contempt for it and its methods.
There has been an all-party response. It has already been said how welcome was the visit of the Deputy Prime Minister with all his flamboyance and "can do" approach to matters. As has been said, the Leader of the Opposition and the leader of my party visited Manchester as a demonstration of solidarity. We welcome the establishment of the major international urban design competition.
That is the right approach, because in the face of a terrorist attack the correct response must be to show a triumph of democracy and a free society. The editor of the Manchester Evening News, Mike Unger, has been quoted once already tonight. I shall quote him again. He said:
"The IRA bomb has given us a unique opportunity to look at our city afresh. We can have a fabulous environment for our future within the parameters of time, cost and economic reality. Do we really have the desire?"
Manchester does have that desire, but problems are already emerging and that is why it is important that we in Parliament keep the matter under scrutiny. The vision and the long-term commitment to rebuilding Manchester come up against real, short-term problems. The insurance companies' loss adjusters want quick settlements. They want to know how much they are going to pay and to get the matter off their books. Businesses, both small and large, want to get back into business as quickly as possible. A conflict arises between the vision of rebuilding the centre of Manchester and the pressure to get back to work and make do and mend.
Bridging the gap between the long, cool, hard look, encouraging the visionary response of building a 21st century city and the pressure to return to work needs money. If the Government intend to stand by the objective they set when they said:
"The Government and the city council, working with other public agencies and the private sector, including land owners most affected by the incident, are determined to ensure that from the devastation a vibrant city centre for the 21st century to rival anywhere in Europe will emerge over the next three years",
they must also provide the means.
We support the task force in its aim of getting the right answers, not just a quick fix. Manchester is worthy of support. It has been one of the most successful examples of private sector/public sector partnership, which all parties in the House see as the key to economic regeneration. The International Concert Hall, the Nynex Arena and the National Cycling Centre are examples of Manchester doing the job for itself. But the

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terrorist attack puts a whole new burden on that community and on that city which must be shared nationally.
Perhaps the Government could make early decisions in other areas; for example, the sports stadium for East Manchester or the second runway for Manchester International Airport. Early decisions which are within the Government's gift could boost local confidence and promote inward investment. But, most of all, if we are going to create in Manchester a true regional capital to rival the great regional cities of Europe—and that is the prize within our grasp—it is not only sweet words which will be required from the Government but a real commitment and real cash.
Perhaps I may leave the last word to Manchester City Council, which I quoted earlier:
"This city of Manchester will not be crushed. We have suffered a dent in our confidence, but we are emerging stronger than ever before and with a determination that shows the world that we are a proud and strong city".
Those of us who know that strong city would expect no less a response from Manchester and Mancunians. Our opportunity, and the reason this House will continue to monitor and keep an interest in what happens in Manchester, is to build from the disaster a strong Manchester and a city of which we can all be proud.
11.27 p.m.
Lord Graham of Edmonton: My Lords, I came into the House this morning at 8.30 and some 15 hours later I am as anxious as anyone else to see my bed. But even if the debate were many hours later I should have wished to remain and make a small contribution.
The noble Lord, Lord Dean, is Manchester through and through. He is a former leader of the council, a position which I held with another large authority. He knows full well exactly what is required. We congratulate him on providing us with the opportunity to debate the matter. He has also provided the Government with an opportunity to respond, perhaps with slight unease, which I have seen in various documents, but with fulsomeness and wholeheartedness to a national disaster. I am sure that the Minister, with his experience of his department and of life, needs no telling from me or anyone else that if he had lived, worked or had a business in the city he would take a view slightly different from the one I might take, although we both know Manchester.
I am not anticipating a bleak response from the Minister because that would be very harsh. The people of Manchester want to know that the Government understand the nature of the problem and will do everything possible to assist them to overcome the disaster. After all, that is the purpose of the debate in this House tonight.
