Lords Sitting of 4 June 1996

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

Conseil International du Sport Militaire
Baroness Perry of Southwark Baroness Perry of Southwark asked Her Majesty's Government:
Why the United Kingdom is no longer a member of the CISM (Conseil International du Sport Militaire.)
The Parliamentary Under-Secretary of State, Ministry of Defence (Earl Howe): My Lords, the United Kingdom has not been a member of the Conseil International du Sport Militaire since 1952. Worthwhile membership of the CISM would require the UK to participate in, and on occasion host, a considerable number of formal events. Such a commitment would place a significant strain on manpower and financial resources. In keeping with the "amateur" ethos of sport in the services, the Armed Forces prefer to arrange fixtures with teams from other nations on an informal basis, within manpower and financial restrictions.
Baroness Perry of Southwark: My Lords, I thank my noble friend the Minister for his reply. Is he aware that the United Kingdom was a founder member of that council, which was formed at the end of the Second World War to celebrate peace through sport and to bring together the military of previously warring countries to join in sporting activities? Is he further aware that the membership of the council has now grown to over 120 countries? Is it not very sad that this country, whose record in peacekeeping is so superb, should not be involved in an activity of that kind?
Earl Howe: My Lords, I am grateful to my noble friend. I was indeed aware of the facts to which she alludes. Our decision not to participate in the CISM is regularly reviewed, most recently last year. So far, the three services have said that they prefer to allocate their time and their resources, both public and private, to other types of sporting event. Some of those events are international, with a particular emphasis on the Commonwealth. The clear message from the three services is that they would not wish those events to be put in jeopardy on account of any renewed commitment to the CISM.
Lord Howell: My Lords, does the Minister agree that this is one of those moments in time when professional sport in this country needs to encounter what the Minister quite rightly described as the "amateur ethos of sport"? Does he accept that it would be good for professional sport if the discipline and self-discipline found in Armed Services sport, which has made a great contribution to British sport over the years, were made readily available to some of our professional sports
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teams? In that sense, does he feel that the expenditure would be well worth undertaking, both for British sport and in terms of creating international good will and friendship between armed forces throughout the world who are our allies?
Earl Howe: My Lords, it is interesting that a member of the party opposite should suggest additional public expenditure. That said, I agree with the noble Lord about the value of sport and international contacts between the military. He may be interested to know that our services have participated in recent sporting events at varying levels with Australia, New Zealand, Canada, the West Indies, Thailand, South Africa, Zimbabwe and others. The cost of those events is met mainly from private funds. I recognise the force of some of the noble Lord's remarks, but there is a limit to the extent to which resources, both public and non-public, can be put.
Lord Dean of Beswick: My Lords, if the financial situation in which the Armed Forces find themselves operates against rejoining or participating in that organisation, why cannot they apply to the lottery fund for such purposes? It seems to be a hands-on grab for people in the know in the art world.
Earl Howe: My Lords, that is a very interesting suggestion. An approach to the lottery fund would have to be taken forward by individual units rather than by the MoD. I am not in a position to judge how such an approach would be viewed by the lottery board.
Lord Williams of Elvel: My Lords, is the noble Earl aware that until recently France has not wished to be a full member of NATO—not for some 30 years? Would he welcome France's full participation in NATO? In the light of the Question and in view of the Government's concern to cut the defence budget to ribbons, does he not feel that it would be an excellent gesture to ask France to sponsor our membership of the Conseil International du Sport Militaire?
Earl Howe: My Lords, I am willing to appoint the noble Lord as spokesman if he believes that to be a sensible way forward. I believe that a continuing issue of resources is involved. It is not simply a matter of money, though the sums are potentially significant; it is also a matter of manpower. CISM events would require individuals to be released from their units at what may be inconvenient times and the hosting of events would require considerable numbers of personnel to be made available.

Tobacco: Cross-border Shopping and Smuggling
2.43 p.m.
The Viscount of Oxfuird The Viscount of Oxfuird asked Her Majesty's Government:
What is their estimate of the lost revenue in excise receipts due to (a) cross-border shopping and (b) smuggling of tobacco products.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, Customs' estimate of excise duty revenue lost from legitimate personal importation of duty-paid tobacco products for the year ending 30th June 1995 is £120 million. Additionally, VAT receipts of £30 million are estimated to have been lost. Customs do not have an estimate of the extent of excise duty losses due to smuggling of tobacco products. They are working with the tobacco and alcoholic drinks industries with the aim of achieving an objective measurement of smuggling.
The Viscount of Oxfuird: My Lords, I thank my noble friend for that reply. Is he aware that one of the warehouses on the Continent of Europe situated near the ports in one week shipped 19 tonnes of tobacco out of its doors? Around 95 per cent. of that went to the United Kingdom, largely to the north east. Can my noble friend assure us that the statistics which are part of his study take into account the estimates of the retail tobacco trade, which calculate the loss to the Treasury due to smuggling and the evasion of tax on those products as being £1.6 billion?
Lord Mackay of Ardbrecknish: My Lords, as my noble friend is aware, there are really two aspects to his Question. One concerns the loss to the revenue from those people who buy products abroad and bring them into this country legitimately under the single market arrangements. In that regard I answered his Question in relation to excise duty and VAT. If one extrapolates that figure, for the same period it comes to around £200 million at off-licence prices for tobacco coming in by that route. Smuggling is much more difficult to ascertain. Smugglers tend not to put up their hands at the port and say that they are smuggling X amount of items into the country. It is a difficult issue and we are discussing with the industry how to quantify it. At the same time, we are attempting to prevent it.
Lord Bruce of Donington: My Lords, does the noble Lord think it wise to have made cuts in the numbers of Customs and Excise officers over the past 10 years, not only on account of this loss that has occurred, but also because of the losses that occur in undetected fraud in the case of export refunds and other matters of that kind?
Lord Mackay of Ardbrecknish: My Lords, deciding how many people should be employed in any agency—Customs and Excise, police or any other organisation—is a balance between the costs and the likely benefit from those costs. I can assure the noble Lord, Lord Bruce, that we take seriously excise verification in relation to the single market regulations. We have moved to a situation which is much more intelligence-based for the simple reason that the old-fashioned procedure, which I am sure the noble Lord, Lord Bruce, would prefer, of opening cases at random at ports is inefficient, especially when one considers that nearly 20 million people pass through the port of Dover in any given year.
Lord Clark of Kempston: My Lords, does my noble friend agree that this is a serious problem for small
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shopkeepers? They are losing a lot of trade because of the smuggling and cross-border transfer of goods. Does he agree that the smuggling takes place at such a rate because the duty on our tobacco is the highest in Europe and equivalent to 4.5p on the standard rate of income tax? Is it not time that we achieved harmonisation of taxation within the Community so that smuggling can be alleviated?
Lord Mackay of Ardbrecknish: My Lords, if the other countries in the European Union wish to harmonise their tax on tobacco products, I welcome that action. We impose the tax not only as a revenue-raising exercise, which it undoubtedly is, but also as a method of signalling that tobacco is a dangerous product.
Lord Mason of Barnsley: My Lords, is the Minister aware that a vast trade has developed in the black marketing of tobacco which has been smuggled into the country? Many criminals are thriving on the cross-border trade. With bulk buying on the Continent on a large scale, criminals are selling tobacco in the pubs and clubs of the north at half the UK price. As the noble Lord suggested, small shopkeepers are suffering terribly, some losing up to £20,000 a year. It also takes up a lot of police time. Apart from the Exchequer losses, it is a costly exercise. Apart from consultations with the tobacco industry and Customs and Excise, what positive steps are the Government taking to halt this illegal trade?
Lord Mackay of Ardbrecknish: My Lords, we should not get the size of the problem out of proportion in relation to the total amount of sales of tobacco products. The excise revenue from tobacco in this country is about £7.5 billion a year. As I mentioned in my original Answer, the legitimate import comes to around £120 million of lost excise duty. We do not know what smuggling adds to that, but we take it extremely seriously.
In the current year we increased the number of posts available for excise verification by some 20 people, based in the south east of England where the major entry ports of this country are situated. As I explained earlier, we are using all the intelligence methods at our disposal to catch those people who are importing illegally large amounts of tobacco products and alcoholic beverages.
Lord Glenamara: My Lords, is the noble Lord aware that, so far as cross-border shopping is concerned, many thousands of Scandinavians come to Newcastle each year to do their Christmas shopping and the shopkeepers on Tyneside are delighted to have them?
Lord Mackay of Ardbrecknish: My Lords, I am delighted to agree with the noble Lord. Indeed, the last time I answered a question like this, I drew the attention of the House to the fact that cross-border shopping is not all in one direction and is not all about tobacco and alcohol. There is considerable cross-border shopping from those Scandinavian countries into, as the noble Lord said, Newcastle and also into Scotland.
Lord Harris of High Cross: My Lords, perhaps I may ask the Minister a question, speaking as the

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chairman of FOREST and something of a student of the phenomenon of smoking. The tobacco trade from all its sources pitches the figure of lost duty and tax at around £600 million, which would imply that around 5 to 10 per cent. of the consumption of tobacco is outside the official channels of retailing and the taxation the Government take when they estimate the proportion of the population who smoke. Therefore, might not their estimate of the proportion of the population who smoke be too low, bearing in mind the avoidance of taxation and also the evasion of taxation?
Lord Mackay of Ardbrecknish: My Lords, I am not entirely sure where that question led me. I suspect the noble Lord wishes to hear me say that we should reduce taxation on tobacco products. However, I think he will he disappointed because I am convinced, as are the Government, that the health reasons for imposing considerable duty on tobacco are unanswerable.
Lord Eatwell: My Lords, I am sure the Minister is aware that in the British Medical Journal last year there was a detailed study of tobacco smuggling. The study discovered that most tobacco smuggling was associated with organised crime and concluded that any reduction in smuggling must therefore involve increased co-operation between Customs and police authorities, particularly throughout the European Union. This week the European Union planned to push forward the development of a unified policing policy. The Government have said that they will veto that development. Is that not a free gift to the smugglers and to organised crime?
Lord Mackay of Ardbrecknish: My Lords, the Government's decision on these and other matters at the present time is a defence of British interests, which I know will come as a strange suggestion to the noble Lord—
Lord Eatwell: Smuggling!
Lord Mackay of Ardbrecknish: No, my Lords, not smuggling, because even the noble Lord knows that my right honourable friends are taking the view that they are adopting in the Councils of Europe because of the unreasonable attitude Europe is taking over beef. I should have thought that even the noble Lord would have understood that distinction without my having to spell it out to him.
The Viscount of Oxfuird: My Lords, is my noble friend aware that the current major area for smuggling is hand rolling tobacco? If this continues, surely it will move into the area of cigarettes, which will produce a massive drop in the Treasury's takings.
Lord Mackay of Ardbrecknish: My Lords, my noble friend is right that the smuggling of hand rolling tobacco is a major problem. Indeed, it is one we watch very carefully. My right honourable friend the Chancellor took action last year by not increasing the duty on hand rolling tobacco in order to try to dampen down that trade.

Forestry Commission: Land Sales
2.55 p.m.
Lord Taylor of Gryfe Lord Taylor of Gryfe asked Her Majesty's Government:
Since the inception of the Forestry Commission disposal programme: (a) how many hectares of land have been sold to private investors; (b) how many transactions have taken place; and (c) how many public access agreements have been agreed.
The Parliamentary Under-Secretary of State, Scottish Office (The Earl of Lindsay): My Lords, since the inception of the disposals programme in 1981 the Forestry Commission has sold 208,000 hectares of land, including 128,000 hectares of forest land in some 2,700 transactions. Nearly 100 access agreements have been concluded since we introduced the arrangements to protect public access in October 1991.
Lord Taylor of Gryfe: My Lords, I welcome the Minister back. He arrived from Brussels only half an hour ago. I am sure I speak in the name of the whole House when I wish him well in the exacting duties he has to carry out in Brussels. Is the Minister aware that the total number of day visitors to the Forestry Commission estate is 50 million and that this represents a considerable contribution to the quality of life of people who enjoy the countryside? Will he give an assurance that there will be limits on the disposal of Forestry Commission land where there are not restrictions on access? Without such limits we shall be denying families the opportunity to enjoy walking and rambling in the countryside.
The Earl of Lindsay: My Lords, I am grateful for the kind remarks offered by the noble Lord. I am glad that he is pleased to see me back from the Continent. The noble Lord makes a very good point. There are indeed 50 million visitor trips to Forestry Commission lands. The Forestry Commission puts a considerable amount of effort and resources into improving the recreational facilities it has within its management.
However, the noble Lord's second point is based on two false assumptions. First, we do not seek to sell Forestry Commission land where public access is a priority or a significant feature. Our disposals programme is concentrated on those forestry sites where there is either no, or low, public access. Secondly, we try to concentrate our disposals programme on those areas of the Forestry Commission estate where, because of legal constraints, there may not be any public access whatever. I would add that when any Forestry Commission land is being disposed of we contact the local authorities and seek to enter public access agreements with them prior to the sale.
Lord Renton: My Lords, I declare an interest which I handed over to my family some years ago. Is my noble friend aware that in south-west Scotland, although the Forestry Commission has provided public access quite successfully, it does not always look after its plantations as well as it should? Will he do all that he can to expedite the opportunity of the owners of the land to

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buy back their plantations from the Forestry Commission where they have been leased or where they are held on a long feu?
The Earl of Lindsay: My Lords, as my noble friend makes clear, there are examples of good management and bad management in forestry both in the public sector and in the private sector. We are anxious to see the Forestry Commission's estate, which still exceeds 1 million hectares, rationalised. That involves sales of Forestry Commission land to the private sector where very often stronger incentives exist to manage well.
Lord Cledwyn of Penrhos: My Lords, does the noble Earl agree that the contribution of the Forestry Commission to employment in the rural areas is significant and important? Can he tell the House how many people are currently employed by the Forestry Commission?
The Earl of Lindsay: My Lords, the noble Lord makes a very good point. The employment that forestry generally stimulates, especially in rural areas, is of great significance. Some 35,000 jobs are currently dependent on forestry. About 3,500 to 4,000 jobs are within the Forestry Commission itself. When one takes the current employment statistics, plus the fact that woodland production is up by 50 per cent. since 1980 and is set to double in the next 20 years, one can see a very secure source of employment for many years to come.
Lord Northbourne: My Lords, does the noble Earl agree that there are periods during the cycle of a crop of trees when it is totally appropriate that the public should be given access but that there are other periods when it is inappropriate, particularly during felling and the early stages of the growth of the trees? During the growth period, which is much more than 20 years, there is an opportunity for the public to establish rights of way across the land. Does he agree that it is high time that the Government instituted revisions to the law relating to access to land, particularly forestry land?
The Earl of Lindsay: My Lords, we, the Forestry Commission, all the other public sector agencies and the private sector take a very close interest in managing public access. It is of great benefit to many millions of people, although it carries some costs especially in terms of management. There are also costs in terms of the environment itself—to either habitat or species. Generally, the Government believe in encouraging and increasing public access. Now, for the very first time, we are actually increasing woodland access. What is more, we are increasing it in Great Britain in the areas where it is most needed.
Lord Carmichael of Kelvingrove: My Lords, the House will be glad to know that the Government are anxious to increase public access. The Minister will be aware of the fact that in Scotland over the years hikers and walkers have had great benefit from access to forestry land and the hills generally. They are also the most fervent protectors of the land. If they see anyone desecrating land in any way they are the first people to
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stamp it out. Can the Minister say whether there is easy access to the places where forestry land has been sold off? Can he say how many points of access have been preserved? The people with whom I am associated are very keen on walking and hiking. They know their ordnance maps very well. If there is an easy way for them to transfer information, through their clubs, as regards places where they cannot go, that would be a great help. Can the Minister say whether there is access to the land which is for sale?
The Earl of Lindsay: My Lords, we are currently in discussions with the ordnance survey organisation to identify as usefully as possible those areas of Forestry Commission land where access is available and encouraged. The access agreements for the areas being disposed of are arranged through the local authority. That is a ready source of information. I remind the noble Lord and the House that the private sector is a huge source of access. Over 4,000 private woodland owners have taken benefit of the grants we supply to help them manage better their public access facilities.

Animal Feedstuffs: Listing of Ingredients
3.2 p.m.
Viscount Gage Viscount Gage asked Her Majesty's Government:
Whether they will require fuller disclosure of the ingredients used in the manufacture of animal feedstuffs.
Lord Lucas: My Lords, the Government welcome the recent announcement that the major feed compounders are to switch to full ingredient listing for most compound feeds. The position is being monitored and further action will be taken, if necessary.
Viscount Gage: My Lords, I thank my noble friend for his reply. I believe that UKASTA, which represents the majority of the major compounders, after many years of pleading from the National Farmers Union has agreed to list the ingredients fully on feedstuff packages. But I have learnt since tabling my Question, as the Minister will be aware, that it will shortly become a criminal offence for farmers to possess feedstuffs which contain suspect feed. While this voluntary agreement reached with UKASTA is welcome, does my noble friend agree that it is now time to make the listing of ingredients mandatory?
Lord Lucas: My Lords, my noble kinsman is right. It is an event due to happen once we have put arrangements in place for removing all suspect feed from farms and enabling farmers to clean out their feed stores properly. Whether it will be right to insist on mandatory total ingredient listing at that time or whether we shall rely on farmers wishing to purchase only feeds that list the ingredients or when they can receive satisfactory assurances are matters that we are looking at very carefully.
Lord Carter: My Lords, is the Minister aware that farmers and their organisations have been seeking full

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feed ingredient listing for a very long time? Is he further aware that it has been resisted by a number of the feed manufacturers and that it is only the BSE crisis which has forced a change of heart? Does the Minister agree that if full feed ingredient listing had been in place we would have been able to trace the source and use of the infected feed and deal with the BSE crisis much more quickly and effectively?
Lord Lucas: My Lords, I do not believe that it would have made any difference.
Lord Carter: My Lords, then why are they doing it now?
Lord Lucas: My Lords, looking back, farmers were quite happy with the practice of feeding meat and bonemeal to cattle before it was discovered to be dangerous. Once it was discovered to be dangerous, it was banned. Therefore, I do not believe that there is anything that farmers would have gained from knowing what the feed contained. Nonetheless, this is a positive step. It represents at last a recognition by the supermarkets and others that they have a responsibility for the history of the food that ends up on their shelves. I believe that it will encourage them to be much more supportive of the farmers who supply them and to develop a much more co-operative, rather than a confrontational, relationship with them. That will be all to the better for farming and for food in this country.
Lord Renfrew of Kaimsthorn: My Lords, does my noble friend agree that it is believed, as far as it is understood, that scrapie-infected feedstuffs are the principal cause of BSE? Does he also agree that many of the cattle which it is now anticipated will be slaughtered in fact became infected after the bail on scrapie-infected feedstuffs had been imposed? The crux of the matter is that cattle have been infected since the ban and this is the key area. Does the Minister further agree that it would be a strong weapon in the armoury of the British Government in their martial exploits in Brussels if this issue were thoroughly understood? Therefore, I support my noble friend in his Question. I shall be interested to hear the answer.
Lord Lucas: My Lords, as doubtless the House knows, we have published our plan for eradicating BSE. I believe that that plan is available in the Library, from the Ministry of Agriculture and in the Printed Paper Office. Clearly, part of it includes the total elimination of mammalian products from mammalian feed. The reason why that has become necessary and was enforced this year is that it became apparent that the original ban, which was just on feeding such products to ruminants, was not effective because of cross-contamination occurring in mills and farms and other problems. It took a while for us to find out that that was a problem because there is a five-year incubation period with the
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disease. Now we know that there is that problem, we have taken all the necessary action to make sure that there is no further infection from this source.

Party Wall etc. Bill [H.L.]
Report received.

Deregulation (Gun Barrel Proving) Order 1996
3.7 p.m.
The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie) rose to move, That the draft order laid before the House on 29th April be approved [22nd Report from the Delegated Powers Scrutiny Committee].
The noble and learned Lord said: My Lords, the draft order is concerned with removing the burden imposed by the price control mechanism procedures, maximum charges and time limits currently imposed by gun barrel proving legislation. The proposal has completed the preliminary scrutiny procedures for deregulation orders under the 1994 Act. The Select Committee on the Scrutiny of Delegated Powers of your Lordships' House and the Deregulation Committee of the other place have separately assessed and reported on the proposal. Both committees have indicated that they are content with the draft order as it stands.
The purpose of this order is to amend the Gun Barrel Proof Acts 1868 to 1978 in order to relieve the two proof houses in London and Birmingham of the obligation to seek the agreement of the Secretary of State for Trade and Industry to the alteration of the maximum prices they can charge for proofing or testing of gun barrels. Save in exceptional circumstances, at present such alterations can be made only every five years.
The main effect of the measure will therefore be to give the proof houses the freedom to set their own level of charges. In doing so it will relieve them of the procedural costs associated with applying every five years for a change in the maximum prices they can charge for proofing and the financial exposure they would face if market circumstances changed significantly before they could obtain the necessary approval.
The Government are satisfied that the measure will not reduce the necessary protection for consumers. There is no question of safety standards being affected because those provisions of the Act remain unaltered. As to the possibility of overcharging for gun proving, we consider that the competition which exists between the two proof houses in the United Kingdom, and the further competition represented by proof houses overseas, is sufficient to safeguard against any risk of overcharging. In the light of those factors, it is no surprise that when the department consulted more than 90 bodies about the draft order, all respondents either welcomed the proposal or offered no comments or objections.
This is a modest and sensible measure which reduces a burden without removing necessary protection. I commend the order to the House.
Moved, that the draft order laid before the House on 29th April be approved [22nd Report from the Delegated Powers Scrutiny Committee].—(Lord Fraser of Carmyllie.)
On Question, Motion agreed to.

Drinking Water: ECC Report
3.10 p.m.
Baroness Hilton of Eggardon Baroness Hilton of Eggardon rose to move, That this House take note of the Report of the European Communities Committee on Drinking Water (Fourth Report, HL Paper 31).
The noble Baroness said: My Lords, some time last year the Environment Sub-Committee of the Select Committee on the European Communities began an examination of the new draft directive on drinking water. Initially, the sub-committee was under the able chairmanship of the noble Lord, Lord Lewis of Newnham, who I am delighted to say has rearranged his commitments and is with us today. I am very much aware that his knowledge of chemistry far exceeds my own and I am therefore delighted that he is here to give us his expert knowledge of parts of the draft directive.
The proposed new directive sets out to amend the 1980 directive and sets mandatory standards for drinking water. Through its various measures the original 1980 directive considerably improved the quality of drinking water throughout the Community. Good quality drinking water is essential to high standards of health protection. Since then scientific knowledge and techniques have advanced and some ambiguities in the original directive have been realised. In addition, public awareness of the importance of drinking water has been increasing and there has been an increased use of bottled water because of concerns about the water that comes out of our taps. It was therefore thought necessary to have a revised directive.
The main change in the proposed directive relates to the permitted quantity of lead in drinking water which, in line with the World Health Organisation recommendation, would reduce the permitted level of lead from 50 micrograms per litre to 10 micrograms per litre. Lead is a constituent in both water and in the atmosphere—the air which we breathe—which has serious consequences for human health. It is important for the protection of infants and young children, for pregnant women and for women past the menopause that the quantity of lead in water should be reduced. Lead has neuro-toxic effects on the brain and can lead to reduced intelligence and behavioural problems in children. My noble friend Lord Dubs will deal with that important topic at greater length.
Other changes in the proposed directive require compliance with micro-biological and chemical parameters. There were 67 in the original directive, but
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they are to be simplified in the new directive and the number of parameters with which drinking water will have to comply is to be reduced to 48. That is a welcome simplification to take account of only those elements which are essential to a high level of health protection.
The level of pesticides in water also causes concern. The Commission's own Scientific Advisory Committee recommended more stringent limits than the World Health Organisation in that it felt that the precautionary principle should apply and that a limit of one-tenth of a microgram per litre should apply to each pesticide rather than individual limits for each, which would be difficult to assess and administer. The noble Countess, Lady Mar, will discuss that topic at greater length in due course.
In relation to polyaromatic hydrocarbons, some of which are known to be carcinogenic, we support the recommendation in the draft directive in relation to benzo-alpha-pyrene. In relation to the other PAHs, we recommend the retention of a group limit until further research has established their individual toxicity. I am glad to say that the noble Lord, Lord Lewis, will be dealing at greater length with boron and copper, where my knowledge of chemistry deserts me. Provisional new limits were proposed for those metals. The sub-committee was of the opinion that those limits should be based on public health risks as evidenced by the best scientific evidence. Alas, however, the Commission is still awaiting further opinion from its Scientific Advisory Committee.
As in relation to our examination of the bathing water directive, we are again concerned about the lack of information which the Commission supplies about the nature and extent of scientific evidence in bringing forward recommendations on such important matters as drinking water. Often we are not provided with the scientific evidence which underpins some of its recommendations. We feel that that is a considerable failure in the important principle of transparency.
In relation to the disinfection of water and the by-products of disinfection, the use of chlorine and ozone as disinfectants produces a number of by-products, some of which are potentially carcinogenic. We in the sub-committee were convinced that their concentration in drinking water should be the minimum consistent with effective disinfection and that water should be tested for them at the household tap, not where the water leaves the treatment works.
We also recommend that more research should be carried out by the water suppliers into membrane filtration which will provide the same level of micro-biological safety but produce fewer by-products.
The proposed directive requires that where water for human consumption has become dangerous to human health, its use should be restricted and consumers should be informed immediately and given appropriate advice. We commend the Commission for proposing that the public should have a legal right to information. We agree that in an emergency water suppliers have a first responsibility for informing the public. We are also of the opinion, however, that the Government continue to have a duty to see that the public are informed of health

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risks and that the privatisation of the water companies has not absolved them of their responsibility in that respect. That is particularly relevant in relation to the level of lead in water.
Overall, we welcome the Commission's proposals and believe that they are well justified and draw proper distinctions between matters for action by member states.
We were, however, disappointed by the response that we received from the Department of the Environment. The department's response to our report was complacent and grudging in tone and saw no need to change current practices nor to alert the public generally as to the dangers of lead plumbing. We would in particular now welcome clarification from the Minister—I have given him advance warning of these questions—first, as to whether the Government accept the proposed new lower limit for lead in water as justified on public health grounds and, secondly, if the new lower limit is justified, as to whether they believe that that can be achieved for all domestic customers without replacing all lead plumbing, as they appear to believe.
The draft directive allows 15 years for compliance with the new lower lead levels. We believe that that timespan allows time for a comprehensive national strategy to be developed by the DoE, local authorities, the water companies and private householders so that the problem of lead in water and the future health and behaviour of our children can be taken care of. I commend the report to the House. I beg to move.
Moved, that this House take note of the Report of the European Communities Committee on Drinking Water (Fourth Report, HL Paper 31).—(Baroness Hilton of Eggardon.)
3.18 p.m.
Viscount Bridgeman: My Lords, I thank the noble Baroness, Lady Hilton of Eggardon, for initiating the debate and for the skill and sensitivity with which she and her predecessor, the noble Lord, Lord Lewis of Newnham, have chaired Sub-Committee C. I pay tribute also to our Clerks, successively Mr. John Goddard and Mr. Tom Radice, and to our special adviser, Professor Frank Jones.
I was brought up to believe, like many of your Lordships I am sure, that it was safe to drink water out of a tap anywhere in Great Britain but, in broad terms, nowhere abroad. It is a measure of the success of the EEC (as it then was) water directive in 1980 that standards throughout the European Union are now on a par with those of the United Kingdom. Indeed, the pendulum may be said to have swung perhaps not the whole way but certainly to a point where there is now a widely held perception that it is safe only to drink bottled water in this country—a notion that I daresay is in no way discouraged by the bottled water industry.
As the noble Baroness, Lady Hilton, said, the 1980 directive was based on research carried out in the 1970s. Since then, things have moved on. The result is a document which in many ways is a model of its kind and upon which there has been widespread consultation throughout the Community.
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I shall trespass on the question of lead. The proposed reduction from 50 micrograms per litre to 10 micrograms per litre is of paramount importance. The noble Baroness, Lady Hilton, referred to the possible effect of high lead concentrations on children and on women in pregnancy and in the post menopause. It can have a half-life in bones of 27 years. That is how long it takes, I am informed, for the concentration to reduce by one half. Lead does not naturally occur in water and the water that leaves treatment plants is virtually lead-free. All of the contamination occurs during transport to the consumer in the pipes of the water undertaking, the pipes connecting the mains to the consumer and in the consumer's own system. Only a small amount of elimination of lead can be achieved by water treatment.
In reality, there is no effective substitute for the renewal of all lead piping. The sub-committee felt that insufficient urgency was being shown by the Government. At the present rate of substitution it will take 60 years to eliminate the problem. A much higher profile should be given to the dangers of lead in drinking water. There should be a statutory obligation on the supplier to notify the consumer in clear, simple language should the lead content in his water be above the statutory maximum. The regulations for the drawing of samples should also be clearer; they should avoid giving the impression—as they do now—that sampling is carried out only when the water undertaking believes it is a good thing to do. Since 1989 the consumer has had the right when renewing his own lead pipes to require the water suppliers to renew theirs at the same time. That right should be much better known and publicised.
We must be under no illusion that the cost of replacing lead piping will be horrendous. No doubt the subject will he expanded upon by the noble Lord, Lord Dubs. The figure of £8 billion for the consumer and £2 billion for the undertakings is the kind of cost we face. The problem will not go away. I urge the Government to give serious thought to implementing a solution. Grants for the replacement of lead pipes should be more generous and should be widely publicised. I hope that the Government will give thought to targeting vulnerable sections, groups and areas. It is to be hoped that some of the burden of cost can be alleviated by the development of water treatment techniques.
Freedom of access to environment information is a prime concern of the sub-committee on which I have the privilege to sit. It so happens that water supply in the United Kingdom provides an interesting comparison since in England and Wales water undertakings have been privatised while in Scotland they remain in the public sector. Under the Environment Information Regulations 1992 the public may have right of access to most environment information held by public authorities. However, information can be withheld on grounds of personal confidentiality or, more significantly, on grounds of commercial or industrial sensitivity. In the course of hearing evidence the sub-committee came across cases, admittedly isolated, where the commercial sensitivity card had been enthusiastically played by one or two water companies

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in England and Wales. This contrasts with the position in Scotland where, for structural reasons, the issue of commercial interest is, by virtue of ownership, less likely to arise in the public sector undertakings there.
A consistent strain running through the deliberations and findings of the sub-committee is that where public health is involved there should be a presumption in favour of disclosure. I express no political view for or against privatisation. However, I urge the Government to take steps to ensure that, in matters of public health, commercial considerations are not permitted to stand in the way of full disclosure and access by the public to all information which should properly be in the public domain in the interests of the health of the nation.
3.25 p.m.
Baroness Robson of Kiddington: My Lords, I also congratulate the noble Baroness, Lady Hilton, on introducing the report so clearly and comprehensively, and the sub-committee on an excellent report. I was not then a member of the sub-committee but I have since become one. In my short speech I intend to deal with only one of the major points in the report.
I agree with the noble Baroness that the 1980 directive has been responsible for great improvements in the quality of drinking water across the Community. Since then advances have been made which have had an enormous impact from the point of view of public health. First, I agree with the Commission that the most important change in the proposed directive is the reduction in the maximum permitted level of lead in drinking water from 50 micrograms to 10 micrograms. Secondly, under the 1980 directive there was no uniformity between Community countries as to where testing for lead should take place. I am assured that in some countries it took place at the point of supply, which in most cases would bear no resemblance to what finally came out of the tap in the average house. In contrast, the testing in this country—here I congratulate the Government on past performance—took place at the point of supply and such testing had to be based on an unflushed sample at the tap. Water that has been standing in lead pipes is likely to have much higher concentrations of lead than water newly run from the mains supply.
The British regulations were stricter than those required by the 1980 directive. Therefore, I am concerned that the new directive simply requires the sample to be taken from a flushed pipe. Both the Government in their response to the directive and the sub-committee have accepted this. Do they believe that in the interim period—the 15 years during which we will still be drinking water with a certain amount of lead in it until it has been eliminated—the flushing of water before drinking is likely to become regular practice in households which have lead piping and lead supply pipes? Should we not continue with our old system irrespective of the new directive? Surely, we could do that under the principle of subsidiarity. I agree with former speakers that the only long-term answer is the ultimate elimination of lead from drinking water by the removal of lead pipes.
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The urgency is also much greater in some parts of the United Kingdom than in others. In those parts which have soft water the plumbosolvency is much greater than in those areas where the water is hard. Therefore, places like Scotland and Wales, which are well-known for their soft water, must be at greater risk than parts of the country with hard water. It is worrying to learn that in Scotland of 2.1 million homes as many as 589,000 still have lead piping.
The Government have introduced certain grants for the replacement of lead pipes. In particular, they are available to people on income support and lower incomes. That is to be welcomed. But I believe that they must extend the grant system to cover many more families. One may not need to be on income support to find it very difficult to meet the cost of replacing one's lead pipes if income is limited.
I also welcome the Government's insistence that where a household replaces its lead pipes the water companies now have a statutory duty to replace the supply pipes so that the system will be clean.
It is worrying that, despite those government grants, the replacement of lead pipes has been so slow. The slow response of consumers must be attributed to the lack of an effective publicity campaign to bring home to people the danger to human health, especially to young children. The committee calls for such a campaign to include the use of television.
In their response to the report, the Government state that they have publicised the issue in the form of a leaflet from the Drinking Water Inspectorate. How has the leaflet been distributed? If it has been available only on request it will not have had much effect. One has not been delivered to my household. If one wants a publicity campaign to alert everyone, the leaflet needs to be freely available and distributed among the population.
The new directive gives us the opportunity dramatically to improve across the Community the quality of drinking water as related to human health. We welcome it. We sincerely hope that the Government will do all that they can to have it implemented before the 15 years are up.
3.31 p.m.
Lord Lewis of Newnham: My Lords, first, I compliment the committee on this important report and thank the noble Baroness, Lady Hilton, for her chairmanship. I must declare my involvement as minimal. It is only fair to pay a tribute to the noble Baroness for her expertise in this area.
I welcome the directive. As has been said, it gives us an opportunity to update the present position on water quality and to recognise the most recent assessments of water quality which emphasise the WHO's latest thinking. I commend the point made about the removal of 19 parameters. I am a great believer in trying to reduce the complexity of these directives. This was an admirable opportunity and it is commendable that it is an opportunity that has been taken without in any way affecting the safeguards relating to water safety.

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One of the main problems in any discussion of water quality is the large variability of the source: 30 per cent. of the water used in this country comes from groundwater sites, and in certain areas such as the south east it is as high as 70 per cent. It is an aspect which is often difficult to monitor. It is fair on this occasion to compliment the water companies on their effectiveness in achieving that objective. It is a difficult one because groundwater can be quickly and easily contaminated.
One of the main problems that has been discussed in the report has already been touched on: contamination by lead. That is a major problem with children and, as has been reported, relates primarily to absorption into the bone structure, which is I believe eight times more effective weight for weight for children than it is for adults. There is a potential hazard. The contamination may be eroded from the bone over a long time. I am pleased to hear that that is a point that will be discussed subsequently.
One of the ambiguities in the initial 1980 report related to sampling. The point was that the water sampling was defined as being:
"at the point it is made available to the user".
That may be interpreted as when it left the treatment works. That was commonly the procedure used in Europe, and so I have sympathy with the point made by the noble Viscount about the dangers involved in drinking some European water as opposed to UK water. In addition, there is sampling at the tap, which I believe is the process laid down by this Government, and I hope that is what we shall continue to do.
The other warning relates to timing. The timing has been questioned. As a young boy I was taught to run the tap before drinking the water from it. That reflects the fact that I came from a part of the country where soft water was prevalent. These old ideas often contain a great deal of scientific truth. The present system of using a flushed sample increases the problem of obtaining a consistent figure for the lead content.
The other important point which is barely touched upon in the report is the frequency of sampling. I should like to see a report on how frequently samples are taken and whether any judgment is made as to where and how the sampling should be done. It would be delightful to see comparable figures from the Continent.
I turn now to one aspect which worries me more than any other—the chemistry of the problem. With a concentration of 50 micrograms per litre it is possible to deal with the problem by the use of orthophosphate or by varying the acidity of the water. We have been told that by the time we get down to 10 micrograms per litre that approach is no longer appropriate. There seems to be only one alternative, which is completely to remove lead from the system.
The position is even more complicated. We are told in the WRC report which was commissioned by the DoE that levels can be affected to the extent that even brass fittings are sufficient to give us that 10 micrograms of lead per litre. One does not associate brass fittings with lead. This involves a major reassessment of the whole area. It is a nightmare when one considers it in terms of the domestic water supply—and worse: if one thinks of
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a hotel or similar establishment that must also conform with the directive. I believe that the costings are optimistic. The figures of £2 billion and £8 billion seem to be a relatively minimal assessment.
The proposed timing for this operation is 25 micrograms after five years and 10 micrograms after 15 years. If this is indeed a problem—it is a cumulative problem—why are we waiting 15 years to solve it? If, as I believe to be the case, it will be governed, understandably, by monetary considerations, other alternatives should be available if there is in the 10 micrograms the danger that we have been assured there is.
That brings me to the point made by the noble Baroness, Lady Hilton, about the availability of scientific data so that we can assess it. With so many EC regulations we often find that the scientific evidence is not given to us. It is hidden away in a cupboard, so that we do not have the information available.
Perhaps I may just put the situation in perspective. The daily usage of water per person in a home is about 150 to 200 litres. Of that, about 3 to 6 litres per person is used for drinking and cooking. Of the bulk of the water that we are purifying, 50 litres is used for the garden and car washing and 83 litres for flushing toilets and in bathing. If we are concerned with 5 litres out of 200 litres per person it is ludicrous that we are purifying the whole lot. As was suggested by the WRC, if I were a parent with small children I should use a filter system to try to solve the problem in the short term.
Finally, I turn to the issue of copper and boron. Recommendations on both appeared as guidelines rather than as obligatory quantities in the initial 1980 directive. The amount of copper has been changed from 100 micrograms per litre to 2 milligrams per litre. We are given no reason for that; we are merely given a bold figure. I should like to see a reason for that change. Certainly copper is not a simple metal because it has certain toxic problems. Of course, it is often present in copper piping and so forth. May I say immediately that the solubility of copper from copper piping is not great and I do not believe there to be a major hazard, but I believe that explanations should be given in the directive.
I find most difficult to understand the boron issue. We are told that the amount was 1,000 micrograms per litre but it is now being reduced to 300 micrograms per litre. Boron is a particularly difficult element to detect. To my knowledge, there is no reason why the stipulation should be in the directive and I should like to know the reasoning. It is a major obligation because it is not an easy element to remove in this particular set of circumstances.
All that is involved in what is a good directive, but it exemplifies the problem of so many EC directives when we address the science issue: transparency is certainly not to the fore.
3.40 p.m.
Lord Dubs: My Lords, I congratulate my noble friend Lady Hilton not only on the way in which she introduced the debate but also the able way in which

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she steered the sub-committee to its conclusions. I was privileged to be a member of the sub-committee, and I began by knowing very little indeed about the problems of our water supply. Frankly, I became quite alarmed as the evidence was gathered. More of that in due course.
In my childhood I was told that British water was always safe to drink. I do not wish to sound xenophobic, but I was told that if one goes abroad one ought to be careful and that in many countries one could not drink tap water. For a long time there was no market for bottled water in this country. Who would have thought that bottled water would have been such a significant seller in our supermarkets? Almost every household drinks bottled water at some time or another. That is a sign that public confidence has disappeared or has at least weakened. For many years we have not been sufficiently careful about what goes into our drinking water, as the evidence of the report spells out.
As the Committee gathered its evidence I became increasingly alarmed about our water. I examined the pipes in my house and told my family about the dangers. The difficulty is that none of us wants to be so alarmist as to reduce the confidence of people in this country in the water supply. On the other hand, we are doing them an ill service if we do not point out the dangers or argue that there should be changes, as the sub-committee stated. It is not always easy to strike the right balance between keeping quiet and perhaps endangering public health and between saying so much that one causes panic, which would be undesirable given that all the solutions must be fairly long term. The committee tried very hard to strike the right balance between those extremes.
During my childhood I was always told to run the tap before filling the kettle. I had no idea what that was about and it was not until I sat on the committee that I had an explanation. Of course, it was to get rid of the residual lead in the water. It is surprising that as a child I accepted that the need to run the tap was important. Argumentative as I was in my childhood—of course, I am not these days—I never questioned that, but the reason became clear only when I sat on the committee.
Some 10 or 15 years ago public concern was focused on lead in petrol. When that concern was expressed it did not take the Government long to introduce measures to reduce over a period of time the amount of lead in our petrol. We have a similar challenge regarding our drinking water. After all, there is no dispute about the health risks of lead in water. It can adversely affect the blood, the nervous system, normal growth and development, the kidneys, the reproductive system and the cardiovascular system.
The evidence is that there are no clearly discernible thresholds for those effects. There is no minimum safe level below which lead does not matter. I came across no scientific evidence to support the view that there are safe levels. Of course, it is easy enough to argue that there are safe levels because it is a handy way of approaching the problem. The committee was right to talk about the level of 10 micrograms per litre but, in fact, there is no scientific evidence that it is safe below that level but dangerous above it.
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Certainly, the World Health Organisation has made it clear that lead is toxic to the central and peripheral nervous systems and can cause serious neurological damage, in particular among infants, children and pregnant women. However, the point is that the effects may well be long term and are not as dramatic as the public health consequences of other problems in our food supply. As a result, the relationship between having taken too much lead in drinking water and the eventual effects on health are not sufficiently discernible for it to be obvious without investigating it in some detail. In 1988 the United States Environmental Protection Agency stated that the aim should be a zero level of lead in drinking water.
What is the scale of the problem? In England and Wales in 1992 8.9 million properties had lead pipes within their system and 8.2 million properties were supplied by lead pipes from water companies. In Scotland, of 2.1 million households nearly 600,000 have lead pipes. Therefore, the problem is partly one of pipes in people's homes and partly one of the water companies' pipes which supply water through the mains system.
It is clear that the problem is much less serious in hard water areas. Although the Government made the suggestion in their response to the Select Committee's report, that is no reason for saying that the problem is small because many of us live in hard water areas. The problem arises only in soft water areas. I have seen no figures indicating which of the 8.9 million and 8.2 million properties which have lead pipes in their system or lead pipes supplied by water companies are in soft water and hard water areas. Perhaps the Government have such figures. However, we should not sit back and say simply that hard water makes it all right. It does not because if repair work is done to pipes the lead particles which are safeguarded through hard water can re-enter the water system.
An alternative suggestion is that we can treat the water to lower the lead content either by dosing the water with orthophosphates or by lifting the pH levels of low alkalinity waters. According to our evidence, there are problems in respect of both those approaches, attractive as they may seem at first sight. First, by adding one or other of those elements we might destabilise the existing pipe deposits and release particles of lead into the supply. In any case, there might be discolouration of the water supply. I understand that other possible effects are increased mould and algae growth. In any event, I find it an uneasy solution to say that we should eliminate one dangerous chemical in our water by adding other chemicals. At a simple level, that does not appear to be the right way forward. Indeed, I understand that 90 per cent. of the water companies believed that there would be benefits in ceasing the orthophosphate treatment.
I believe that the ideal policy objective should be the total elimination of lead from drinking water. However, I understand that there are difficulties in doing so other than in the long term. Any policy which states that it is all right to have a certain amount of lead is not acceptable in the fullness of time. I appreciate that the costs of doing anything quickly are high. We were given