When I carried out my research for the debate, I came across statistics which my fellow Peers and Mancunians all know. However, it is worth putting on the record the extent of the catastrophe which befell the people of Manchester in that very short period on 15th June. I believe that 49,000 square metres of retail shops,
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57,000 square metres of offices, two multi-storey car parks and the largest bus terminus were destroyed. Beside that destruction there was a great deal of dislocation.
One of my credentials for speaking in the debate, besides being a Jack of all trades and master of none, is that I have strong connections—I say this very proudly—with the Co-operative Movement, to such an extent that I am prepared to wear this tie this evening! It is the tie of the Lincoln Co-operative Society. It sometimes causes mirth. However, it is a talisman. When I read the brief in relation to the Urban Design Competition, I was interested to see that in trying to encapsulate the city of Manchester it referred to it as:
"The city that pioneered free trade, economic liberalism and the Co-operative Movement".
The Co-op is Manchester and Manchester is the Co-op. Rochdale is the place where the Rochdale pioneers started 150 years ago. Rochdale is now part of what I would call, perhaps clumsily, the Greater Manchester conurbation. The heart of the empire of the Co-operative Movement is in Manchester.
When I think of Manchester, I think of Balloon Street, Miller Street and Danzig Street. I think of places which are on the perimeter of the area where the damage has been caused. But, nevertheless, that is the heart of the economic empire of the Co-operative Movement—the CWS, the CIS, the Co-operative Bank, the Co-operative Retail Services. They are all to be found in that part of Manchester. Everybody in Manchester has no doubt but that it is a "co-operative" city.
One area has been singled out as the study area in which one hopes that the regeneration will take place. The CWS and the CIS are specifically earmarked within that area. I was delighted to hear my noble friend Lady Dean draw attention to the immediate response of the Co-op Bank, and I know that the CWS and others have responded in exactly the same way.
I am also proud to have had a past association with the National Federation of Market Traders. I know that its members are among the group of people who are in a worse situation than those who are working for large businesses. They are desperate for assistance and relief. They will survive. I know that some people who were not properly insured may go to the wall and others may find it difficult to survive. There will be those who suffer. I was in Manchester during the war, which is now some 54 years ago. I was in the area when the bombing took place. I visited the hospitals there at that time. Therefore, I know the spirit of the people of Manchester. They will survive and so will the city.
The city council has a great plan. There is much to be done. I believe that my noble friend said that £500 million may be required to repair the damage and she said that the Lord Mayor's Fund stands at £1 million. People will naturally turn to the council for help. But the council is strapped for cash. It could not have expected this to have happened. No major city in England, Scotland or Wales would have expected to have visited upon it that which is so much part of the scene in Northern Ireland.

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My noble friend Lord Dean, a proud Mancunian, is anxious to take this opportunity to invite the Minister, on behalf of the Government, to say what is to happen. The Minister may not know that when the bombing took place my noble friend was scandalised by the fact that neither this House nor the other place had an immediate opportunity to comment on the situation. My noble friend understood as well as I do that there are certain situations which are best not discussed in public at the time; indeed, he has been very patient in that he has not pursued the matter until now. However, he has found his opportunity and he is absolutely right in what he says. The people of Manchester are hoping that the Government will recognise that they need special assistance.
The Question asks for the assistance which is available to those who suffer these terrible terrorist attacks in Northern Ireland to be made available to Manchester. I am not competent in the matter; indeed, the Minister is far more competent in it because he has been well briefed. I should like him, first, to reassure the House that those who suffer in Manchester will be treated in exactly the same way as others who suffer a comparable hurt in another part of the United Kingdom. If that is the case, we are already half-way there.
However, what I have gathered from my research is uncertainty and a lack of clarity and preciseness, together with, not a lack of willingness, but the red tape and bureaucracy which inevitably arise over public expenditure. I understand that. I know that it is not possible for a Minister to wave a wand, put his hand in his pocket or indeed write out a cheque. Ministers have to be careful in that respect. But it would be churlish of them and sad if the Government did not recognise that there are little people who need help. The big people can in the main take care of themselves; indeed, not only will they have insurance and their own plans but they can take advantage of various new opportunities.
The kind of people I know as market traders and in many other spheres are looking to the Government to say that they are willing to be specific in the help they offer. There are 180 businesses out of action, and then there is the Corn Exchange and 70 tenants out in the cold. There is also the Royal Exchange. The Minister will know those places. I certainly recognise them from the time I was in Manchester and its conurbation more than 50 years ago. I have in mind the feeling that has been mentioned more than once that what people want is equity and fair play; and, indeed, a recognition that this could happen anywhere in the country.
I hope that the Minister will assure my friends with a special interest in the matter because they are Manchester people that the city will not get different treatment to that given anywhere else. However, if they come to the conclusion that what they are getting is bad treatment, the Minister will also be telling people in every other major city that if terrorists decide to strike in those cities against the British Government, locally and municipally they are on their own.
As most speakers in the debate tonight have tried to indicate, this is not a partisan issue and it is certainly not a party political issue. What we want from the
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Minister is not only sympathy—although we want the tea as well—but something to demonstrate that, even with all the problems facing the Government, there are exceptions that can be made. God forbid that this is one of a series of devastations the like of which we do not want. However, the people of Manchester are hoping to get a response from the Minister tonight which will assure them that it is recognised that they have suffered a hurt that the people of Birmingham, of Bristol and of Newcastle have not suffered. They want the Government to say that Manchester will not only be rebuilt but that it will be recognised as a major regional centre—11 million people live within 80 kilometres of it. We want to see a rebuilding, but, more importantly, some urgency in the matter. I very much hope that the Minister can satisfy my noble friend Lord Dean, who has, as always, done an excellent job for the people of Manchester.
11.40 p.m.
Lord Lucas: My Lords, the noble Lord, Lord Graham, asked me to call on my life experience. I am afraid I have little enough of that which is relevant. I cannot even claim to be wearing the right tie. I do not think that skating polar bears have anything to do with this evening's subject.
However, I, of course, remember the two City bombs. For much of my life I have worked in the City of London and I can remember both clearly. I do not think that the noble Lord, Lord Graham, would wish the financial arrangements which followed those bombs to be extended to Manchester. I do not believe that the Government were required to put up any money on either of those occasions. I believe that the City found everything itself. Clearly the community of Manchester, and the situation in Manchester, are quite different. Today I wish to concentrate on praising Manchester and all who have reacted so positively and constructively to the bomb and its aftermath: the police who moved thousands from the city centre with very little notice so that there was no panic and no fatalities; the businessmen and women who may have had years of work destroyed but who are starting to re-establish their businesses; the people of Manchester who are determined, as has been said frequently this evening, to carry on their daily lives and not to be intimidated; and the local authority which has co-ordinated so much of the response to the bomb, and has done so extremely well.
We find it hard to imagine what the task force referred to by the noble Lord, Lord McNally, could have done which the city council has not done rather more effectively because of its local knowledge and local abilities. With the Government's help, the council is determined to rebuild the shattered city centre and to improve on what was there before.
Let us review what has been done to date. Perhaps I may first pay tribute to the extraordinary speed with which the city responded. The immediate aftermath of the bomb highlighted the skills of the emergency services and council workers. But in the hours and days that followed work was put swiftly in hand to minimise loss and damage and get the city working again. The Government Office for the North West and the city

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council brought together those who would play a vital part in helping small businesses; and the speed of that response was excellent.
The bomb damaged areas have been secured and engineers are gradually opening up more of the centre. Some of the buildings, such as the Corn Exchange, have been badly damaged and reinstatement will not be easy. The immediate priority has been to ensure that small traders have easy access to the support which they need, and can start to trade again as soon as possible. Everyone who spoke this evening has mentioned that point. The Manchester bomb hit small businesses particularly hard. Three of the buildings most badly affected, the Corn Exchange, the Royal Exchange, and the Arndale Centre, between them housed some 600 small traders.