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figures showing that the average cost of dealing with lead pipes within a house could cost an average of £1,000 per household.
There is an added difficulty. Many of us were brought up to drink water only from the main kitchen tap which came straight from the mains. But, of course, there are other taps in houses and it may cost more to make those pipes quite safe. Therefore, we arrive at a total figure of £8.5 billion. I appreciate that that is a lot of money but we must set it against the long-term effects on public health.
Therefore, I am disappointed that the Government's response to the Select Committee's report said that it should not be necessary to remove all lead pipes for water to achieve the guideline value—the 10 micrograms per litre suggested—partly because there are many hard water areas where the water is not plumbosolvent. For the reasons that I gave earlier, I feel that that is an unsatisfactory response. It seems to me that the Government wanted to agree with the thrust of the report but did not wish to accept the tougher conclusions implicit in it.
Therefore, I believe that we need to increase the level of public awareness about the safety of pipes and about the problems of lead pipes bringing water. That needs to be done without being alarmist and I believe that that is possible. We need some publicity to achieve that. The public needs to be informed more fully about water quality.
We need from the Government a national strategy for dealing with lead in our water supply which goes beyond the rather inadequate response to the Select Committee report. Yes, grants are available at present but they are limited in terms of the people who benefit. The Government need to look at that and we need clear target dates for the removal of lead from our water supply. I commend the Select Committee's report to the House.
3.52 p.m.
Baroness Park of Monmouth: My Lords, I echo most warmly the tributes justly paid to our two chairmen and clerks. I particularly enjoyed working with the committee and serving under its chairman.
I wish to address briefly the European Commission aspects of the report on which other noble Lords have already touched. The report makes clear that the committee considers that the Commission's proposals and the revision of the 1980 directive were justified and that subsidiarity has been respected. The Commission has drawn proper distinction between matters for action by member states and those by the Community.
Moreover, in this case the Commission is recognised by all interested groups to have consulted widely, notably at the Euro-conference attended by European water suppliers as well as by member states and the Commission in September 1993 and at subsequent workshops in 1994. They produced valuable insights which helped to produce the new draft directive. That process of wide and deep consultation is a model which other parts of the Commission could copy.
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Less satisfactory is the fact that, not for the first time in our experience of the Commission's operations, there has been difficulty in obtaining the information forming the basis of Commission decisions. Much work undoubtedly went into the process of consultation with member states but many of the Commission's assessments and decisions, made on scientific grounds, remain obstinately opaque. It is possible to learn the decisions and recommendations of, in this case, the Commission's own scientific advisory committee on the toxicity and eco-toxicity of chemical compounds—CSTE for short—but not the scientific basis for those decisions. Incidentally, it is very difficult even for officials of member states to establish the membership of the committee. It is a very curious position. As decisions in several cases differ in important respects from those of the WHO, it is extremely unsatisfactory that where directives are based on scientific data, that data should not be available for scrutiny.
The scientific advice given by the CSTE to the Commission was addressed exclusively to the question of public health. Although cost compliance was bound to become a relevant factor in applying the directive, the committee was not required to consider costs and benefits. Therefore, it is all the more desirable that there should be transparency, as advocated strongly by the relevant EC Commissioner when it came to requiring the competent authority,
"to plan their water management activity in an integrated fashion and to do so in a transparent manner with public consultation".
The Commission itself regards its requirement for annual reports from member states as likely to make a significant contribution to that transparency. I hope that it does.
Another aspect of the European Commission's work which concerned the committee was compliance with the directive across the EU and the vexed question of monitoring. The committee agreed strongly with the view of the Public Health Laboratory Service that external assessment of the performance of laboratories engaged in monitoring, sampling and analysis should be required by the directive. Our experience to date of securing adequate machinery to ensure comparability of measurements in assessing the state of the environment in a European context has been, to say the least, discouraging. In reporting on the European Environment Agency, we recommended a uniform protocol for the sampling, measurement and interpretation of environmental data and a training programme. We found that a pilot project for creating some sort of uniform scientific approach to testing bathing water had only recently been set up. We recommended that laboratories in the European Union should create a quality assurance programme.
The committee believes that there is the same need throughout the EU for comparable data on compliance with the drinking water directive. It believes too that there should be an externally validated quality assessment and assurance programme. I need hardly add that its reports would, unlike the proceedings of the CSTE so far, need to be available to all member states. I hope that the Government will urge the need for those measures of monitoring and comparable assessment and

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also the need for transparency. Comparability, transparency and subsidiarity are all vital aspects of European Union legislation.
3.57 p.m.
Lord Elis-Thomas: My Lords, it is a great privilege for me to follow other members of the committee. I have been a member now for just over six months. As with all my experiences in this House, it has been extremely educative. I am particularly grateful for the way in which the noble Baroness, Lady Hilton, and her predecessor, the noble Lord, Lord Lewis, chaired the committee. I believe that we bring to our work an approach which, as is evidenced by this debate, is a combination of expertise and lively interest in all the public policy aspects. We have what may be a unique way of approaching the implementation of policy and analysing its implementation.
I wish to deal briefly with some of the issues concerned with research and information before turning to and supporting some of the remarks made by my noble friend Lord Dubs on the issue of lead. As we have already seen in two other major areas of public policy in recent weeks, issues of scientific research and public health cause tremendous public concern and, indeed, have direct market—big and small "M", I suppose—consequences and effects well beyond any particular scientific debate. Therefore, it is appropriate for me to underline the plea which we make in this report on the draft directive on drinking water for an adequate level of research to be undertaken.
Without a basis of adequate scientific research, both at UK and European levels, as the noble Lord, Lord Lewis, put forward so clearly, it is not possible for mere politicians or mere administrators to make public policy decisions which can be seen to be valid. That is why the committee stressed at paragraph 68 of the report and subsequently in our opinion at paragraph 70 what we see as the inadequacy of the level of funding. A figure was quoted by the Water Services Association of an investment of £¾ million each year to establish a toxicological database. It seems to us that the level of research undertaken by the water companies and by the Department of Environment and the Department of Health does not meet the real need in this whole area.
In their response to our report, the Government stated that together they and the water industry spend over £2 million each year on research on drinking water supply, quality and health issues. They emphasised that there was an avoidance of duplication of effort and that value for money was enhanced. However, as we conducted our investigation, it seemed to us that it would be appropriate for the Government to look again at the whole issue of research priorities in the area to ensure that there is adequate fundamental research to provide the underpinning required for directives for European legislation or for UK policy.
That leads me on to the issue of information. In the evidence that the committee heard, Friends of the Earth stated in its oral evidence on page 43 that it had been trying to establish a comparable basis of data as between
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the various drinking water companies and had failed to do so. According to the evidence that we received, Friends of the Earth had written to the drinking water companies asking for information and requesting that such information be provided in a standard form on disk. There was a positive response from some companies, but from the company that serves the area in which I live, Dwr Cymru (Welsh Water), came the suggestion that Friends of the Earth would be charged several thousands of pounds for such information.
I have since pursued that issue with Dr. Brian Charles, the Chair of Welsh Water. He has raised what I believe to be an important point. Whereas he emphasised that the company prides itself on being an open company, committed to sharing information with customers, and ensures that it meets all its responsibilities to publish and make available detailed information, he expressed the view that, although it has always previously sought to respond to inquiries from Friends of the Earth and other organisations, it is impossible for it to guarantee an open-ended provision of information in a format required by one specific organisation, especially where that differs from the format used both for internal management purposes and for satisfying the other statutory responsibilities of the company.
It appears that there may be an issue here relating to the standardisation of the supply of data as between the water companies. We seem to be in a position where informed, environmental bodies and voluntary bodies such as Friends of the Earth are unable to undertake studies because of the lack of standardisation of systems of information among water companies. But again that may be a matter which could be looked at in relation to the level of research and public information that is available.
My final point follows on what has been said on the issue of lead. Again, I took up the issue with my own water supplier, Dwr Cymru. It seems to me that the action of Welsh Water highlights the point made in the report that there appears to be some complacency on the part of the Government in tackling the whole question of lead. My noble friend Lord Dubs outlined the pollution problems very clearly, so I shall not repeat them. However, what I shall give in evidence in support of the committee's emphasis on the importance of the issue is the level of work already achieved by Dwr Cymru (Welsh Water). The company is well on the way towards implementing the recommendations set out in our report. The position may be similar with other water companies and, if that is the case, I shall be reassured.
However, it is worth putting on record briefly the position of Dwr Cymru. Since 1991 the company has replaced 63,000 lead communication pipes which are part of its own infrastructure—and we are talking here about what is now a privatised utility, so clearly it must be a matter of concern for the company; otherwise it would not be expending capital on such investment—and is planning to achieve total elimination of lead pipework by 2010. Within the lead pipe replacement programme, the company has specifically targeted schools, nurseries and so on; and, indeed, has totally

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eliminated lead communication pipes from all those establishments that it has been able to identify. That is a priority for the company.
In addition, Dwr Cymru has provided extra water treatment to reduce further the content of lead in drinking water. The improved treatment of 26 key water supplies now provides extra safeguards for 80 per cent. of all customers, including those living in areas where lead pipework is still prevalent. Moreover, the company has been offering a grant scheme to customers of financial assistance to replace the internal lead pipework. Of course, that is not the responsibility of the water utilities; it is the responsibility of customers. To date, about 15,000 customers have benefited from that grant scheme.
I can only conclude from that information that at least one of the privatised utilities with which I am familiar is taking the issue far more seriously than the Government. I should like to emphasise to the noble Lord who is to reply to the debate that we need to ensure that there are adequate safeguards and that adequate priority is given to the removal of lead from the water supply in the way that has already been pioneered by Welsh Water. For those reasons, I hope that the Government will be able to take the committee's recommendations more seriously than they have so far in their initial response.
4.6 p.m.
Lord Dixon-Smith: My Lords, like other members of the committee, it has been a privilege for me to serve under the chairman whose name is on the report, the noble Baroness, Lady Hilton, and also under the chairmanship of the noble Lord, Lord Lewis. I welcome both the attempt to revise the directive and the directive in its new form. I am glad about the outcome. However, I wish also to introduce a note of caution. The report itself applies on occasion the precautionary principle. What I want to do in the main is to apply the precautionary principle to the precautionary principle.
We are not talking about pure water; we are talking about potable water. The caution that I wish to apply arises from just that distinction. It arose for me as an acute issue at the point where we were discussing the disinfection of water with chlorine. The noble Baroness, Lady Hilton, mentioned the problems of chlorine as an additive to water. In fact, if one was considering chlorine in isolation, one would not add it to water for a host of very good reasons, not the least of which would be the precautionary principle. However, there is no argument about the addition of chlorine to water because it is an essential part of the water purification process—or disinfection process, dare one say—without which an urban area like London could not function.
Therefore, we have a problem. We need to ensure—and this has been mentioned by a number of speakers, including the noble Lords, Lord Lewis and Lord Elis-Thomas—that adequate data are available. Not only do we need adequate data; we also need an assessment of risk and of the real dangers involved. If one considers the question of nitrates in water, it will be realised that there is a distinction between the guidelines
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of the World Health Organisation, which are set at 50 micrograms per litre as an average on the run over a period of time, and the new European standard which is set as a maximum advisable concentration of 50 micrograms per litre. I should remind noble Lords that a microgram is one millionth part of a gram. Therefore we are dealing with small quantities. I shall refer later to even smaller quantities. If one has a maximum advisable concentration, as opposed to a guideline maximum, it implies that the water companies must work to a higher quality standard in order never to exceed that maximum.
The data are in the report. The report indicates that it would cost £160 million to achieve a maximum standard of 30 micrograms per litre, which would imply that now and again there would be fluctuations up and down, and the "up" never went over 50. The health problem being tackled by this massive expenditure is the "blue baby" syndrome. A small number of cases will be prevented as a result. We need to think about that. As I said, science and risk assessment are involved. I do not wish in any way to diminish the significance of the debate about lead, but the fact is that lead in plumbing is an historic material. It occurs in older houses. It has been there for a long time. Amid all the health problems we face today—and there are many—I do not recall hearing that there is a significant incidence of lead poisoning, albeit many people live in houses with lead plumbing. I may have missed something somewhere and I do not wish to diminish the problem or diminish the need to get rid of lead because, as we heard from the noble Lord, Lord Elis-Thomas, the water companies are concerned about the matter. The concern is long-standing and steps have been taken. I merely make the point that I have not heard that lead constitutes a major health problem at the present time.
I now turn to agricultural products and particularly residues which occur in water. Here, of course, we are dealing with severe standards. We are talking of a standard for these residues of 0.1 micrograms per litre; in other words, a tenth of a millionth of a gram per litre of water. There is debate about the standard. We in the committee accept that it is a sensible standard to set. However, the scientific evidence suggests otherwise. The World Health Organisation has a list of some of the materials—it is of course by no means comprehensive—which suggests that more relaxed standards could be applied. Again, that is mentioned in the report. There are 24 substances listed in the report by the scientific and technical advisory committee to the European Commission, which has been guiding the Commission. The advisory committee sets water quality objectives for those substances which are much more severe than one-tenth of a microgram per litre. For instance, DDT is set at two-thousandths of a microgram per litre. We need to be careful as regards the science and the precautionary principle because those are difficult matters.
Agricultural practice is remarkably good in this area. I pay tribute to my colleagues who are involved in agriculture because by and large they do not splash these materials around in a random way. Thank heavens the number of incidents of chemical pollution has

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diminished. Compared to gardeners, farmers are remarkably responsible. However, we need help from the agricultural chemicals industry in dealing with this particular problem. Already immense difficulties are being experienced in getting new materials approved, but clearly it will help everyone if, in the course of that approval, we know what the breakdown period is for these materials which we all use in farming. We need materials that have a shorter life and we need to know about the breakdown of those products. Equally, we need to know what the cocktail effects are. There is immense scope here for increasing the information in this whole area, bearing in mind the risks involved and the need to have potable water at the end of it all. I wish to enunciate a slightly different version of the precautionary principle; namely, if we do not know, we had better move heaven and earth to find out as soon as possible.
4.15 p.m.
Lord Walpole: My Lords, I say, as one farmer following another, that there is a great deal in what has just been said. I congratulate the Minister as being the only person on today's list of speakers who did not serve on the committee. As a new member of the committee I particularly wish to thank the noble Baroness, Lady Hilton, for her excellent chairmanship and for bringing forward this report.
I welcome the new directive, as we all do. It comes 15 years after the first one. Following on from what has just been said, I think it is absolutely essential that these reports and directives are produced in the light of new scientific knowledge as it is gleaned. Indeed these updates are absolutely essential.
I wish to touch on two topics. The Minister may well be surprised that there are any topics left to discuss. I wish to touch on the matter of lead from a personal point of view. There is no doubt that there is danger in drinking the amounts of lead that are in lead piped water supplies if people are old, young or pregnant. I am not quite clear which I am. Sometimes I think that drinking lead in the water in London, as I do, is making me prematurely senile. I hope that my noble friend Lord Lewis will tell me that I am totally wrong and that if I make coffee—putting the water through a filter with a certain amount of coffee in it—I may be spared some of the lead. Perhaps I am wrong. I think all members of the committee were concerned about themselves at one stage during the inquiry and rushed off to discover where their water came from.
When I am in London I live in a block of flats in a conservation area. The flats were built in 1900. I have discovered that the mains water and the whole of the internal distribution of water, right up to the drinking tap, flows through lead. Of course, to rectify the problem would be incredibly expensive and extremely disruptive, but I think on the whole it ought to be done. I asked in the committee—at Question 95—about lead pipes. I was told that the removal of lead pipes over a 15-year period could provide considerable employment
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to people in areas where there is older housing and, possibly inevitably—as was suggested by Friends of the Earth—higher unemployment.
When I am in Norfolk—as the noble Lord, Lord Lewis, indicated—my water is drawn from aquifers several hundred feet down. This produces as good a water as one will get out of any bottle. Not long ago the matter of chlorination was raised. I found that our water was becoming undrinkable. An analysis was carried out. The water comes from a deep bore hole. As far as I know, it flows into a concrete tank and comes all the way to us in plastic piping—I remember it being laid only recently—and reaches our house and the tap from which the sample was taken. The tap is copper. The lead content was 1.5 micrograms per litre. I am not clear where the lead comes from—I suspect from a little piece of solder used when joining pipes together. The moral is this. To achieve a nil level of lead would be absolutely impossible. But we must do better than we are doing.
I hardly dare touch upon the next subject, with the noble Countess, Lady Mar, speaking later. I refer to pesticides. However, the noble Lord, Lord Dixon-Smith, touched on one point about which I can enlighten the House. It is an issue on which I have always felt strongly. Noble Lords will read in the report that chemicals getting into water courses, by which we mean streams, is not a problem provided that we have good agricultural practice—by having buffer zones, and, quite simply, by being careful. I am more concerned about chemicals of all kinds percolating down into the aquifers upon which a large percentage of water consumers in East Anglia depend.
Some 30 years ago when I began farming, I undertook a considerable amount of work with a firm—I suppose it is fair to say that it was ICI—on direct drilling. Its scientists—I am sure they were absolutely genuine—were totally convinced that most chemical sprays became deactivated before anything passed through the topsoil. In other words, all those nasty things that one sprayed on disappeared within the top nine to 12 inches of the soil. They were either killed by ultraviolet light because they remained on the top, or the microflora and fauna of the sod (if one may so put it) dealt with the nasty things as they went down.
I am afraid that that is patently not true. Many chemicals used from the war onwards, and certainly from some 30 years ago, are beginning to appear in aquifers in East Anglia not far below plough depth. I shall refer to nothing that the noble Countess, Lady Mar, will say. But in the report we are assured by the Ministry of Agriculture that the concentrations about which we speak are very low and there is no cocktail effect. That is possibly true now; but we had better watch it in the future.
4.22 p.m.
Lord Pearson of Rannoch: My Lords, I, too, am grateful to the noble Baroness, Lady Hilton of Eggardon, and her committee for the opportunity to debate their report on this proposed Drinking Water

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Directive, although I trust that the noble Baroness and her colleagues will forgive me if I reach rather different conclusions from those contained in the report.
I start by quoting from the report itself, where in paragraph 8 on page 6 the problem is put just about as tactfully as it is possible to put it. It states:
"In recent years there has been growing criticism of the multiplicity and incoherence of the Community's many directives concerning different aspects of water policy".
Part of that criticism, in the UK at least, is the doubt as to whether any of these directives were necessary in the first place and whether they have even vaguely achieved what they set out to achieve in the Community as a whole. I should say at once that I understand the theory that surely any European environmental legislation is better than nothing; that European environmental legislation has at least pushed the Community countries into doing something which otherwise they might not have done; that we take our Community responsibilities seriously; and we hope that by setting a good example the other countries will do likewise over the next century or so. I understand that theory, but I do not agree with it.
Instead I would point out that this country had a high standard of water quality before ever the first European water directive raised its very expensive head. If I am wrong about this I should be grateful if my noble friend on the Front Bench could tell me, first, the statistics which show that the health of the British people has been improved by any European water directive and, secondly, whether any such improvement (the existence of which I doubt) could not just as easily, far more cheaply, and with far greater scientific legitimacy, have been achieved by the British Government responding unilaterally to the wishes of the British people through the well-tried system of British democracy? Or are we to he told that the British people are so careless and ignorant that genuinely harmful water would not soon have become an election issue in this country and that we therefore needed correction from Brussels?
I was interested in the contribution of the noble Lord, Lord Dubs, who, although he supports the directive, went so far as to admit that it is very difficult to define a clear level of lead in water where the damage envisaged by the directive actually occurs. Of course it would be nice to have a zero level of lead and other harmful things, but are such provisions really necessary? Are they essential, and at what price? How many people have died or have been made seriously ill by lead in our water, and at what level of lead? I am afraid the answer is that we simply do not know.
What is true, of course, is that if the quality of our water is not about to be an election issue, the shortage of water is becoming just such an issue—or it will this summer. But that is because we have dutifully wasted many thousands of millions of pounds on European water directives instead of spending a fraction of those vast sums on our infrastructure and supply.
Here, of course, it would be nice to be able to be precise about figures, but as with all things European, the subject is clouded by secrecy, dishonesty, incompetence and lack of compliance by our so-called partners.
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Perhaps the clearest views we have been given in your Lordships' House as to the cost of these water directives came in a Written Answer to me from my noble friend Lord Ferrers on 3rd April of this year and in an Oral Answer to the noble Lord, Lord Stoddart of Swindon, from my noble friend Lord Lucas on 18th April at col. 785 of the Official Report. The first point to note from those answers is that we are simply not aware, and apparently are not able to discover, how much money we spent on the many European water directives of the 1970s and 1980s. These included the original drinking water directive whose revision we are discussing today. However, I imagine that we can safely say that our expenditure ran into many thousands of millions of pounds. Since 1991, according to my noble friend Lord Ferrers, we are on for around a further £22,000 million, which figure would include some £10,000 million for the proposed new drinking water directive, as estimated by your Lordships' committee.
This is the sort of figure which was confirmed by my noble friend Lord Lucas on 18th April when (and this is the question that I am trying to pursue) he also confirmed that only £1 billion has been spent on infrastructure and supply. I really must ask the Government to look again at this figure. Are we really saying that since 1991 we have spent, or are committed to spend, at least £21,000 million on what many would regard as superfluous or at least uncertain water quality and only £1,000 million on infrastructure and supply? I cannot believe it, but whatever the proportions turn out to be, I should have thought that it is pretty obvious that we have our priorities the wrong way round and the sooner we reverse them the better.
The best way to do this, of course, would be to refuse to obey any further water directives, at least until they correspond with the Treaty of Rome. As many of your Lordships may know, I am among the fast growing number of British people who are now convinced that we would be better off outside that treaty altogether. But for the purposes of this debate we do not have to go as far as that. We merely have to insist that the water directives follow the treaty, and decline to obey them until they do. Indeed, I would have hoped that such action might even resonate with present government action, or lack of it, towards European proposals in general (although of course all environmental legislation from Europe is, alas, subject to the qualified majority vote, so we would not be able legally to block it).
This directive, in common with the other water directives and, indeed, all European environmental legislation, fails to meet the treaty in two vital respects, in my submission. First, it clearly fails under Article 3b, the test of subsidiarity, and, secondly, it fails under at least two sections of Section 3 of Article 130r.
As to subsidiarity, I notice that the Government merely note our committee's endorsement of the directive's proposals as being compatible with the principle of subsidiarity and our committee's consequent support for revising the existing directive. Well, I do not know what being compatible with the principle of subsidiarity may mean, but the directive

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clearly contravenes Article 3b. To prove this point, I regret that I have to quote an extract from the unfortunate Article 3b itself:
"the Community shall take action … only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community".
What evidence is there that the member states cannot clean up their water as individual sovereign states? None, I would submit. What evidence is there that the "scale or effects" of all these water directives, after more than 25 years, is being better achieved by the Community? To answer this question we would need to be told honestly what each of the other countries has spent on each of the directives, including the Drinking Water Directive, and with what true effect. I should have thought that the likelihood of getting honest answers from the Commission and from the countries concerned to these questions is so remote that I hardly dare suggest that my noble friend on the Front Bench should ask them.
There is, of course, more that one could say about subsidiarity, but in the interest of time I shall move on to Article 130r, Section 3. An extract of it states:
"In preparing its policy on the environment, the Community shall take account of: available scientific and technical data
— environmental conditions in the various regions of the Community
— the potential benefits and costs of action or lack of action".
Other noble Lords have cast doubt on the scientific and technical adequacy of the Commission's performance on this directive. I would just mention that the scientific basis for the Commission's environmental decisions is usually almost entirely lacking. We saw that with the Bathing Water Directive, the Habitats Directive and other directives. That may be why the Commission has set up the new Environment Agency in Copenhagen. Of course, one has to wish it well, even with some misgivings.
Be that as it may, I am not aware that the Commission has carried out any accurate analysis of the environmental conditions in the various regions of the Community. I should have thought that for any directive to do with water that was pretty important, given that the clouds drop their fatness somewhat unequally between Scotland and, shall we say, Greece.
Furthermore, may I ask my noble friend on the Front Bench whether the Government are satisfied with the quality of the Commission's cost-benefit analysis of this and other water directives? I notice that the directive itself admits:
"The estimate of compliance cost resulting from the proposal is based on the limited information available to the Commission".
I see that on page 12 of the directive 80,000 million ecu are estimated as the entire cost of the directive, or about £60,000 million, of which the UK share is estimated as 16,000 million ecu, or rather more than £10,000 million. But we have no substantiating evidence from the Commission for those figures.
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If the Government are not satisfied on all these points, may I ask whether they will decline to follow the directive until they are indeed met, in accordance with the Treaty of Rome itself?
We could thus re-direct many thousands of millions of pounds away from yet another piece of expensive and irrelevant interference from Brussels, towards repairing our water infrastructure and improving our water supply. We could no doubt in the process put those several thousand million pounds to other far more worthy causes.
4.34 p.m.
The Countess of Mar: My Lords, as another relatively new member of the committee, I wish to thank the noble Baroness, Lady Hilton, very much for her guidance and leadership and also for her introduction to the debate, as other speakers have done. Noble Lords will be aware of my interest in pesticides, and organophosphates in particular. I propose to restrict what I have to say to those paragraphs in the report which refer to the standards which the draft directive sets for pesticide residues in drinking water.
I recently read a report from the World Resources Institute which details the effects on the immune system of exposure to pesticides used principally in agriculture. This made me realise just how fortunate we are in the developed countries. I read with horror reports of farmers using pesticides, some of which have long been banned in this country, from containers with inadequate labels and in quantities far greater than would be recommended here. Tins and plastic cans are a valuable resource in the third world. They are often rinsed out in irrigation channels which provide drinking and bathing water for the community and, in some cases, are also used to breed fish which are later eaten by the farmers and their families. The cans are used to contain substances, like vegetable oil, which are eaten and drunk.
There are now indications that the immune systems of people exposed repeatedly to low levels of pesticides, especially organochlorines and organophosphates, are becoming severely compromised. This applies particularly to the young and the old and to those adults suffering from malnutrition. There are instances of infectious diseases which were thought to be almost eradicated reappearing and vaccines which used to be effective no longer work because they require a healthy immune system to be effective. With that knowledge, it is essential that we remain vigilant and that we do not allow unnecessary toxic contaminants to appear in our drinking water.
I found it interesting that only the British Agrochemicals Association gave evidence to the effect that the limits for pesticide residues in water should be relaxed, to the extent that there should be individual health-based standards for each pesticide. This would mean that for some pesticides the limit would be greater than the current one part per 10 billion. Personally, I should be unhappy about that as we do not know enough about the long-term effects on human health of the vast majority of chemicals used in agriculture,

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horticulture and forestry. We know very little about their breakdown products or their synergistic effects. In this country, we rely entirely upon toxicity data produced by the manufacturers and there are frequently huge gaps in the data. I echo the plea of the noble Lords, Lord Elis-Thomas and Lord Dixon-Smith, for more research.
I live in the Severn Trent Water catchment area and I am impressed by the care the company takes to ensure that its customers' water is supplied to the highest standards. It works closely with the agrochemicals industry, with farmers and other users of pesticides and herbicides. Using the Soil Survey of Great Britain and MAFF figures of pesticide use, Severn Trent assesses the tonnages of chemicals used in its area and calculates the risks of those products leaching into watercourses. It has a "Spray Safe" campaign under which farmers are advised on the best times and methods of spraying and are also given good housekeeping advice—to avoid spillages, how to deal with them if they occur, and not to rinse out containers in watercourses, for example. Severn Trent has had an excellent response from local authorities to its advice about the use of herbicides on roadsides and pavements where chemicals run off rapidly into drains and thence into watercourses.
At a cost of about £800,000 a year, Severn Trent monitors for 95 different pesticides and herbicides which it knows are used regularly. Its main problems are with the cereal herbicides such as Mecoprop and Isoproturon. Both raw and drinking water are regularly monitored, with increased frequency at times when higher levels might be expected, for example, after heavy rainfall. Removal of pesticides has required a huge investment by water companies in treatment plants.
I understand that as little as 5 per cent. of many of the pesticides and herbicides currently used actually reach their targets. The rest goes on to the soil or into the atmosphere. In either case, it could eventually contaminate water supplies. The agrochemical industry is developing new products which have improved surficants (which make pesticides stick to leaves), lower toxicity and require lower application rates. Some of the modern products still present a serious leaching problem and there is a need for farmers, foresters and horticulturalists to develop a better understanding of integrated crop management and other sustainable farming practices.
Some interesting work has been done with rice farmers in Sri Lanka and cotton farmers in Dominica. In both those countries there is heavy use of toxic chemicals on crops. There is considerable pesticide resistance and the natural tendency is to use more toxic products in an attempt to kill the insects. On the experimental plots, pesticide use has been stopped altogether. Though the yield of both crops is slightly lower than previously, because inputs are reduced growth margins are increased and the farmers are beginning to be able to pay off the loans that they had taken out in previous years to buy pesticides.
While Severn Trent is a good example of how a water company should operate, not all the companies in the United Kingdom operate to quite the same high
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standards. For example, the group with whom I work closely in the South-West—OP Information Network—is currently looking at OP residues in the River Dart, where there is a wool processing plant. Wool processors have recently publicised a request to farmers to use fewer OP products on their sheep because the residues in the fleeces are causing them major problems with their effluent discharges after processing. They will have to install expensive purification equipment to meet water quality standards. I must confess that I am pleased that such requirements are a priority with drinking water suppliers.
If we look to Europe for comparisons, we compare favourably with most of the northern countries where water quality is regularly monitored and the results made available to the general public. On the other hand, we are much better than our southern European counterparts, who do not seem to be so concerned about quality and from whom information is difficult to obtain. We should rightly be proud of the high standards that the UK water industry has achieved, often higher than those required by the directive. However, I ask Her Majesty's Government to ensure that those are not compromised for financial or bureaucratic reasons.
4.42 p.m.
Lord Stoddart of Swindon: My Lords, I hope that the House will forgive me for speaking in the gap. I could not be sure of being here this afternoon and was unable to put my name on the list of speakers. I too thank my noble friend Lady Hilton for introducing the debate and for the manner in which she did so. My only qualification for speaking is that I was a founder member of the Thames Valley Water Board and indeed chairman of its Land and Works Committee for a number of years. In common with many other water suppliers up and down the country in the 1960s, long before we joined the Common Market, we were supplying good, wholesome, sweet and potable water to our water consumers. Furthermore, I was able to boast that we supplied it at sixpence per ton, which is rather less than is paid by present consumers.
I want to talk about only one item in the report; namely, lead. I shall concentrate on the report about lead in water. I do so because I must warn the House not to be taken for a ride on this issue. I am old enough to have a long memory and I remember the campaign against lead in petrol. I remember it very well indeed. I recall the national campaign against lead in petrol. It seemed that children's intelligence was impaired in urban areas with high traffic density. Now we are beginning to realise that such was not the case and probably teaching methods and a failure to recognise children's abilities rather than lead in petrol were causing the problem.
The Government and Parliament were hooked on that propaganda campaign, which is what it was, and the oil companies spent huge sums of money in extra refining costs to obtain the octane rating that was obtained by adding lead. What was the result? The result was that extra energy was used, with additional depletion of fossil fuel reserves. It threw out into the atmosphere additional CO2 emissions and perhaps sulphur dioxide

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as well. What is more, which was very dangerous, there was an increase in the benzine content of petrol, which apparently is much more harmful to health than lead and is, so I understand, a carcinogen. So we must be careful of what we do.
At the same time, the latest reports that I have heard say that there has been no improvement in children's intelligence where the surveys were undertaken, although since the first report was made the use of lead in petrol has declined by over 50 per cent. One would have imagined that there would have been some increase in children's intelligence after a reduction of that order, but apparently that has not been the case.
So we must be very careful before we impose a further £10 billion in costs on our water consumers. They are the ones who will pay—not the water companies, which will pass on the costs to their consumers. We should make no mistake about that. In the end, it is the householders who will pay. We should not impose those costs unless we are very confident that there will be large and tangible health benefits and no side effects.
4.46 p.m.
Lord Lucas: My Lords, this has been a most entertaining debate and, apart from a small contribution by my noble friend Lord Pearson of Rannoch, one of the least rancorous to which I have had the pleasure of replying. I pay tribute to the noble Baroness, Lady Hilton, and to the other members of the committee, many of whom have spoken today, for the report, which will be read with great care in Brussels and form an important buttress for the Government's negotiating position on the Commission's proposals.
Drinking water quality in the United Kingdom is very high: 99.3 per cent. of the 3.5 million tests conducted in England and Wales in 1994 complied with the relevant standard. There have been clear and significant improvements in quality since privatisation in 1989.
The noble Lord, Lord Dubs, wondered why we drank so much bottled water these days. I believe that it is a reflection of the fact that it tastes better; and, now that we are all so much better off under this Conservative Government, we can afford to pay a little extra for the taste.
Water from taps was and is safe to drink. I am happy to drink it. The noble Lord, Lord Dubs, clearly has benefited greatly from his presence on the committee. I am glad to say that he has asked me a number of questions about the water supply industry since the report has been in preparation. I am delighted that over the past two weeks it has rained so hard that it has discouraged him from asking any more. As the noble Countess, Lady Mar, said, we compare extremely well with Europe. We do not have any reason to be distracted from what we were told in our childhood; namely, that it is safe to drink water in this country. By and large, we should welcome the fact that it is now a great deal safer to drink the water on the Continent than it once was.
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The European Commission's proposals must be seen in the context of our already excellent standards. A test of their acceptability is whether they provide a satisfactory framework within which our quality can be maintained and whether the proposals take proper account of changes in scientific thinking since the 1980 directive.
There is a great deal in the structure of the Commission's proposals that we can welcome, particularly the more workable and flexible framework for dealing with breaches and any necessary remedial work. We also welcome the recognition that it is necessary to ensure a continuing supply of water during the course of a programme of remedial action.
We are pleased that the proposal follows British practice, both in requiring that monitoring to establish quality should be undertaken at the tap and in respect of the reporting requirements. The noble Baroness, Lady Robson, was particularly concerned that monitoring should be undertaken at the tap. That is important. That is where the consumer obtains the water. As she pointed out, it is equally important that the samples should be taken as the tap is turned on and not after it has flushed, which is probably erroneously suggested in paragraph 87 of the committee's report. The Commission is producing further proposals on that and we look forward to whatever it produces. However, we will stick by our position that it is what the consumer is likely to drink that must be tested.
A less satisfactory approach has been adopted to the setting of proposed standards. The Government consider that standards should be set in the light of up-to-date scientific and medical knowledge. We also consider that additional costs which have to be incurred as a result of the directive should be proportional to the benefits. It is clearly important that scientific evidence on which the Commission's proposals are based should be made available. That point was raised by the noble Baroness, Lady Hilton, the noble Lord, Lord Lewis of Newnham, and my noble friend Lady Park of Monmouth. It is clearly indefensible that that evidence should not be made available. It becomes impossible to criticise or improve upon the Commission's recommendations if that continues to be the case.
The Commission's proposal does not consistently meet the criteria for being based on scientific evidence. If standards are not set at the appropriate level, priorities are distorted by pre-empting resources. Those resources may better be used either for other aspects of drinking water improvement or on other matters offering greater environmental or health protection benefits.
My noble friend Lord Pearson of Rannoch entertained us for a long time on the question of subsidiarity and legality. I do not propose to follow him down that road except to say that we could have and would have done what the Commission proposed, but perhaps slightly differently. The directive is very much a road down which we wish to go because the quality of water is such a fundamental aspect of the health of people in this country and the prime aspect of health on which we must concentrate to provide a good basis for the health of the nation. However, we share my noble friend's

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concerns about the Commission's cost-benefit analysis of water proposals. That is a point that we regularly press with the Commission. We endorse my noble friend's—albeit limited—welcome for the European Environment Agency which should go a long way towards improving databases, on which several noble Lords have pressed us today.
Turning briefly to the question of pesticides—visited briefly by my noble friend Lord Dixon-Smith, the noble Lord, Lord Walpole, and the noble Countess, Lady Mar—the Commission proposes retaining the current arbitrary standards for pesticides of 0.1 micrograms per litre. We would prefer a standard based on a proper toxicological assessment of the risk to health from a specific pesticide. At the moment 98.8 per cent. of all samples taken in the UK already meet the 0.1 micrograms per litre standard. When looking at whether or not we should treat water to obtain that standard, we must bear in mind, as was drawn to our attention by several noble Lords today, that there are always consequences to the actions we take. The removing of pesticides can result in the water containing bromate, which is a genotoxic carcinogen. It makes no sense to produce such a substance in pursuit of an arbitrary standard for a pesticide which is stricter than the levels which have been assessed as safe.
We share with the noble Countess her ambition that we should take an extremely precautionary approach to the presence of pesticides in water. They are bioactive chemicals which have unknown effects after long-term low level exposure. We should put a lot of effort into making sure that those chemicals do not enter the water course and the water supplies in the first place and that that is not a risk which we run, whatever that risk may be.
In relation to the costs of implementing the Commission's proposals as a whole, it would be expensive for the United Kingdom and the Community. We estimate the capital cost in this country to be of the order of £2.5 billion, with the main compliance costs falling on the water industry principally from the proposed new standard for lead, with that expenditure being spread over 15 years from the adoption of the directive.
The Commission's proposal for lead is for a standard of 25 micrograms per litre to be achieved within five years of the directive being adopted. A more stringent standard of 10 micrograms per litre would have to be achieved within a further 10 years. We view those standards as obtainable. We are not unduly worried about the problem of brass fittings, certainly not in the vast majority of situations. We regard them as reasonable. The WHO may express the limit as the,
"tolerable weekly intake for infants".
As the noble Lord, Lord Stoddart of Swindon, said, the science on lead is inexact. But we are aware that it is a poison and it is something that we wish to eliminate from our systems. However, it is a poison with which we have lived for a long time and in the case of the noble Lord without any noticeable impairment of his intellectual facilities.
We are looking to improve a reasonable situation into an excellent situation and making that improvement at potentially a great cost—a lot of money which may well
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be spent on other things. One can easily think of things within the health area on which it may be spent. We are looking at spending it on something where the health benefits are at best uncertain. In those circumstances it is important that we maintain a sense of proportion; that we do not rush about saying that we have to spend £10 billion tomorrow; that we look at the most reasonable way in which action can be taken and do it over the most reasonable timescale.
It is unclear how the Commission's standards should be interpreted and whether they are intended as limit values or whether a degree of averaging is acceptable. The form of the standards makes a significant difference to the measures which would have to be taken and their cost. The figure of 10 micrograms per litre comes from the World Health Organisation guideline value for lead which can be interpreted as a weekly average intake of lead. We see no grounds for adopting a more stringent standard than that, as would be the case if the number were interpreted as a limit value. We understand that the European Commission is undertaking research on the way in which the lead standard could be expressed and the associated monitoring protocol. We will need to study its further proposals when they are published.
Action by water suppliers in the UK has already substantially reduced lead levels in our drinking water. Over 80 per cent. of samples already comply with the 10 microgram per litre standard. Where elevated levels of lead have been found, water suppliers install treatment to reduce the ability of the water to dissolve lead. Most of those programmes have been completed and the United Kingdom may already comply with the proposed interim standard, at least if it is interpreted as an average. The UK has a good record of reducing exposure to lead and the measures that we have already taken have ensured that lead levels are now lower than ever before.
We think that consistently achieving the more stringent long-term standards in water supply systems will require lead pipes to be replaced in many, but not all, cases. Water suppliers already have in hand programmes to replace their lead pipes. We see no reason why those programmes cannot be completed within the 15 years proposed by the Commission. As the noble Lord, Lord Elis-Thomas, said, Dwr Cymru has already shown the way in that.
Turning to the question of lead domestic plumbing, the Commission's proposal provides that member states would,
"have fulfilled their obligations if it can be established that non-compliance … is due to the domestic distribution system".
We welcome that provision which recognises that responsibility for domestic plumbing is first and foremost for the householder. However, it must be recognised that lead domestic pipes pose a problem which will have to be tackled. We agree with the thrust of a number of the committee's recommendations in that area, but it is particularly important for there to be a proper understanding of the issues and of what householders themselves can and should do. In that connection I commend the House's attention to the Housing Grants, Construction and Regeneration Bill which will, if enacted, amend the present grant regime