A crucial task has been the relocation of many of those businesses. I pay tribute to all who have worked tirelessly and successfully on this. Just a couple of days ago tenants of the Corn Exchange building were offered accommodation in the Coliseum building on Church Street and were told that their new landlords would underwrite the cost of replacing stock. That is typical of the spirit that the city has shown.
Manchester City Council and its local partners, the TEC, the Chamber of Commerce and Manchester Business Link have set up a centre to give support to business. They will disburse grants from the Lord Mayor's Appeal Fund in cases of hardship. The fund has now raised over £900,000 and more is pledged. One hundred and twenty applications have been received and awards totalling £250,000 have been made. There is still a considerable amount of money in that fund to meet cases of individual hardship such as those described by the noble Baroness, Lady Dean of Thornton-le-Fylde.
The noble Lord, Lord Monkswell, mentioned the householders in the Arndale Centre. We agree that there has been hardship, but none is now homeless. Short term accommodation was found in university halls of residence; subsequently alternative flats were found in the city's stock of council houses and in housing association houses. All the people of Manchester are pulling together to make sure that those who have been affected by this bomb are not hurt more than can possibly be helped.
That will take Manchester through the next few weeks. Over the long term, however, Manchester has set its sights high. No one would pretend that the Arndale Centre was a work of art. The cathedral was surrounded by buildings of inferior quality. Now there is an opportunity to take a fresh look and to build again. Manchester, with the encouragement and support of my right honourable friends the Deputy Prime Minister and the Secretary of State for the Environment, is holding an international design competition for the rebuilding of its centre. We hope that the best architects throughout the world will put forward their ideas.
The work done by the newly formed task force will complement the new developments which are re-invigorating Manchester. Buildings such as the arena
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and the new concert hall are being developed within the framework of the public/private partnership of City Pride.
The result will be a city centre for the new millennium. Many are determined to be involved in the realisation of this ambition. On 5th July, there was a debate sponsored by the Manchester Evening News—and I am glad to add the Government's congratulations and praise to that great newspaper on all it has done since the bomb, and all that it continues to do—and by the Manchester Civic Society. A whole raft of ideas were put forward by people determined to keep the independent traders who have made the city so vibrant in the past. But they were equally open to new ideas, particularly as regards transport.
The noble Lord, Lord McNally, referred to the conflict of getting back to work and achieving quality in rebuilding. Yes, we agree, but the major retailers are committed to getting the right answer for the long term. The task force will consult widely to involve all sectors of the community. The best urban designers will, we feel, be attracted by the competition.
Mancunians then are rebuilding Manchester. That must be right. It is their city, their future, their delight and their responsibility. They have great personal and financial resources, public and private, with which to effect the rebuilding. But we are not standing idly by. We have made contributions to the Lord Mayor's Fund, provided funds to get the urban design competition under way and provided £21 million of European funding for essential works.
The noble Baroness, Lady Dean, asked whether that was new money. It is new for Manchester; it is not re-allocated from the north-west, it is re-allocated from the rest of the UK. The resources will come from the whole country, not from the region. Given the extent and breadth of resource from which the money has been drawn, I cannot identify specific schemes which will be cut as a result.
The noble Lord, Lord Dean, asked from where the £500 or £600 million that he estimates the repairs will cost will come. We are not yet clear what the total costs will be. Manchester City Council will doubtless tell us in due course. Many buildings have not yet been surveyed.
Lord Dean of Beswick: My Lords, we welcome the Minister's resume of what has happened in Manchester. Those of us who know the city knew that that was how it would respond. However, will the Minister cover the main point of the Question? Will the Government urgently consider applying the Northern Ireland criteria for compensation for damage from terrorist bombing activities across the board? Will they now extend those criteria to Manchester in order that people may get on with the job with the same confidence as people in Northern Ireland in those circumstances in the knowledge that what is blown up will be replaced by government money and not their own money? That is all we ask for, equal treatment with Northern Ireland. It is the same country, the same people. Why is there a difference?