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in that area. The new system will enable local authorities to adopt a more strategic approach to private sector housing renewal and assist targeting of grant aid on those with genuine need. Home owners in priority groups such as those receiving an income-related benefit and elderly or disabled people will be eligible to apply for discretionary grant which will be available for lead pipe replacement. I hope that that is good news for my noble friend Lord Bridgeman.
The central issue on lead domestic plumbing is how best to ensure that people are able to establish whether they have lead pipes and to take informed decisions on whether those pipes need to be replaced. I can give some comfort to the noble Lord, Lord Walpole, in that if the lead pipes are in London, the water is so hard that it is unlikely that any noticeable amount of lead will come out of the pipes unless for some reason he is pouring acid into the water tank to enable it to be dissolved.
Lord Walpole: My Lords, I am also assured by my noble friend that if I put it into coffee through a filter, that will help as well.
Lord Lucas: My Lords, the coffee may do a lot of other damage of course.
The Government have a good record in providing information on the risks from lead, most recently in the leaflet produced last year by the Drinking Water Inspectorate called Have you got lead pipes? More than 100,000 copies of that leaflet were made available. I hope that is some comfort to the noble Baroness, Lady Robson. They were distributed to local authorities, water companies, libraries and in response to any requests that were made. Such leaflets make a valuable contribution but we are considering what more we can do both to make information available and to ensure that it actually reaches those who need it.
There is a role for other sources of information as well; for example, through partnerships with local authorities and others to provide better information or better targeted messages to particular groups; through the water suppliers; through publicising the obligation on water suppliers to replace their lead pipes if household lead pipes are replaced; and through encouraging better take-up of grants or other assistance. Those are all options to be explored and we will welcome other suggestions. However, it is important in doing this that we do not create a scare where none is justified. As the noble Lord, Lord Dubs, said, it is a question of balance and good sense and doing good over a period of time.
My noble friend Lord Bridgeman raised the question of access to information. Ensuring a right of access to environmental information continues to be government policy. The results of all analyses carried out by water companies must be on the public record and freely available. That is something we shall hold them to.
While measures are being taken to replace domestic lead pipes, the Government intend to ensure that water suppliers continue to treat water to reduce its ability to dissolve lead. This will ensure that, even where all the necessary work has not yet been completed inside
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houses, the lead levels in water will be kept as low as possible. We expect that the maximum values for most samples at the tap will be below 30 micrograms per litre, with average lead levels much lower.
The noble Lord, Lord Elis-Thomas, asked about standardisation of data reporting. The Government have limited influence on this but have imposed a standard approach for the data they collect which will, we hope, influence the way in which companies themselves hold data. If the noble Lord has any views on the way in which the Government should collect information, perhaps he will communicate them to us.
I am conscious that I will not have responded to all the points made during the debate. I shall look at the record and write to noble Lords where that is appropriate.
In conclusion, perhaps I may summarise the Government's position as one of welcome for much in the Commission's proposal for a revised directive. However, there is scope for improvement, particularly in relation to certain standards. We shall be pressing for those improvements as negotiations on the proposal get under way.
5.2 p.m.
Baroness Hilton of Eggardon: My Lords, I am grateful to the Minister for what was a positive and encouraging response to our report; in fact, very much more positive than the written response that we originally had from the Department of the Environment. I thank all those who took part in the debate today, both past and present members of the committee. I wish to make only two observations to our Eurosceptics. The first is to the noble Lord, Lord Pearson. I feel that the attitude that no foreigner can be trusted should be consigned to the same era which said that no foreigner's water could be trusted. I spent last week in Sicily and was able to drink the water without fear or doubt.
I should also like to say to my noble friend Lord Stoddart that studies on the effects of lead on children date back to the beginning of this century. That was why lead in paint was abolished—because children who chewed radiators and pipes ended up as mentally defective and with hyperactivity and other behaviour problems. There are extensive psychological studies to that effect.
Lord Pearson of Rannoch: My Lords, since the noble Baroness has been good enough to mention me, I should perhaps inform her that what I was trying to suggest was that our foreign competitors' record on compliance with Community directives and other legislation stands to be judged on its merits. Secondly, I have to tell her that both this year and last year I was foolish enough to drink the water in a well-known French skiing resort. On both occasions, I was incapacitated for two days. So far as I am concerned, it is still Ne buvez jamais l'eau.
Baroness Hilton of Eggardon: My Lords, I cannot cap that. I thank all noble Lords for taking part in the debate.
On Question, Motion agreed to.

Transfer of Undertakings (Acquired Rights): ECC Report
5.5 p.m.
Lord Slynn of Hadley Lord Slynn of Hadley rose to move, That this House take note of the Report of the European Communities Committee on Transfer of Undertakings: Acquired Rights (Fifth Report, HL Paper 38).
The noble and learned Lord said: My Lords, the noble Lord, Lord Lucas, said that the debate on drinking water had been the most entertaining that he had attended. I have no aspiration to vie with his record in the debate which follows.
The report with which this debate is concerned, if not dealing with a subject which attracts the headlines, is one which deals with issues of considerable importance to employees and of considerable importance in difficult economic times to employers. I can mention the background very briefly. In 1977 the Community adopted a directive to approximate the laws of the member states dealing with the safeguarding of employees' rights on the transfer of a business or part of a business. There was a general agreement that steps should be taken throughout the Community to protect employees' rights on a change of employer. So the broad structure of the directive was that employees' rights would be transferred from the first employer to the transferee employer and the transfer was not to be regarded as a justification for dismissal except where economic or organisational reasons justified a change in the workforce. It was provided in an important provision that there should be consultation with workers before such transfers took place.
In this country the directive was given effect to by regulations called the Transfer of Undertakings (Protection of Employment) Regulations, as amended. They are normally known as TUPE. Since that time there have been some important changes. Internal frontiers have been removed between member states as part of the creation of the single market. That has inevitably led to an increase in the number of mergers, takeovers and transfers of businesses on a trans-national basis within the Community. It therefore became more and more necessary in this context to ensure that workers' rights were preserved.
In addition, over the years the European Court of Justice has decided many cases in which it has sought to lay down an appropriate test. The Commission has come to the view—I believe it is a view shared by all the member states and certainly by both sides of industry—that amendments are now due to the 1977 directive. But the directive cannot be seen in isolation. There are two other directives which are linked with it: the collective redundancies directive, which provides for consultation with workers, and the insolvency directive, which requires that there shall be a guaranteed fund if insolvency results. Indeed, it is the latter directive which is currently under investigation by Sub-Committee E of the Select Committee, under the chairmanship of my noble and learned friend Lord Hoffmann.
I propose merely to underline four of the main points which have arisen for consideration by the Select Committee and its conclusions. These points have led to
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very considerable discussion and we may yet be some way from the adoption of the final directive. I do not regard that as a disadvantage. On the contrary, it is good that both the committee and the speakers in the debate in your Lordships' House should be able to make comments which may have influence on the final decision.
The first of the four points I want to make is this: what should be "an undertaking", or "a part of the business" for the purpose of this directive? The European Court has laid down a test which many find very satisfactory. It says that the decisive criterion is whether the business retains its identity. One looks at all the facts to see whether the operation of the entity has actually continued, or been resumed, in the hands of the new employer. That test appears to have been a manageable one.
The Commission wants to change that. It wants to go further and add that the transfer of an activity, accompanied by the transfer of an economic entity, is to be a transfer, but the transfer of only an activity of an undertaking is not to constitute a transfer. The Commission believes that this new definition clarifies the position. The evidence which the committee received pointed very much in the other direction. Representatives of both employers and employees thought that this was not a helpful distinction to introduce between "activity" and "economic entity" particularly as it was thought that some activities could themselves constitute an economic entity.
Why is this important? It is particularly important in relation to contracting-out where a body, be it a public authority or a private authority, decides to tender competitively and to contract-out particular activities. The question which both sides of industry are concerned with is whether this kind of contracting-out should ever be capable of being a transfer of an undertaking so as to give workers rights on the transfer. For example, we had evidence from the DTI that to include contracting-out in the directive would be restrictive of business freedom. Others thought very strongly that to exclude contracting-out altogether might lead to a lack of employee protection, redundancy, discrimination against older workers and cuts in wages.
We considered in the committee that the Commission's proposal departs from the law as it has been laid down by the Court. We are not satisfied that this proposal is one that should be accepted. We believe that some contracting-out may well justify worker protection in the way contemplated by the directive. It seems to us that the European Court's test as to whether a business retained its identity, looking at all the activities, all the employees and all the transfer of assets, is a safer test to adopt. Therefore, we have come to the view that we should recommend that the Commission's proposal in this particular should not be accepted.
Linked to part of this first question is whether the mere transfer of shareholding could amount to the transfer of an undertaking. It might seem very odd that it should even be considered that it is because, clearly, to transfer the shareholding in a limited company does not of itself change the employee's employer. The

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company which was his employer remains his employer. Yet we had much evidence that employees' rights can be affected whatever the legal form of reorganisation or transfer. There is little practical difference for the worker however the change is done, particularly on a trans-national transfer. We considered at the end of the day, as did the Select Committee on an earlier occasion, that protection of employees' rights should not depend on the legal mechanics of the transfer. We recognise that it may be very difficult to define what share transfers do constitute a transfer of an undertaking, but we believe that that is something that should be looked at.
So much for the undertaking. What about the employees who should be entitled to rely on this kind of directive? There is no definition of "employee" in the 1977 directive. The European Court has said that whether someone is an employee should depend on national employment law. The Commission accepts this, but it wishes to ensure that employees who work on a part-time basis, those who have temporary employment or who have contracts of no fixed duration, should be included within the protection of the directives. Most of our witnesses accepted that, with the large increase in the number of part-time workers and temporary workers, this was a proper course to adopt, but we believe that it would be quite wrong to include within the protection, as may be intended, agency workers who are employed by agencies and who are contracted-out to particular companies for work. It is quite right that they should be covered by the health and safety legislation, but it seemed to the committee that to bring them within the context of this directive would be going too far.
However, we have come to the view that the time has probably come when there should be a Community definition of "employee" for this purpose. That does not mean that "employee" should take on a Community meaning in all contexts. Just as the word "worker" in the treaty has a Community definition, so we believe that, when dealing with the transfer of undertakings, collective redundancy and the insolvency directives, it is right that the test of "employee" should be the same in all member states.
My third point deals with the situation where companies are insolvent. Perhaps the most difficult situation to deal with is when the workers' rights have to be balanced against the desirability of preserving the company and the business—indeed, of continuing and securing jobs. The European Court has so far ruled that where the insolvency procedures aim at ensuring the continuation of a business the directive should apply and that if the insolvency proceedings intend to do no more than liquidate the company and not to keep it going then the directive should not apply.
We find this distinction, which is proposed to be introduced now by the Commission, is a complicated and difficult one. The Commission proposes that the rights of a worker need not be safeguarded if the transfer is of a business subject to bankruptcy or an analogous procedure, with a view to the liquidation of the assets. But in other areas member states may provide that transfer debts arising from an employment contract shall
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not be transferred as long as workers' rights are given protection equal to that required by the insolvency directive.
We accept that this is a very important question as to how far workers' rights can be protected. We believe that some protection is needed for workers and that this probably in the long run should be included in the insolvency directive. But until that happens this directive should specify clearly what kind of insolvency procedures do result in the worker receiving the protection and what are the criteria. The Commission proposal does not do that. It makes it very difficult, particularly in the context of different legal procedures in the member states, to know what is and what is not included.
We had considerable reservations about whether, particularly in the United Kingdom, it would be right to give judicial bodies the power to impose new terms and employment contracts on the workers and employers going through an insolvency process. We are not persuaded that it would work for the employers and employees or the employers' and the employees' representatives to be given the power to impose new terms and conditions on the workers.
My penultimate point concerns the question of joint liability. Under the 1977 directive, member states were given the power to provide that both the transferor and the transferee employer should be jointly liable for debts to the employees and for the satisfaction of the workers' rights on the transfer. Seven member states took advantage of that and adopted a procedure by which there was joint liability on the part of the transferor and the transferee employers. We did not do that in this country. The Commission now thinks that there should be minimum joint liability in respect of obligations which arose from an employment contract, but that the transferor should be liable only for the period up to the date of the transfer. The Commission would like to take that proposal forward. We in the sub-committee are not persuaded that that is needed. Liabilities can, by contract, where desirable or needed, be apportioned between the transferor and the transferee. It did not seem to us that there was any real evidence of difficulties having been caused by the failure to adopt joint liability in the United Kingdom pursuant to the 1977 directive.
Finally, among the most controversial proposals which we had to consider were those involving employers being obliged to consult with and to inform workers where a transfer was intended. The Commission has made two proposals. The content of the first is not absolutely clear, but we think that we could accept it. The Commission proposes that consultation should be held with a view to reaching an agreement between an employer and an employee rather than simply to seek an agreement. That is not controversial.
The controversial proposal is that the Commission suggests that the obligation to consult and to inform workers should apply only to employers with 50 or more workers or where the worker threshold is such that a works council exists. This is a very difficult question. We realise that a balance has to be struck between reducing burdens on small firms and giving protection

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to the workers in those firms. We concluded that the burden imposed on small employers in this proposal is not a heavy one. Moreover, we were impressed by the fact that the Department of Trade and Industry told us that 90 per cent. of transfers involve establishments with fewer than 50 workers and that if the figure of 50 is maintained, something like 35 per cent. of the United Kingdom's workers would be excluded from the protection of the directive. It is probably impossible to arrive scientifically at an exact figure which is the right figure, but on the statistics that we had, and taking into account the level of the burden imposed on the small employer, we came to the view that the right course would be that the obligation should be imposed on employers who employ 20 or more—not 50 or more—workers. We realise that that will not he acceptable to everybody, but it seemed to us to be a fair compromise.
There are many other points of detail in the report—none of them as entertaining as those which I have outlined so far. On that basis I commend the report to the House. I beg to move.
Moved, That this House take note of the Report of the European Communities Committee on Transfer of Undertakings: Acquired Rights (Fifth Report, HL Paper 38).—(Lord Slynn of Hadley.)
5.24 p.m.
Lord Pearson of Rannoch: My Lords, I must confess that I have not read the report in question, but I have listened very carefully to the introduction of the noble and learned Lord, Lord Slynn of Hadley, which was delivered with his usual accuracy and lucidity—
Baroness Carnegy of Lour: My Lords, I am not sure whether the noble Lord is in order—
Noble Lords: This is the gap.
Baroness Carnegy of Lour: My Lords, I am sorry.
Lord Pearson of Rannoch: My Lords, I am grateful to my noble friend, but I cleared that point before I started.
However, it is clear that the committee has some real doubts about the revised directive and, if I am not mistaken, the existing directive has already been received with some doubt in commercial and industrial circles in this country. Much Community law which is intended to protect employment appears to have had rather the opposite effect. Indeed, unemployment has reached, and is continuing to reach, all-time highs in the Community. It is for that reason that the British Government have wisely done their best to avoid the conditions of the social chapter.
I do not know whether this directive is being taken under the single market provisions of the Treaty of Rome, but I imagine that it is; and, even if it is not, I imagine that it is subject to the qualified majority vote when the time comes. Nor do I know how my noble and learned friend on the Front Bench will respond to the doubts which have been expressed by the noble and learned Lord, Lord Slynn of Hadley, and the extent to which the Government may agree with the committee's doubts.
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My purpose in intervening is to ask my noble and learned friend whether he can give any indication as to the amount of support that we may expect from other European countries when the matter comes to a vote, and therefore any indication of the prospect of avoiding what appears to be some unusually unhelpful European legislation.
5.27 p.m.
Lord Lester of Herne Hill: My Lords, I have had the pleasure and privilege of serving on Sub-Committee E of the Select Committee on the European Communities under the firm and, if I may say so, entertaining and enlightened chairmanship of the noble and learned Lord, Lord Slynn of Hadley, during its inquiry into this important subject. As has been said, it is important for workers and employers throughout the European Union. The noble and learned Lord explained the main issues clearly and I shall do my best to add to what he said rather than to repeat exactly the same points.
The closer integration of Europe has led to a significant increase in the number of trans-national company takeovers and mergers. The proposed acquired rights directive specifically addresses the social consequences of such takeovers. The directive is aimed at ensuring that with regard to their contract of employment and their rights, the employees of a business which has been transferred are in exactly the same position after the transfer as they were before. The transfer must not be used as an excuse to dismiss them.
With the important aims of the directive in mind, I shall concentrate on just two of the many issues raised in the report: first, on the scope of the directive and, secondly, on its application to share transfers.
First, as regards the scope of the directive, the sub-committee was concerned about the confused wording of Article 1 which governs the type of transactions to which the directive would apply. The new and perplexing wording of Article 1 would remove the clarity and certainty from—if I dare mention this in the presence of the noble Lord, Lord Pearson of Rannoch—the well-established case law of the European Court of Justice in this area. The interpretation of this unsatisfactory language would be a fertile source of lengthy and expensive legal challenge in the future. Its uncertainty would be open to abuse as those bidding to acquire companies sought to manipulate the description of the transaction to remove it, and the employees concerned, from the important protection given by the directive. Surely, the text of the directive should be amended and clarified to reflect the simple, practical test already laid down in the case law of the Luxembourg court. Whether or not a transfer comes within the scope of the directive should continue to depend on whether the business transferred retains its identity after the transfer.
Speaking for myself, I am glad that the sub-committee felt able to support Article 2(2) of the proposed directive which would prevent member states, including the United Kingdom, from excluding part-time, temporary and other so-called atypical

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workers from the definition of "employee" and consequently from the protection of the directive. The number of people employed in such posts in the European Community has greatly increased in recent years. In this country the growth in part-time and temporary employment has been greatest among women, who now constitute 86 per cent. of all part-time employees. The principle of equal treatment for men and women enshrined in Article 119 of the Treaty of Rome increasingly requires equal rights for part-time and atypical workers. It is partly for this reason that it is important that the directive should apply not only when an entire business is transferred but also when an activity carried out by that business is merely contracted out for another firm to perform. Women are employed predominantly in cleaning, catering and the other ancillary services which are commonly contracted out. Experience of the operation of compulsory tendering without employee protection, such as that offered by the proposed directive, shows that the greatest cuts in conditions, hours and pay have occurred in those areas where the staff are predominantly female. The exclusion of contracting out from the directive can have indirectly discriminatory and severe adverse consequences for women.
Experience of the operation of compulsory tendering and contracting out in the UK has also shown that it tends to lead to disproportionately high levels of redundancy among workers with health problems, those nearing retirement age or those with a disability. It is clear from the case law of the Luxembourg court that the existing directive applies to contracting-out activities. The sub-committee concluded that the test of whether or not the business in question retained its identity—stated by the Court of Justice to determine the scope of the directive, and consequently used to determine the applicability to contracting-out—constituted a suitable, workable approach. We thought that that test should be expressly incorporated in the text of the directive in place of the strained and confused language of the current Commission proposal.
I turn finally and briefly to the application of the directive to takeovers by way of share transfer. The proposed directive is silent on the issue, yet a change in the control of a business resulting from the transfer of shares is likely to affect the employees of that company just as much as a change in control resulting from the sale of the business and its assets to a new employer. As the directive currently stands, employees in the former situation would not be entitled to protection against dismissal and the right to consultation which the directive would currently accord to workers in the latter position. We concluded that the question of affording protection to employees should depend upon the substance rather than the legal mechanics of an operation. To exclude takeovers by way of share transfer from the protection offered by the directive would arbitrarily and disproportionately affect the rights of a significant section of the labour force. It would distort competition, giving those bidding who acquire control of a business by way of share transfer an unfair advantage because they could avoid the indirect cost of
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protecting the acquired rights of employees. It would be inconsistent with developments in other Community legislation in this area.
I have mentioned just a few of the many aspects of the sub-committee's detailed report. I favour the rest of the sub-committee's conclusions. Noble Lords who have read it will see that the sub-committee would like to see European legislation strengthening the right of employees to information and consultation during the takeover process. That would entitle an additional 10 per cent. of workers in the United Kingdom, along with those employed on seagoing vessels, to consultation and information without imposing unreasonable or excessive burdens. We looked at other Community legislation in this field and made recommendations on consolidation and harmonisation. We also looked more widely at employment issues and suggested that the directive, which was silent on the matter, might additionally protect employee pension rights.
This is a wide-ranging, enlightened and positive report which should provide a practical contribution to further work on this important and complicated subject. I hope that the Brussels Commission and the Government will take note of our conclusions when any new proposals are brought forward. They may be cheered up by the fact that, although the sub-committee was critical of some of the Commission's proposals, it was untouched by europhobia, little Englandism or mad cow disease of the kind that one sometimes hears, even in your Lordships' Chamber.
5.36 p.m.
Baroness Turner of Camden: My Lords, I congratulate the sub-committee on the report which is today before the House. The issue is a somewhat complicated one. The issue of the protection of employees' rights in the event of mergers and transfers is one that has been discussed in this House on previous occasions as a result of regulations introduced by the Government to comply with EU directives. However, the present report sets out the issues with admirable clarity, as has the noble and learned Lord, Lord Slynn, in his presentation this afternoon.
Until relatively recently, when a business was transferred and thus the identity of the employer changed, the employment contract was automatically terminated. Employees then had no right to protest and had no protection against dismissal, other than any redundancy rights to which they might already have been entitled. The Transfer of Undertakings (Protection of Employment) Regulations 1981 (commonly known as TUPE) were intended to put into effect the EU Acquired Rights Directive 1977, the purpose of which was to protect the rights of employees when the undertakings for which they were working were transferred to other employers. The noble and learned Lord has already said this afternoon that there are two other related directives.
Matters have moved on since then. Mergers and takeovers have become very common, some of them trans-national. In this country in particular there has for

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a number of years been a greater takeover culture than in some other EU countries. Therefore, there is an even greater need for employees to be assured that they will have some protection against arbitrary actions should the firms they work for be taken over by someone else. Moreover, the pattern of employment has changed. For these reasons, it is only right that the provisions of the existing directives should be reconsidered and perhaps strengthened.
In general, therefore, I welcome the Commission's new proposals, although I have some reservations which I will spell out this afternoon. On the positive side, I very much welcome the proposition that part-time and temporary workers should be covered by the directive. We have seen profound changes in the labour scene. It is fashionable to talk about flexible working as though it is an enormously positive development. Some employers may think so, and certainly that appears to be the view of the Government. It is not the view of all employees. It is largely responsible for the general feeling of lack of security which is prevalent today even among those who are in employment. Much of the new employment that has been created is part time, mainly of women and much of it poorly paid. A significant minority of part-time employees earn well below £4 an hour, and some as little as £2 an hour. Many such workers have little sense of security.
Many employers have turned away from offering continuous employment, and offer short-term contracts—often for only two years. Again, that adds to the general feeling of insecurity. It adds to the feeling that many employees have that, so far as their employers are concerned, they are just disposable items. It is therefore right and proper in my view that such employees should have the protection of the directive. I am glad to see that the committee, too, supports that.
I see that the committee does not however believe that agency workers should be included. I am not altogether happy about that. More and more companies are seeking to cut down on their labour costs by employing people who are not part of their own workforce but hired from outside—often for quite long periods. I know that there could be complications, but I think that that is worth looking at again. I am not certain that the committee is entirely happy with its own view on that, as the report says:
"we do not believe that agency workers should necessarily be included in the definition of 'employee'".
The committee goes on to suggest that in the longer term the directive should attempt a definition of the term "employee". I agree entirely with that.
As to the definition of an undertaking, I am inclined to the views expressed by the TUC and the ETUC that the attempt, as they put it, to drive a wedge between "activity" and "economic entity" could lead to confusion. That view seems to be shared by the committee. In particular, I should not like to see that used as a means of exempting some forms of contracting out. The EOC has drawn attention to the impact that that could have on the employment of women in the public sector, where compulsory competitive tendering has made the contracting out of services very common. As the EOC points out, and as the noble Lord, Lord Lester,
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said this afternoon, that will affect more women than men. The EOC therefore believes that the protection of the directive and of the TUPE regulations must apply, otherwise the effect could well be discriminatory.
I welcome the committee's finding that employees should be protected under the directive where there is a change of control of a business resulting from a transfer of shares. Again, the noble Lord, Lord Lester, dealt with that in some detail. It is also important, in my view, that employees should be protected in insolvency situations. While it is of course right that nothing should be placed in the way of the continuation of a business, with the resulting continuation of employment for the employees concerned—no one suggests that—employees do have rights in insolvency situations, and those should of course be protected. I know that it is a complicated and difficult issue, but it is something which should be considered properly.
On the issue of joint liability, I note that differing views were expressed by a number of witnesses. I believe that the proposal is intended to provide for extra security for workers caught up in a takeover situation, but it does, as the committee says, lack clarity, and I am inclined to agree with that. I note also that the TUC does not particularly favour the proposition. There seems to be general agreement that in British circumstances it will not produce anything very much in the way of additional security for employees.
On the issue of information and consultation, I can see no reason at all to limit information and consultation obligations to undertakings employing 50 or more employees. The result of such a provision would leave very many employees with no protection whatsoever: 9.2 million employees work in undertakings where there are fewer than 50 employees.
I agree entirely with the TUC, which made a submission along those lines to the committee, that that provision is quite unacceptable. I hope that it does not continue to be part of the directive. I am pleased to see that the committee is in agreement with that, although I cannot see why 20 employees should be the threshold either. That still leaves about 25 per cent. of workers with no protection. I am glad that the committee has agreed with the TUC and the union concerned (the NURMT) that the directive should be extended to sea-going vessels, and that it also does not agree that member states should have the option of excluding the information and consultation provisions.
I shall say a word about pensions. I have been under the impression for some time—largely as a result of Ministers' statements—that it was accepted that in takeover situations it was necessary to provide that pensions provision would be comparable. No one believes that it is possible in a takeover, where entirely new pension arrangements may be intended for the merged company, to provide exactly the same pensions. But there are decisions on record which would appear to confirm the view of pensions as deferred pay.
It seems entirely proper therefore that comparable pension provision should be available for employees after a takeover. I would expect the Government to agree with that in the light of some of the statements

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made in the past, and, in particular, in the light of the advice the Government have given, I understand, to local authorities. However, it does seem that as things stand, the issue is not entirely free of ambiguity, and therefore it is appropriate that it should be dealt with in the directive.
Finally, I of course agree that rationalising and harmonising these directives would be a good idea. So, a very good report. In the main, this is a set of propositions that is worthy of support, with the few reservations to which I have referred.
5.47 p.m.
Lord Fraser of Carmyllie: My Lords, one of the attractions of the offer that the Prime Minister made to me to leave the role of Lord Advocate and to return to the mainstream of politics was that never again should I have to offer an opinion on the acquired rights directive. It is accordingly with some dismay that I rise to respond to this debate.
We have had an interesting, albeit short, debate. I wish to join in the expressions of thanks to the committee for the detailed work undertaken in a short period of time on a subject widely recognised as being one of the more difficult and contentious areas of European employment law. It says much for the committee also that it has been able to reach such a consensus on so many important issues.
The Government have in recent years received many representations about the working of the 1977 acquired rights directive. It would be wrong of me to suggest that we do not have serious misgivings about the way it is now being applied to situations not envisaged at the time of its adoption. That is why we welcomed the opportunity afforded by the Commission's proposal to reopen discussion about the proper scope of the directive and the way it operates. Our concerns are shared by others who also wish to see a sensible revision to the directive. In short we wish to ensure that the directive is fit for its purpose and applies only to those situations to which it is suited.
However, while we welcome the opportunity afforded by the proposal to discuss these matters, that does not mean that we welcome all of its detailed provisions. Many aspects of the proposal have been rightly criticised as unclear, uncertain in their effect, or simply unwelcome. We do not wish to see a revised text which would add to the wealth of litigation which has so bedevilled the existing directive. The report rightly draws attention to many of those issues.
Both the Commission's proposal and the report address a wide range of complex issues. I am sure the House will understand that in the time available to me today it may not be possible to do full justice to all of them. However, in responding perhaps I may put on record the Governments' views. I shall also attempt to respond to specific points that have been raised in the course of the debate.
Of the main issues raised in the report, I think it would be fair to say that more than half deal, in one way or another, with the scope of the proposal. By that
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I mean they concern either the situations to which the revised directive would apply—or not apply—or to which categories of employees would be covered by it. Bearing in mind that we are dealing with amendments to a directive which has been in place for nearly 20 years, I find it significant that it is thought necessary to address such basic issues.
The noble and learned Lord, Lord Slynn, referred to the definition of an undertaking. Noble Lords will be aware that perhaps the key element of the proposal, to which we and the committee attach considerable importance, concerns the question of what constitutes an undertaking or part of one. When is there a transfer of an undertaking—and when is there not?
The report took the view that the present text of the directive is open to criticism because it had given rise to a substantial amount of litigation both in our national courts and before the Court of Justice. Reference was also made to the need to amend Article 1 of the directive and to the unsatisfactory nature of the Commission's proposal. It was stated that this was only likely to create greater uncertainty. Again, I welcome your Lordships' findings on those points. They are views which the Government share and which we have been stating for some time now.
There are, of course, those who have said that it is unnecessary to amend the directive at all on this point as the case law of the Court of Justice has put matters beyond doubt. I was attracted by the observation in the report by Mr. Paul Goulding of the Employment Lawyers Association. The report states:
"The problem with the new text of Article 1 of the directive is that, as Mr. Goulding of the ELA puts it, 'it removes such clarity and certainty as has crept into the law to date".
That appears to me to sum it up admirably. I am not personally satisfied that a state of absolute clarity or certainty has yet been reached. It is clear that even though the directive has been in existence for nearly 20 years there are still cases concerning its scope to be determined by the Court of Justice. We cannot be certain what direction the court will take in those or in future cases. I therefore welcome the support which the report gives to our call for changes to clarify what constitutes the transfer of an undertaking.
As to where the line should be drawn in respect of the contracting out of services, I may have misunderstood the noble and learned Lord, Lord Slynn, but I thought that he was recording the Government's position as being that all contracting out should be excluded. Perhaps I may make it clear that that is not our position. We recognise that contracting out covers a wide range of situations, some of which will necessarily involve the legitimate transfer of an undertaking. However, that is certainly not true of all contracting out or of all transfers of a contract from one contractor to another. Often such changes would not entail the transfer of an organisational framework or any of those other matters on which any common sense understanding of the term "undertaking" is founded. Inevitably, as the report has recognised, no two factual situations are alike. But what is needed is a clear definition which will enable employers, employees and national courts to assess whether or not there has been

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the transfer to which the directive applies. In that respect, I believe that there is common ground between the Government and the committee. It is what we are seeking in negotiations on the proposal.
It may be helpful if I comment here on developments concerning this aspect of the Commission's proposal. The European Parliament has not yet given its formal opinion on the proposal. I understand that it is expected to be given later this year. However, I also understand that Commissioner Flynn has advised Parliament that following receipt of that opinion the Commission proposes to withdraw the present proposal and substitute a new one. The new proposal which may be put forward would not include changes to Article 1 of the directive. We have had no formal communications from the Commission on this matter so I cannot enlighten the House further at the moment. We shall need to consider any revised proposal when it is made, and we shall ensure that the House is informed in the normal way. However, it follows from my earlier remarks that the Government remain convinced of the need for clear limits to be placed on the scope of the directive and for any revised text to be made as transparent as possible.
Perhaps I may say to my noble friend Lord Pearson that there is a considerable degree of agreement among member countries of the European Union that there should he a change here. I cannot claim that the desire for change points in the same direction. However, countries such as Germany and France, for example, which he might assume are not in favour of any change to the directive, would like to see some change brought about as the indications of the ECJ's more recent decisions start to become clear. If this particular directive is to be amended it would be amended under Article 100 and in those circumstances it would be necessary for unanimity rather than QMV.
Perhaps I may turn to a number of the more specific issues which were raised, one of which was share transfers. The committee commented that the directive should be extended to cover changes of control by share transfers. I shall dwell on that issue only briefly because I believe that our position is clear from the evidence that we gave in the course of the inquiry.
The aim of the directive is to safeguard employees' rights in the event of a change in the legal identity of their employer. The provisions were drafted with that in mind. They make sense in that context. However, in the case of a share transfer there is no change in the legal identity of the employer. The employer remains the same and the employees' contractual and statutory rights are unaffected. To extend the scope of the directive to cover such transfers would, in our view, alter its whole rationale.
Of course, no one would deny that a change in the effective control of a company can have implications for its employees, although it would not necessarily do so. However, there are many situations which can have as many, or greater, implications for employees. For example, changes to the senior management or the direction of the company may take place without any change in share control. That does not mean to say that we can or should legislate for all these situations, still less so at a European level.
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Our existing framework of employment legislation provides proper protection where there is no change in the legal identity of the employer. It is right that it should be so. While I recognise the concerns which led the committee to this conclusion in the report, I regret to say that it is one issue at least on which we do not see eye to eye.
Perhaps I may turn to the definition of "employees". The noble Baroness, Lady Turner, may be interested to know that I agree with her. I welcome and share the report's conclusions that member states should not be allowed to exclude part-time and temporary workers from the definition of employees for these purposes. It is important to recall that the basic purpose of the directive is to ensure that employees continue to enjoy the same legal rights against their new employer as they enjoyed against their former employer. It should not matter that individuals concerned were part-time or employed on a temporary basis. Whatever rights they had before the transfer should transfer and our law already provides for that.
However, I cannot agree that there should in the longer term be a definition of an employee for this purpose. In practice it would be difficult, perhaps impossible, to maintain one definition for this purpose and certain other directives without extending the definition more generally to other areas of our domestic law. I believe that that would be unwelcome and ultimately damaging to our national interest. However, I disagree with the noble Baroness in so far as I welcome the recognition in the report that the proposal goes too far in respect of agency workers.
As regards insolvency, I believe that the report rightly identifies the fact that the key issue is to find the best means by which the interests of employees affected by insolvency situations can be properly safeguarded. Its conclusion that the directive should not provide an obstacle to effective corporate rescues and the saving of jobs must surely be right. That is why we are of the view that insolvency situations should be taken outside the scope of the directive. We believe that to be the simplest and most effective solution and one which is supported by those who know best the problems which can arise—the practitioners themselves. As I read the report, their evidence was clear that the application of the directive in insolvency situations was damaging and that the Commission's proposed distinction between liquidation and non-liquidation proceedings was unhelpful. However, while the total removal of such situations from the scope of the directive would be our preferred option we are fully prepared to explore other options which would ease those problems.
Another issue, which was referred to by the noble and learned Lord, Lord Slynn, and the noble Lord, Lord Lester, was the issue of joint liability. The report did not support the Commission's proposal for mandatory joint liability of the transferor and transferee employers. I welcome that conclusion. We have long said that that is a prime example of the Commission's desire to harmonise for the sake of it. That is a tendency we resist. We do not object to harmonisation when there

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is a clear case for it, but, in our view, no such case has been made here and we are pleased and relieved that your Lordships' committee came to the same conclusion.
Finally, I turn to the matter of information and consultation. I welcome the recognition that there is a balance to be struck between the burdens on businesses, and small businesses in particular, and the protection of employees. We are all in favour of employers properly informing and consulting their workforce. That is nothing less than good business practice. However, I need not remind your Lordships of the importance that we attach to allowing employers and employees to develop arrangements which best suit their particular business. An obligation on all businesses to inform and consult through representatives, as exists at present, may simply ignore the realities of small business life where direct communication with employees will often be more practical and effective.
Therefore, it is important to be clear that the Commission's proposal is not to exclude firms below a certain threshold from all information and consultation rights but to limit the specific obligation to consult through representatives. Employers in those excluded businesses would still be under an obligation to provide information direct to the affected employees. Clearly, there will be room for discussion as regards the precise information which should be provided. That will be consistent with our wish to have the lightest possible legislative burden on small firms.
Quite where the threshold should be drawn is a matter for negotiation. Your Lordships will have noted that there was disagreement in the course of our short debate because the noble and learned Lord, Lord Slynn, reflected the committee's view that the threshold should be at 20 employees while the noble Baroness indicated that she considers that figure to be still too high. I stress that it is a matter of representation and not whether or not information should be required.
The subject of pensions is difficult, and I do not believe that it is appropriate for me to attempt to comment further on that.
I conclude by thanking all noble Lords and the noble Baroness who contributed. In the presence of the noble Lord, Lord Lester, and the noble and learned Lord, Lord Slynn, I offer my views with some trepidation, given their expertise and the expertise of others in your Lordships' Chamber. But I hope that in spelling out in some detail the Government's response to this extremely worthwhile report, it will be helpful to those who have a particular interest in this most difficult area of employment law.
6.2 p.m.
Lord Slynn of Hadley: My Lords, I am grateful to your Lordships who have been present for the debate and who have participated in it. I am particularly grateful to the Minister for his extremely detailed response to our report.
On contracting out, I was summarising the evidence of the DTI which said that,
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"the application of the Directive to contracting for services restricts entrepreneurial freedom, may inhibit quality improvements as well as denying the client the benefit of substantial cost reductions, is damaging to competition and thus inhibits the prospects for enterprises within the EU to compete and prosper in increasingly global markets".
Despite that I am glad the Minister feels that there is room for some contracting out to be included with the directive.
I am sorry that the noble Lord, Lord Pearson of Rannoch, has not read our report. As the inquiry went on, it became evident how important is this whole subject. If the noble Lord now reads the report, he will see an area, as in so many areas, where the European Court of Justice has been extremely cautious and constructive. He will see in the report that we commended much, pointed out many drafting inadequacies, and sought to make constructive suggestions. I am most grateful to your Lordships for this debate.
On Question, Motion agreed to.

Insider Dealing (Securities and Regulated Markets) (Amendment) Order 1996
6.4 p.m.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish rose to move, That the draft order laid before the House on 8th May be approved [20th Report from the Joint Committee].
The noble Lord said: My Lords, the order amends Article 10 of, and the schedule to, the Insider Dealing (Securities and Regulated Markets) Order 1994. Article 10 of the 1994 order identifies the regulated markets which are "regulated in the United Kingdom" for the purposes of the territorial scope of the offence of insider dealing. The schedule to the 1994 order identifies which markets are "regulated markets" for the purposes of insider dealing.
The 1994 order now requires amendment to take account of a number of developments in the UK's securities markets and certain overseas markets. Thus the amending order updates Article 10 of the 1994 order to reflect the separation of the London and Irish stock exchanges and the recognition of Tradepoint Financial Networks plc as a UK investment exchange. It also revises the schedule to the 1994 order to take account of the changes to the UK's exchanges and to reflect the creation of two new overseas exchanges—France's Nouveau Marché and the Iceland Stock Exchange. In addition, the amending order deletes seven obsolete overseas trading facilities from the list of regulated markets. I beg to move.
Moved, That the draft order laid before the House on 8th May be approved [20th Report from the Joint Committee]—(Lord Mackay of Ardbrecknish.)
Viscount Chandos: My Lords, I thank the Minister for his introduction to this order. It is an order which both sides of the House will find unexceptionable. It seems that this is a slightly cumbersome way in which to change the list of different regulated markets. I wonder

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whether there is an easier way in which to achieve that. Must each of the investment exchanges be listed under a new statutory instrument? If somebody has dealt in inside information on, for example, the exchange known as the Nouveau Marché since its creation but before this order came into effect, will he get away with that insider dealing?
The Minister has explained that the Icelandic Stock Exchange is being added to the list of investment exchanges and, hence, regulated markets. Will he confirm that it is therefore correct to leave in the Securities Exchange of Iceland? These Benches acknowledge the manifold virtues of competition but we are certainly impressed that the Icelandic capital markets can support competing securities exchanges. These Benches are not in favour generally of increasing the discretionary powers of the Executive but as I said, we wonder whether it would be possible to add and subtract exchanges other than by means of specific statutory instrument.
At the same time, will the Minister confirm that the proposed pan-European junior stock market, which fashionably should be known as EASDAQ, is covered under this order? Furthermore, in the United Kingdom the junior market, the alternative investment market, has been established under the broad rules of the Stock Exchange but very specifically with the Stock Exchange not taking responsibility for, for example, the accuracy of documents used to support the introduction of a new company to the AIM. That is the responsibility of the nominated adviser or broker. Will the Minister confirm that, notwithstanding that, the Stock Exchange will monitor secondary dealing and hence, potential insider dealing at least as vigorously for companies on the AIM as is done for companies on the main market?
In saying "at least as vigorously", that brings me to the central question which is perhaps not directly addressed by this order. Is the Minister really satisfied with the current level of identification of insider dealing and prosecution of the cases which are identified?
Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Viscount, Lord Chandos, for his approval of the order. I shall try to answer the questions that he put to me. The noble Viscount asked initially whether we need to do it this way; indeed, I asked the exact same question myself. Although I did not receive a proper answer, I suspect that a Minister at this Dispatch Box, at some stage in the past when the original Act was going through the House, under pressure from the Benches opposite—and perhaps even from the Benches behind me—conceded that it should be done by this method and not by executive order.
I make that assumption because I have suffered from the same pressures on a number of occasions regarding pieces of legislation that I have put through the House. On such occasions I have one thought. It seems to me that someone in 10 years' time may ask, "What clot of a Minister ever suggested that we should do this by such a laborious method?" Therefore, I have some sympathy with the noble Viscount who rather more delicately asked exactly the same question about the legislation now before us. Nevertheless, we have to do it this way.
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That was the way it was framed in the original Act. It was done, presumably, because—and here I am being slightly serious—Parliament took the view at that stage that these were serious matters and that changes ought to come before the House for its approval and not be done at the whim or even in the wisdom of the executive.
So far as concerns Iceland, it is true that the Securities Exchange of Iceland is still there and still operating. I would be content to accompany the noble Viscount to Iceland on a fact finding mission to check the position. However, I suspect that the Treasury would not sanction my expenses in that respect, nor indeed those of the noble Viscount. Therefore, the answer to that question is, yes.
As regards the question about the Stock Exchange vigorously pursuing insider dealing, I can confirm that it certainly does so over the many parts of the exchange for which it is responsible. So far as concerns the oddly named EASDAQ, it has not been included in the list of regulated markets because it has not yet started trading. We understand that it may do so later this year. I am afraid that we cannot add something to the list unless it has actually started.
I believe that that leads me to another of the noble Viscount's questions; namely, what happens in the interim between coming into being and being added to the list? I have to say that I shall have to check the position. However, logic suggests to me that the noble Viscount is probably right. It needs to be added to the list but, of course, any insider dealing on that market would be regulated by that market. Therefore, I do not believe that the problem to which the noble Viscount referred really exists.
All those markets in the EU—and they are, of course, all markets in the EU or the EEA—have their own regulatory system which would operate if anyone was doing insider trading on their markets. That allows us to deal with them almost as one to the effect that we can act against insider traders who are here and doing insider trading on those markets. I believe that I am right in that respect. However, if I am not, I shall certainly write to the noble Viscount on the matter.
Viscount Chandos: My Lords, I believe that the position of EASDAQ is, perhaps, sensitive because it is a pan-European exchange and, therefore, probably not covered by a domestic regulator.
Lord Mackay of Ardbrecknish: My Lords, I shall certainly look into that aspect of the matter. It is supposedly going to be pan-European, but, so far, it has only been approved by Belgium. I understand that EC law assumes that the same competent authority will approve prospectuses intended to be used to make public offers in other member states as it is responsible for admitting the securities to the official list. I do not believe that there is a problem in that respect, but I shall certainly check the position so far as concerns EASDAQ. At present, it is not on the list because it does not yet operate. With those remarks, I hope that the House will accept the order.
On Question, Motion agreed to.