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If the Government do not answer that Question, when the people whose property was blown up in Manchester start to pay their taxes, they will be paying compensation to people in Northern Ireland. How can that be right in the one nation that the Prime Minister talks about?
Lord Lucas: My Lords, I shall come to that point shortly. Perhaps I may continue with answering the questions in the pile raised by the noble Lord. It is not yet clear what the clear-up will cost. There is much yet to be surveyed and most costs will be met by insurance companies. The Government have already provided an extra £21 million and will consider bids when costs are known. At the moment we do not know enough to tell what is required and what is missing.
The noble Lord, Lord Dean, is concerned about the Northern Ireland scheme. In the UK, insurance is generally available to cover for terrorist risks, and it is not that expensive. That is not the case in Northern Ireland. That is why separate arrangements are required in Northern Ireland which are not required on the mainland of Great Britain.
The noble Lord, Lord Dean, raises the question of the amount which we in the rest of the United Kingdom pay towards Northern Ireland. Indeed, we do pay a lot of money to Northern Ireland—as we do to Wales, Scotland and doubtless other parts of the United Kingdom. That is what being part of the United Kingdom is about. There are large transfers between one part of the kingdom and another. We should not in any way begrudge them. It is part of being one nation. It does not help to become envious of help that is given to other parts of the United Kingdom. Given the state Northern Ireland is in, it needs considerably more than the rest of the country.
Lord Dean of Beswick: My Lords, I thank the Minister for giving way. I do not want to open a debate on Northern Ireland; I merely quoted figures. Is the Minister aware that last year Northern Ireland was in receipt of £5 billion from central government and its net contribution to central government was £2 billion? Is he further aware that that is totally different from the position in relation to England, Scotland and Wales? It does not bear comparison. If it were one nation, the amount would be a lot less. I do not want that. All we are asking for is equal treatment in this particular situation in Manchester, based on the Northern Ireland criteria. It is not a lot to ask. It is a matter of justice. I am not a lawyer, but I question whether the case would stand examination in the European Court.
Lord Lucas: My Lords, I am sure that it would. Manchester, thank goodness, is not yet in the state that Northern Ireland is in, and I pray God that it never will be. Northern Ireland needs and deserves the help that we give it. One can start playing these games as to which parts of the United Kingdom pay money net and which parts of the United Kingdom receive money net. It is not helpful. We are one United Kingdom, and we look after our own.
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We will examine other requests for funding as Manchester puts them to us. The noble Lord, Lord Graham, quite clearly understands that money is tight. We will be as sympathetic to Manchester's case as we can be. In the meantime, the sums of money I mentioned show that we are supporting Manchester in its efforts.
I am aware that Mr. Tony Blair has also visited Manchester. He said, as I understand it, that he would do what we are doing. I do not understand what he has said to promise anything more than we have done and said we will do. And that does not surprise me. We share a determination in this country to make sure that Manchester can flourish as it should.
Lord Monkswell: My Lords, I thank the Minister for giving way. Can I take it from his remarks that the Government would consider the needs of Manchester as they develop and as investigations go on? Are we to take it that they would not be bound by the so-called Bellwin formula in providing for the needs of Manchester, and that some other, presumably more sensible, criterion would be adopted by central government to meet the needs of Manchester?
Lord Lucas: My Lords, the Bellwin formula only covers the first week or so of activity. That is a small and separate discussion with which I do not want to weary the House this evening. We are talking about much larger sums that Manchester will need to rebuild and revitalise itself. As I said, we remain committed to listening to Manchester City Council, which has done a wonderful job so far, when it tells us what it needs, and what for, and to being as constructive as we can.