Financial Services Act 1986 (Uncertificated Securities) (Extension of Scope of Act) Order 1996
6.14 p.m.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish rose to move, That the order laid before the House on 16th May 1996 be approved [21st Report from the Joint Committee].
The noble Lord said: My Lords, in moving that the above order be approved, I shall speak also to the draft Disclosure of Interests in Shares (Amendment) Regulations 1996.
I hope that the House will find it sensible to consider these instruments together, as they both relate to the introduction of CREST. That is why I am introducing the second of the instruments and not my noble and learned friend Lord Fraser of Carmyllie from the Department of Trade and Industry.
Perhaps I may, first, say a few words about CREST in case some noble Lords think that I have suddenly come before the House to advocate a brand of dairy product, toothpaste, or whatever.
CREST is the new computerised securities settlement system being built for the City by a project team on loan from the Bank of England. Some noble Lords will recall the debate on the main CREST regulations which took place last December, and which my noble friend Lord Chesham introduced on behalf of the Government. During that debate the importance of CREST to London's international competitive position was explained. I am pleased to say that CREST remains on target for inauguration on 15th July of this year.
Inevitably, with such a significant project, there are all sorts of bits of legislation which need amending for one reason or another. Having brought the main CREST regulations into effect last year, the Government have since been preparing the remaining pieces of secondary legislation for consideration by Parliament. The instruments that we are considering today are two such items.
The extension of scope order is an investor protection measure. The Government announced last October that people who input instructions to CREST on behalf of CREST members and sponsors will need to be authorised under the Financial Services Act. To ensure that this happens, the definition of "investment business" set out in Schedule 1 to the Act needs to be extended. That is what the order does.
It does it by inserting a new category of investment business into Schedule 1 to the Financial Services Act. The new category focuses on the acts of sending, or causing the sending of, CREST instructions on behalf of another person.
I turn now to the second instrument, the draft Disclosure of Interests in Shares (Amendment) Regulations. They will ensure that stocklenders are not subject to additional burdens of disclosure following the introduction of CREST next month.
Stocklending is a standard market practice under which stock is lent to a professional dealer to enable an order to buy stock to be met while demand for that stock
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temporarily exceeds supply. The stocklender, who is typically a large institutional shareholder, receives what I will term "collateral" for his loan. Stocklending plays an important part in maintaining the liquidity and efficiency of the London market.
Under CREST, a collection of different stocks of the necessary total market value will be used as collateral for stockloans. CREST will select the stock from the borrower's accounts which are at that time in surplus and provide for the stock to be returned at the start of the following day. As a result, the stocklender will not know in advance which types of stocks he will receive as collateral, and will only hold the stocks overnight.
The collateral may well include shares in public companies. Where that is the case, the shares, when added to those already held by the stocklender, could have the effect of taking the stocklender's shareholding through one of the disclosure thresholds specified in the Companies Act 1985. Where a threshold is passed, the Act requires the shareholder to disclose to the company his interests in its shares. That is to enable the company to know who is in a position to influence its affairs through the control of substantial shareholdings.
Clearly it would be very burdensome for stocklenders to be required to notify companies of the overnight shareholdings that they happen to acquire by accepting collateral for a stockloan. It is likely that by the time notification of receipt of the shares had reached the company, the shares would already have been returned to their previous owner. This, together with the fact that the stocklender is not seeking to use the shares to influence the company's activities, means that the disclosures would be of very little interest to the company. They are more likely to confuse than to inform.
The burden would not be limited to stocklenders. The companies and the Stock Exchange which received the notifications would need to record them. That would lead to additional expense which would not be balanced by any significant benefits from receiving the information.
The draft regulations would ensure that those unnecessary burdens are not imposed on stocklenders, companies or the Stock Exchange. The draft regulations amend the Companies Act 1985 to provide a specific exemption from the disclosure requirements where a person receives shares selected by CREST and those shares are returned the following day.
With that explanation, I commend both instruments to the House.
Moved, That the order laid before the House on 16th May 1996 be approved [21st Report from the Joint Committee].—(Lord Mackay of Ardbrecknish.)
Viscount Chandos: My Lords, again we wish to thank the Minister for introducing these two orders, and we acknowledge that the belated introduction of a paperless settlement system is central to the continued success of London as a financial centre. There has been a long history of abortive attempts to do this, and 10 years ago when exchanges such as Milan in Italy were seen as hugely inefficient the project in London

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started. Now we have a highly efficient, automated, paperless system in markets throughout Europe, including the previously reviled Italian markets.
The introduction of CREST and the efficient operation of participants in it is entirely welcomed by noble Lords on these Benches. At the same time we acknowledge that it is absolutely proper to ensure that any entity that is inputting instructions to CREST should be brought under the provisions of the Financial Services Act, and thereby add this activity to the list of investment businesses. We have noted after a long list of unhappy incidents—most recently the collapse of Barings—the paramount importance of efficient and properly run settlements and of protecting investors from any abuse of that. Will the Minister confirm that he believes that the exceptions to the definitions under Notes 1(a) and (b) of the order still leave investors adequately protected in the circumstances of both a takeover offer and a new issue?
As regards disclosure of interests in shares, we would agree absolutely that there would be no advantage in unnecessary information being provided as to the routine operation of CREST which may stop lenders being put over the 3 per cent. or any of the other normal limits for disclosure provided under the Companies Act. We would be concerned about a risk of inadvertently opening new loopholes whereby companies can build stakes in other companies without immediately disclosing the level of their shareholding. For instance, at the moment when a company offers a rights issue a predator can build a stake through buying the nil paid rights in the shares when they are separately traded and delay disclosing the effective interest that that entity has until after the rights issue is completed. There are exemptions for market makers and their requirement to disclose stakes above 3 per cent. I think the Minister confirmed that it is only through the automatic operation of CREST that this exemption can occur, but can he confirm that when a gap of one business day might quite possibly cover four or five calendar days over a holiday weekend there is not a way that this exemption can be used to enable an undisclosed stake to be built in a target company?
Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Viscount for his support for the orders before us. Coming from the background he does, he knows a good deal more about these matters than I. He echoes what the Government feel strongly; namely, that a paperless system is essential to the success of London as a financial centre. He pointed to Italy, which has progressed from a market which I think he described as chaotic to one which is now a paperless system. That suggests that we have to keep looking to our laurels. I am pleased that the noble Viscount echoed the point I made in my introductory remarks that it is absolutely right to ensure that those people and companies inputting information into CREST via terminals are registered under the Financial Services Act.
As regards exceptions to the definitions, we do not believe this diminishes security in any way. We are confident about that.
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On the point about an undisclosed stake, I believe I said at the end of my speech that this concerns only the electronic system, as the noble Viscount, rightly pointed out. I explained the reasons why we needed to bring forward this order as regards stock lending. The regulations will provide an exemption from the disclosure requirements which, as the noble Viscount rightly pointed out, are important where a person receives shares selected by CREST and those shares are returned the following day. The noble Viscount made an interesting point as regards the following day and the weekend.
Viscount Chandos: The following business day.
Lord Mackay of Ardbrecknish: My Lords, I was about to come to that. The noble Viscount asked how a holiday weekend would affect that. As regards a holiday weekend, a transaction could be carried out on Friday and the next business day would be Tuesday. He asked whether someone could therefore use the system in a way that we do not intend. I shall consider that matter and write to him, although I am confident that we have dealt with it. However, it is a point that I should consider.
I believe that we are in total agreement about the importance of the introduction of the CREST system to the City and about the various regulations and orders which will be needed to run it effectively and efficiently. As regards my assurance that I shall consider the point about holidays, I did not think that important money-men took holidays. However, I accept that they do. I shall consider that point and write to the noble Viscount.
On Question, Motion agreed to.

Disclosure of Interests in Shares (Amendment) Regulations 1996
Lord Mackay of Ardbrecknish: My Lords, I have already spoken to this. I beg to move.
Moved, That the draft regulations laid before the House on 16th May be approved [21st Report from the Joint Committee].—(Lord Mackay of Ardbrecknish.)
On Question, Motion agreed to.

Contracting Out (Administration of Civil Service Pension Schemes) Order 1996
6.27 p.m.
Earl Howe Earl Howe rose to move, That the draft order laid before the House on 25th March be approved [16th Report from the Joint Committee].
The noble Earl said: My Lords, the order is being introduced as part of the Government's drive to improve the quality of public services and to develop better, more efficient methods of delivering those services. The Government's Competing for Quality programme has produced a sea-change in the way public services are delivered.
Competition has led to better value for money for the taxpayer. In the three years since the Competing for Quality programme has been operating, departments have reviewed, in all, £2.6 billion worth of activities. If managed well and performance matches expectations, the annual cost savings should be around £540 million. Competition has also produced higher standards of service for the customer.
The order is to be made under Section 69 of the Deregulation and Contracting Out Act 1994. It specifies administration of the Principal Civil Service Pension Scheme and associated schemes as a function which contractors may be authorised to undertake. At present under the Superannuation Act 1972 only public servants may undertake the administration function.
Section 1(1) of the Superannuation Act 1972 provides that the Minister of the Civil Service may make, maintain and administer superannuation schemes for persons employed in the Civil Service and related organisations. Administration covers such activities as scheme induction, answering inquiries, maintenance of personnel data, processing applications to buy added years or pay additional voluntary contributions, the calculation of benefits and paying pensions. The administration of the PCSPS and associated schemes is largely decentralised as far as serving members are concerned.
Responsibility for day-to-day administration of Civil Service pension and compensation arrangements is formally delegated under the 1972 Act to employing departments and agencies. They can either perform the full administration function in-house or buy in services from providers within government. The administration of the pension entitlements of retired members of the PCSPS, including those whose pensions are deferred, is undertaken centrally. The Cabinet Office (Office of Public Service) buys the pensioner payroll and associated customer care and banking services from the Paymaster Agency at Crawley.
Lest there he any doubt on the point, I confirm that the order will have application to the Paymaster Agency's role in pensions administration, as this point may not be indisputably clear from the course of the debate in another place.
The order will enable private sector providers as well as existing service providers to compete for the business, and thus extend the choice available to employing departments and agencies. The Civil Service unions and the Civil Service Pensioners' Alliance have been formally consulted over the terms of the draft order.
An efficiency scrutiny of the administration of the Civil Service pension schemes recommended that departments should be encouraged to market test their pension administration operations. Approval of this order will permit departments to test this area of activity against alternative sources in the market. The aim is to give improved quality of service to scheme members and to provide better value for money for the taxpayer.
Decisions on the timing and other arrangements for market tests will be the responsibility of individual departments. It will be open to existing service providers to compete on a value for money basis. Such bids will be
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on a full cost basis and considered rigorously. If after a market test it is found that the arrangements in place offer the best service and the best value for money, those arrangements will continue.
I invite noble Lords particularly to note that the order relates solely to administration of the Civil Service schemes. Concern has been expressed in the Civil Service community, including local branches of the Civil Service Pensioners' Alliance, over the implications of this order for both the active and retired membership of the schemes. Perhaps I may reassure your Lordships on this point.
Occupational pension arrangements for civil servants will continue to be provided through the Civil Service pension scheme. The pensions of scheme members will not be affected. Competitive tendering of the administration function involves no changes in the benefits provided by the scheme, and the pensions of retired members will continue to be increased annually in accordance with the Pensions (Increase) Acts. The Minister for the Civil Service will remain responsible for the development of the scheme and also for the rules setting out the benefits and entitlements of scheme members. There is no pension fund—so there are no fund assets which could be put at risk. Cabinet Office Ministers will continue to account to Parliament for expenditure on the Civil Superannuation Vote.
A contractor would not be allowed to advise civil servants whether to join or leave the scheme or on the merits of individuals making additional voluntary contributions or buying added years. Explanatory booklets for scheme members would continue to be published by the OPS. Steps would be taken to maintain the confidentiality of personnel records. Computerised records would, of course, be covered by the Data Protection Act.
In any market test appropriate service standards for scheme administration of the PCSPS would be set. Any contract would require a standard of service that will be at least as high as that under existing arrangements. Those standards will apply from the outset.
A new pensions administration software package, tailored to the requirements of the Civil Service schemes, is being procured by the Office of Public Service. It will initially become available later in the summer. The new software will enable more efficient and innovative approaches to scheme administration to be adopted—for example, a one-stop shop for serving scheme members. It will enable service levels to scheme members to be raised while significantly reducing costs. The software will be portable between providers, enabling new players, including small businesses, to enter the market place. It will make market testing particularly effective.
A series of competitive tendering exercises will offer the work in manageable parcels. This will encourage new and existing third party administrators to compete effectively for the business and so offer departments and agencies a number of alternative suppliers from which to

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choose. I would remind your Lordships that in its fifth report the Treasury and Civil Service Select Committee stated:
"The quest for greater effectiveness and efficiency in the Civil Service is an unending one: the requirement to maximise the return from finite resources will not go away".
I believe that, by exposing administration of Civil Service pension and compensation arrangements to competition, it will be possible to raise service standards to scheme members and secure best value for money in the delivery of the administration function. The pension entitlements of scheme members will not be affected. I commend the draft order to the House. I beg to move.
Moved, That the draft order laid before the House on 25th March be approved [16th Report from the Joint Committee].—(Earl Howe.)
Lord Richard: My Lords, I am grateful to the Minister for setting out the arguments for this change. I am bound to say that my initial reaction was, "Here we go again".
The Government have been informed that I proposed at the outset to say something about the Recruitment and Assessment Services. The Chief Whip on the other side was so informed by my noble friend the Chief Whip on this side this morning. I do so in view of the evidence given yesterday by the Minister's right honourable friend Mr. Freeman to the Select Committee set up by this House following the debate on the RAS. It is no doubt much in the mind of the noble Earl, Lord Howe. The Government were roundly defeated. After that defeat the Select Committee was set up. It was agreed that the RAS would be one of the first issues that it should consider. Considerable pressure was put upon Ministers—I am sure that the noble Earl will remember this too—to give an assurance that they would delay a decision on the RAS until after that committee had reported and the House had had a chance to consider the report. Clearly that was the view of the House. But if one reads the words that the noble Earl uttered, there was no commitment to that effect. I accept that; I checked Hansard again today. But clearly that was the impression left, certainly on this side of the House and I suspect on many of those who voted against the Government on that Friday afternoon.
What has happened? Despite the setting up of that Select Committee, the Government have proceeded. In the debate which took place in the other place on 22nd May, a portmanteau resolution on the Civil Service was put down. It was the very last day of the parliamentary Session. Included in that Motion, among a number of other matters, were the words:
"That this House … also welcomes the Government's policy with regard to the privatisation of the Recruitment and Assessment Services, with the proposed safeguards to protect the quality of Civil Service recruitment".—[Official Report, Commons, 22/5/96; col. 293.]
The Minister's right honourable friend Mr. Freeman spoke in that debate. The issue of the relationship between the Government taking a decision and the setting up of a Select Committee of this House was raised. At col. 300 Mr. Freeman said this:
"Any conclusions of the Committee that are relevant to the privatisation of RAS will be carefully considered. I give the House and the Committee an assurance that I shall treat the deliberations seriously".
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Later my right honourable friend Mr. Derek Foster, speaking for the Opposition, asked:
"Would it not be sensible to defer any progress on the privatisation until the Select Committee has given the Chancellor the benefit of its full deliberations?"
Mr. Freeman replied:
"It depends what the right honourable Gentleman means by `progress'. I assume that the relevant Select Committee will report before the summer recess and that I shall have the opportunity to study its recommendations and perhaps even discuss the matter again. Therefore, we shall not conclude the process until that has occurred".
Later on he said at col. 302:
"When that Committee reports, I shall consider its recommendations with care and respond in due course".
However, in the next sentence, he said:
"Meanwhile, we are adhering to the privatisation timetable, which is aimed at a successful completion later in the summer".
As I understand the evidence that he gave yesterday in public to the Select Committee, tenders have been put out; 12 offers have so far been received and the Government are drawing up a short list of three. How, with one breath, the Government can do that and with the other breath say that they will consider the recommendations of the committee with care and respond in due course is frankly beyond me. The Government clearly gave the House the impression that they would wait. Now it is clear that they have not waited and they will not wait. The argument that they will give proper consideration to the Select Committee report, while at the same time behaving as they are in proceeding with the process to the extent that they have, is disingenuous, and frankly, treating this House with contempt.
I look to the Minister to try to clear the matter up tonight. Are the Government prepared to give the Select Committee's report proper consideration? By "proper consideration", I do not merely mean, "Yes, of course we won't conclude everything in the sense of dotting every T and crossing every 't' until the report has been received". I mean give it proper consideration on the merits of the issue. So far, I see nothing in the Government's statements to show that they are prepared to do that.
I turn to the regulation before us. It is yet one more example of the Government's intense commitment—intensity almost to the point of passion, it seems to me—to a dogma of privatisation which seems to be accepted by no one else. Who is dissatisfied with the present arrangements? Certainly not the consumers. The people who are subject to the Civil Service pension scheme seem to be unanimously against the proposed changes. The reactions of the Council of Civil Service Unions and the Civil Service Pensions Alliance show that they are both vehemently opposed to the order. The truth is that there is no support for the order from civil servants, Civil Service pensioners or deferred Civil Service pensioners. It is not often that I am in the position of praying in aid the words of a former Conservative Prime Minister, but I commend people to read what