Lord Graham of Edmonton: My Lords, perhaps the Minister will allow me just one intervention. I am very heartened by his remarks about the Government's intention to work with Manchester to help rebuild its city. That is the "macro" aspect of the situation. We are all concerned. I am sure that the people of Manchester and those who spoke for them will accept that is about as far as we can go: to wait for the true cost, and wait to see what can be offset against it by insurance, etc.
However, we are also concerned about little people, some of whom are, sadly, not insured. The Minister might say that is a great pity but others are insured and their insurance companies have paid out; they have paid the premiums and they are entitled to compensation. But let us look at the reality. These are little people. We might be prudent; we might have taken out insurance, but the sad fact is that these people have been dealt a body blow. They have to get their stock replaced; they have to find premises; and they have to get ready now for the Christmas trade.
When the Minister says that he will listen very carefully to what Manchester tells him it needs, would he also say that that includes a request from Manchester City Council for the Government to deal

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sympathetically, and I say compassionately, with individuals and individual businesses that have suffered detriment as a result of this bomb?
Lord Lucas: My Lords, we clearly cannot have a policy of compensating people who are not insured, otherwise the whole insurance market would collapse and no one would pay premiums. It is important that a fund like the Lord Mayor's fund exists so that local people can take local decisions to look after individuals and small businesses that have been caught up in the destruction. Those have to be local decisions. As I said earlier, this is a part of the operation which appears at the moment to be going well, and the response appears to be adequate and, in general, proportionate. Of course, I will admit to not knowing nearly as much of the detail as noble Lords who have spoken this evening.
Baroness Dean of Thornton-le-Fylde: The Minister must be tired continually standing up and sitting down, so I thank him for giving way.
I raised the issue of the Lord Mayor's emergency fund, which covers the people we are talking about now, to which £1 million has been pledged. I gather from people in Manchester who are members of that wide-ranging committee that they estimate that they will need twice that amount. They need just £1 million, which is not a lot of money, in order to ease the burden of these small businesses, many of which were not insured, not because they did not try, but because they could not obtain insurance. I refer to the lady in the flower kiosk.
Lord Lucas: My Lords, that case will come to us, perhaps through the city council. That is not information which I have before me. Doubtless, it will reach us in due course.
In looking constructively at the case which Manchester puts to us for further funding, we are continuing the close links between Government and the City of Manchester which have been established over the last decade. We may have our differences politically with the council, but as the redevelopment of Hulme and Castlefields, and our support for Manchester's City Pride initiative show, we want Manchester to succeed as much as local people do.
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The noble Lord, Lord McNally, asked questions on the stadium and the second runway at the airport. Concerning the stadium, we understand that Manchester is well placed in the current consideration of options for the stadium, but that is a matter for the Sports Council, and I cannot offer him any commitment on that. So far as the runway is concerned, there was clearly a major planning inquiry and the report has not yet been received from the inspector. That, as the noble Lord will understand, is something on which we have to pass judgement, and again, therefore, there is nothing further that I can say on that this evening.
We would say the same to any other of our great cities as we are saying to Manchester, for if they are not successful the country as a whole will not be successful. Manchester is a proud city. We have seen much of its resilience and fighting spirit in recent weeks. The noble Baroness, Lady Dean of Thornton-le-Fylde, called it courage, which is a pretty good summing up. That is plain for all to see as Manchester and the Mancunians recover from the devastation and forge a city for the next century.
The noble Baroness, Lady Dean of Thornton-le-Fylde, was worried lest we forget Manchester. I consider that to be inconceivable for this Government, and inconceivable for me personally as every time I enter my son's bedroom I see Manchester all over the walls. With such sons and daughters, adopted or otherwise, of which we have spoken this evening, forgetting Manchester is totally out of the question.

Broadcasting Bill [H.L.]
Returned from the Commons with the amendments agreed to.

Deer (Scotland) Bill [H.L.]
Returned from the Commons agreed to.
House adjourned at one minute before midnight.