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Sir Edward Heath said on the issue in another place. He concluded by saying that he thought the Government were making a grave mistake and he used the word "dogma" on a number of occasions in relation to government policy. The only people who favour this are the Government.
Why do I say it is wrong? First, Civil Service morale is low and is getting lower. There is a deep sense of insecurity now felt in Civil Service ranks and the proposal adds to the feeling of insecurity. Civil servants want their Civil Service pensions to be administered by civil servants. There is no reason at all why they should not have it. Secondly, I say that it is wrong because the existing system works well. In another context, one hears a great deal of the American phrase which I do not like: "If it ain't broke, don't fix it". I wish that the Government would take that to heart in this context as firmly as they appear to do in relation to another one.
Is the scheme working properly? It has been examined, there has been an efficiency scrutiny report. What did it say? Paragraph 23 states that the present scheme, because of its size, achieves great economies of scale. Paragraph 24 points out that the PGO's unit costs are currently around £16, which is broadly in line with what the private sector would charge for a large-scale pension paying service. It costs no more than an equivalent private scheme.
The report goes on to state that most large employers with above, say, 1,000 staff run their own employees' scheme and administer it in-house. The pension, consulting and insurance firms manage many schemes for employers but most of these are schemes of less than 1,000 members, a few are between 1,000 and 2,000 members and a small number are larger than that. Where larger schemes are contracted-out—and there is a handful of examples—it tends to be for particular reasons reflecting a strategic decision on the part of management. The report goes on, in paragraph 52, to produce a draft which suggests that above about 20,000 staff, in-house operations are actually cheaper than contracting out.
Finally, paragraph 56 states that it is thought that the efficiency of contracted-out pensions and administration is likely to improve significantly over the next few years as new technology is introduced. That is the current position. It works well and the people affected by it are on the whole remarkably satisfied with it.
Thirdly, the proposal is wrong because there is still confusion as to its scope. The noble Earl put right the confusion that was left by his honourable friend Mr. Willetts in another place, who ended the debate by contradicting what he said at the beginning of it. As I understand it, the order relates to the administration of the Civil Service scheme. Administration covers such activities such as scheme induction, calculation of benefits, answering inquiries, maintenance of personnel data, processing applications to buy added years or pay additional voluntary contributions and paying pensions. So let there be no doubt about it, the Minister has confirmed tonight—and I am grateful for it—that the Paymaster is included within the scope of the order.
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The only thing that still causes me confusion is a Written Answer given by the Minister's right honourable friend Mr. Freeman in another place on 25th March 1996. He was asked by Mr. Peter Luff whether, when he expected to make the order, he would make a Statement. Mr. Freeman said:
"Approval of the order by Parliament will enable Departments to market test their day-to-day administration of the principal civil service pension scheme, and associated schemes. Occupational pension arrangements for civil servants will continue to be provided through the PCSPS".—[Official Report, Commons, 25/3/96; col. WA 449.]
I am not sure what that means in the context of the speech that we have just heard from the noble Earl. The Written Answer continues:
"Market testing of the administration function will not affect pension benefits in any way".
There we have the ritual genuflection to Conservative Party dogma: "Competition will ensure value for money, the focus on performance outputs will help raise the quality of service to scheme members". We have heard that before.
The Written Answer continues:
"Decisions on the timing and method of competitive tendering will be for each employing Department to take".
Is that still true or will they now be taken by the Government?
"It will be open to existing service providers, such as the Paymaster agency, to compete on a value for money basis".
Then occurs the sentence which I do not understand:
"Responsibility for management of the PCSPS—and associated schemes—including setting the rules, will remain within government".
Responsibility for management? What is the difference between "management" and "administration"? Is there some distinction which I do not quite appreciate? I do not see how the Government can at one time privatise the administration of the scheme and at the same time claim that the responsibility for management of the scheme will remain within government. If it is intended that the management will remain within government, then what is to be privatised? If it is intended that management should go with administration, how could Mr. Freeman make the statement that he did?
Doing the best I can, for the life of me I cannot see the purpose of the proposal. It seems to me to fly in the face of logic, administrative good practice, good man management and the wishes of the people who are most affected by it—namely, the pensioners. Why on earth are the Government doing it?
Lord Harris of Greenwich: My Lords, I would like to add a few words to what the noble Lord, Lord Richard, said. I agree with him on both points of substance that he made. First, this is another piece of doctrinaire nonsense coming from a Government who have clearly lost the confidence of the people of this country and are clinging to office with one of the smallest majorities one can recall of any recent British government. As their grip on power lessens, their enthusiasm to proceed with doctrinaire absurdities of the kind we are discussing this evening becomes even greater. When, in his introductory statement, the noble

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Earl referred to the unions being consulted, he did not find it necessary to tell us that the unions had been consulted but had indicated their strong opposition to what the Government proposed. It might have been a little better if he had indicated that when he made his speech.
I turn to the other issue raised by the noble Lord, Lord Richard, at the beginning of his speech; namely, the extraordinary way in which the Government are treating the Select Committee set up to discuss the RAS. The noble Earl will recall our debate in this House when the Government were decisively defeated, a number of senior figures in his own party being among those voting against.
From what Ministers said on that occasion and subsequently, we understood that the Government would take seriously into account the views of this House. They have chosen not to do so. Instead, as the noble Lord, Lord Richard, pointed out, there was a debate in the other place on the last day before the Whitsun Recess at which, according to press reports, there were half a dozen MPs on one side of the House and eight on the other. That contrasts with this crowded House on the occasion of our debate on RAS. At the end of the Commons debate, the Government secured their majority. In the meantime, a Motion had been passed in this House—a Motion with which the Government themselves were associated—asking a Select Committee of this House to consider the RAS issue and submit an interim report.
I am a member of that committee. I have no intention of referring to its private discussions. I shall comment only on what has been said in public session. It was made quite clear to us by Mr. Freeman that the Government's decision on principle was clear, unmistakable and unyielding. Mr. Freeman indicated the position to us in the clearest terms. I do not believe that anybody who was present yesterday afternoon could have had the slightest doubt about what he was saying. He went on to add that, of course, the Government would consider what the Select Committee said. Then—I hope that I do not do him an injustice in quoting him, but I believe that I remember his words correctly—he said that the Government would "respond within days" to our report. What does "within days" mean? Does it mean that there will be any serious discussion among Ministers collectively on a serious report from what I hope is a serious Select Committee, which is, and will he, devoting a substantial amount of time to discussing the major issues involved and raised during our debate in this House?
As I indicated, speaking for myself, I was astonished that the Government chose to table this Motion in the Commons which, as the noble Lord, Lord Richard, said, so far as the other place was concerned, had had RAS slipped into the middle of it. The Motion was not solely about RAS. Obviously, RAS was inserted deliberately by Ministers, so that they would obtain their majority on this particular question in the other place before the Select Committee started its work.
I do not wish to be disagreeable about this matter, but I find it inconceivable that, had the noble Viscount, Lord Whitelaw, still been Leader of this House, the
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House would have been treated in such a fashion. A Select Committee was set up to look into the Government's proposals to privatise RAS. It is outrageous not only to have in reality that decision questioned but to have a government Motion put down in the other place on the fundamental issue of principle and then for the Minister's colleague, Mr. Freeman, to use the decision in the other place to justify the Government's decision to proceed in the way in which the noble Lord, Lord Richard, indicated.
I find it extraordinary, at a time when Ministers are queuing up to proclaim their enthusiasm for this House as at present constituted, in order to prevent significant constitutional change in terms of its composition, that they have behaved in this manner. They have testified enthusiastically to our almost unique qualities. But when their own interests are involved, they are prepared to be involved in an episode of this kind, which indicates a degree of contempt for this House which is truly remarkable.
Lord Taylor of Gryfe: My Lords, I should like to say a few words in support of the speeches that have already been made. I was appointed to the committee which met yesterday and considered this matter in public. I was delighted to be invited to serve on that committee because I felt that it was to consider a matter of great importance.
The noble Earl will recall the circumstances of the appointment of the committee and the overwhelming expression of view in this House—initiated from the Cross Benches by the noble Lord, Lord Bancroft, with the support of his own side and indeed all parts of the House—to reject this particular proposition. I thought that was one of the occasions when this House was performing its responsible job. It was examining a proposition initiated by the Cross Benches and considered on its merits.
The Government responded by setting up a committee. I always assumed that when a Select Committee was formed in this House, it would produce a report which would be discussed in the House before a judgment or decision was formulated. It is quite obvious to me that that will not happen. First, there will be no time to consider the report. Secondly, consideration of these matters will be rushed into a few weeks before the Recess.
The House of Lords has always prided itself on the quality of the reports from its Select Committees. I suggest that in the timescale now made available, it will be impossible to produce a balanced and sensible report on this matter. Let us consider the situation. A group of fairly experienced individuals sit on the committee and examine this matter. They hear evidence from various experts who are commanded to attend. But at the end of the day the report will be of no significance whatsoever because on the last day before the Recess the Government announced that they were now going to proceed with the privatisation of the RAS. As the noble Lord, Lord Richard, said, the announcement has been made and an invitation published in the Financial Times for proposals to be submitted for the scheme. The Government are in the process of selecting and shortly

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will give their final conclusions on this matter; and at the same time a committee in the House of Lords is considering that same matter but with no relevance whatsoever.
If anything is a matter of contempt of the House of Lords, that is contempt. It is also wasting the time of a lot of people who have a contribution to make to these matters. It is a rather surprising coincidence that the piece of legislation which is before us tonight enables us to express these anxieties. In the Order Paper for tomorrow is printed a Question for reply on Thursday. It invites the Government to delay the proposals in connection with the privatisation of the RAS until the committee of the House of Lords has made its report. Perhaps between now and Thursday the Minister will influence his colleagues to accept that perfectly reasonable request. I look forward to a positive response on Thursday.
7 p.m.
Earl Howe: My Lords, the noble Lords, Lord Richard, Lord Harris and Lord Taylor of Gryfe, have taken this opportunity to raise the question of the possible privatisation of Recruitment and Assessment Services. With the leave of the House, I shall gladly respond to their points.
Let me state the position on this issue as it affects your Lordships' House and your Lordships' Select Committee. Your Lordships will be aware, as has been mentioned, that this matter was debated and approved in another place—incidentally, it was approved by a majority of 75. The noble Lord, Lord Harris, suggested that it was quite wrong that another place should have been debating this issue. I put the question to him: why should not the other place be allowed to discuss this matter? If the position had been reversed and another place had discussed it first, does he believe that this House should have been prevented from discussing it?
By allowing debate in the other place it was not our intention to place in jeopardy the recommendations of the Select Committee. My right honourable friend the Chancellor of the Duchy of Lancaster indicated that we expect to be able to give careful consideration to its report, assuming that it is available as expected before the Summer Recess. He indicated yesterday that there were areas where he hoped the committee could provide advice, including safeguards. Therefore to suggest that this House has been ill-treated is misplaced.
Lord Richard: My Lords, perhaps the Minister will allow me to intervene. Shall I tell the noble Earl what is wrong? If we look at the terms of the Motion moved by the Chancellor of the Duchy of Lancaster on 22nd May, it was not that the House,
"[notes] the Government's policy with regard to the privatisation of Recruitment and Assessment Services";
but that it,
"welcomes the Government's policy with regard to the privatisation of Recruitment and Assessment Services".
What is wrong is the use of the word "welcomes" and the use of the Whips to obtain a majority behind that at the very time when the Government are saying to us,
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"Yes, we wish to have the examination of the Select Committee; we wish to look at it before reaching a final conclusion".
Earl Howe: My Lords, I fail to see the noble Lord's point and must take issue with him. The future of Recruitment and Assessment Services has been under consideration since early 1994, when the three-year review was announced. As a result of debates in your Lordships' House, your Lordships are aware that we believe privatisation to be the best way forward. That view was endorsed by the other place.
We shall look carefully at the committee's proposals on specific points related to the sale. However, it is important that we stay with the broad timetable that we set because further uncertainty for staff, customers and bidders should be kept to a minimum.
Lord Taylor of Gryfe: My Lords, with regard to the timetable, does the Minister realise that contracts with the successful bidders will need to be made? Presumably the contracts will run for anything from three to five years. Is it responsible for the Government, with only a few months to run by any standards, to make contracts of that kind three to five years ahead which will be inherited by a subsequent government?
Earl Howe: My Lords, this Government were elected for a full term and I do not see any reason why we should not pursue our policies during the time allotted to us. My noble friend the Leader of the House indicated in the Written Answer which appeared in Hansard on 22nd May that the timetable that we have set will allow us to study the Select Committee's report—assuming it is available; it will enable us to make a response before the House rises for the summer. Clearly the timing will be tight but with goodwill on both sides, which I am sure will exist, it can be achieved.
To say that the committee's report, as the noble Lord, Lord Taylor, suggested, is of no significance whatever and that the Government's actions amount to contempt of the House, is completely wrong. We have every intention of considering the report with the seriousness that it deserves. I would make the simple point that the main purpose of the committee established in your Lordships' House was to consider the public service. Consideration of Recruitment and Assessment Services is merely a part of that activity—an important part, I concede, but only a part.
I hope that the House will accept the assurances that I have given not only to the letter, but in the spirit in which I give them. We shall take due note of the committee's conclusions. The debate in another place has not affected the undertakings given to your Lordships and I hope that on reflection noble Lords opposite will see that there is no reason for them to be exercised in the way that they now appear to be.
Perhaps I may proceed to the Motion on the Order Paper. I noted with care the remarks of the noble Lord, Lord Richard, regarding the Motion. He spoke of the opinion that is current among the Civil Service unions particularly. We have taken fully into account the representations made against market testing of PCSPS

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administration. The central point, however, is that competition will ensure value for money and the focus on performance output will help to improve the quality of service to scheme members. That encapsulates the reason for the order.
The Government fully understand that civil servants value their pensions highly and that is entirely right and natural. But the changes being made in the way that the scheme is run will help to improve the quality of service to scheme members. The noble Lord referred to morale within the Civil Service. Morale is best maintained by allowing staff to perform to the best of their abilities in their chosen career. The reforms that the Government are enacting enable the staff to do just that; that is, to focus their attention on delivering high quality public service. That is surely the best way of satisfying both them and the users of the service.
The remarks made by my right honourable friend Sir Edward Heath were referred to, and again I noted with all seriousness what was said. But I re-emphasise that it is scheme administration that is being opened up to competition. The Civil Service pension arrangements will continue to be managed and controlled by the Office of the Public Service. The noble Lord, Lord Richard, asked what the difference was between management and administration. As I said earlier, administration encompasses such activities as operating the scheme in respect of individual scheme members; keeping files and so forth in relation to those scheme members serving in departments and agencies as well as retired members. Management of the scheme involves fixing the scheme rules; it involves the control of benefits that are available under the scheme; the resolution of disputes; accounting to Parliament for expenditure under the Civil Service Superannuation Vote. Those activities, as I stressed, will not be contracted out.
The noble Lord, Lord Richard, mentioned the efficiency scrutiny and said that it found no evidence to suggest that outside contractors could do the work any better. Neither was there evidence that they could not. Under the Competing for Quality programme, departments and agencies are required to test areas of activity to see whether alternative sources in the market give better service and value for money. If after a market test it is found that the arrangements already in place offer the best service and the best value for money, those arrangements will continue. Therefore it is not a case of the Government ignoring the maxim of "if it ain't broke, don't fix it"; if it ain't broke it will not need to be fixed.
Lord Richard: My Lords, can the Minister say why, in this order, he has taken such comprehensive powers as opposed to powers just to market test? Why does he not simply take those powers?
Earl Howe: My Lords, the order enables departments and agencies to do precisely that—to market test.
Lord Richard: And a lot more.
Earl Howe: My Lords, I am not quite sure what the noble Lord is referring to. The central point of the order
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is to enable those departments to see whether better value for money and a better service can be provided outside. That is what market testing means.
Lord Harris of Greenwich: My Lords, I apologise for interrupting the noble Earl again. In the light of what he has just said, can we be told about the timescale? How long will this procedure take? Will it be during the time that the present Parliament is in existence, or will it conclude before then?
Earl Howe: My Lords, this is an enabling order only. It enables Ministers in departments and agency chief executives to take a look at the whole question for themselves. It will be up to them whether they proceed in short order or whether they decide that it is a matter better left for the medium term. But it is of course incumbent on both Ministers and chief executives to pursue the market testing route at some point. That is government policy. Therefore, it is impossible to answer the noble Lord's question. It will remain a decision for Ministers and chief executives as to how long the process will take.
The noble Lord, Lord Richard, referred to the private sector. In fact quite a number of employers in the private sector contract out their pensions administration work to specialist advisers. The National Association of Pension Funds and other organisations hold regular conferences for delegates to discuss the pros and cons of outsourcing, and a number of employers with in-house services are actively considering their options. That indicates that the private sector as well as government believe that in certain circumstances there is better value to be found outside.
As I have stressed, the order is about securing value for money for the taxpayer and a better service to scheme members. I am surprised and a little disappointed that the Benches opposite do not embrace those aspirations. Perhaps I should not be. However, on that somewhat melancholy note, I trust that the House will nevertheless agree to the order.
On Question, Motion agreed to.

Damages Bill [H.L.]
7.12 p.m.
Report received.
Clause 1 [Assumed rate of return on investment of damages]:
The Lord Chancellor (Lord Mackay of Clashfern)The Lord Chancellor (Lord Mackay of Clashfern) moved Amendment No. 1:
Page 1, line 6, leave out ("general").
The noble and learned Lord said: My Lords, in moving this amendment, I should like to speak also to Amendments Nos. 3, 4 and 5. Amendment No. 1 is a minor amendment to subsection (1) to recognise the fact that it may be appropriate for the court to apply a discount to reflect accelerated payment of damages for future pecuniary loss, whether those damages might fall under the classification of "general" damages, or some

1225
other classification, for other purposes. The word "general" therefore appears to be superfluous. The next three amendments are consequential drafting amendments, removing separate references to "damages" in Scotland. It seems to me that for the purposes of this Bill any distinction between general or special damages is of no importance. I beg to move.
On Question, amendment agreed to.
Lord Ackner Lord Ackner moved Amendment No. 2:
Page 1, line 15, leave out ("and the Treasury").
The noble and learned Lord said: My Lords, I raised this very small amendment in Committee. It seeks to take out "and the Treasury" from subsection (3) of Clause 1. It arises in these circumstances. The Explanatory and Financial Memorandum to the Bill, under the heading "Financial and manpower effects of the Bill", provided:
"The Bill's only likely effects on public expenditure are that any exercise of the power in clause 1 could affect the size of awards of personal injury damages against government departments, and that, under clause 6, ministers may accept secondary liability to support the primary obligations of public sector bodies".
It is subsection (3) to which this amendment is directed. It states:
"Before making an order under subsection (1) … the Lord Chancellor shall consult the Government Actuary and the Treasury; and any order under that subsection shall be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament".
Subsection (1) deals with the determination of,
"the return to be expected from the investment of a sum awarded as general damages for future pecuniary loss".
I raise this amendment on the simple basis that it seemed to me quite wrong that a potential defendant should be allowed to advise on a factor that affects the amount of damages he must pay. That is indeed a startling position. The Treasury has a vested interest in the level of damages and accordingly should not be involved unnecessarily in providing advice in this area. The question really is: is the Treasury being unnecessarily involved?
I submitted to your Lordships in Committee that the Government Actuary is well able to undertake without assistance from the Treasury his actuarial task, which is somewhat similar to that undertaken by actuaries in insurance companies which issue life and pension policies. I submitted that we are not in a field of forecasting; we are not looking into the future; the actual rate of return at the moment of the calculation is what is required. That is what is done day in and day out when there is, for instance, a purchase of an annuity.
I promised to consider the observations made by my noble and learned friend the Lord Chancellor in Committee and I therefore obtained through Sir Michael Ogden, who your Lordships may remember was the chairman of the committee set up to consider these issues of damages and whose report was accepted by the Law Commission, the views of a very experienced actuary who sat on the committee that produced the report. The recommendation which the Law Commission made was that legislation should be
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introduced inter alia to direct courts to take into account the net return on an index-linked government security when determining the return expected on investment of damages but to leave it open for any party to show in individual cases that a different rate of return was more appropriate. By relying upon index-linked government securities there would be no danger of the kind that arises when one bases one's figures on a basket of Treasury and other stock.
In fact, Clause 1 refers to the court taking into account,
"such rate of return as may from time to time be prescribed by an order made by the Lord Chancellor",
and not the net rate of return on an index-linked government security. Of course, if the Lord Chancellor ultimately decides that the rate of return should be prescribed by reference to index-linked government securities, then clearly the Government Actuary's Department can provide the necessary information without reference to the Treasury. But Mr. Prevett, the actuary to whom I have made reference, has gone on to advise that even if the Lord Chancellor decides that the rate of return should be prescribed by reference to some other portfolio of investments, the Government Actuary's Department has all the expertise required to provide the necessary advice without reference to the Treasury. He says that the department is involved daily in the consultation and determination of rates of return on invested funds in relation to its work on occupational pension schemes and insurance companies.
Therefore, the mention of the Treasury in Clause 1(3) is quite unnecessary. It is wrong as a matter of principle because of the vested interest which the Treasury has in the level of damages. I beg to move.
Lord Irvine of Lairg: My Lords, the sentiment which underlies this amendment is the scepticism which has just been expressed about the propriety of consulting the Treasury, given that the Government are often a potential defendant in personal injuries litigation, so that the Treasury may be said to have a vested interest in the rate of return prescribed. We understand that, but on this side of the House we also appreciate the importance of drawing on all the available expertise when deciding on the most appropriate rate of return. We believe that the Treasury may well have useful advice to contribute.
Provided that the noble and learned Lord consults widely—as he has assured us, and I accept, that he will—before determining the prescribed rate, then we are not convinced that it would be wrong to draw on the expertise of the Treasury. Also the decision in relation to the prescribed rate will not lie with the Treasury but with the noble and learned Lord. Therefore, we do not believe that the principle requiring justice to be seen to be done will be infringed. For those reasons we are not persuaded to support this amendment.
Lord Simon of Glaisdale: My Lords, I intervene only because what I said in Committee apparently misled my noble and learned friend the Lord Chancellor into thinking that my contention was inconsistent with that of my noble and learned friend Lord Ackner. That is not so: they were perfectly consistent. There are two

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separate situations. Either my noble and learned friend is entitled in the circumstances of this clause to consult the Treasury, which is his contention, or he is not, because, as my noble and learned friend Lord Ackner points out and as it is accepted by the noble Lord, Lord Irvine, the Treasury is an interested party. If the Treasury can, with propriety, be consulted, it is absolutely unnecessary to have these words in the Bill. They occur time after time in Bill after Bill and in Session after Session. It is small wonder then that the statute book continues to increase in size, format, bulk, the number of statutes and the number of pages to the immense cost of the taxpayer.
If the Treasury is properly consulted the internal machinery of government takes care of that. I do not believe that anyone has controverted that point. The Treasury is in close contact with all the spending departments and with all departments in so far as they have the power to influence spending. It has special officials who liaise particularly with each department. So if the Treasury is entitled to be consulted, and if it is to be properly consulted, it is quite unnecessary to have these words. It is against the Treasury's own interests that money should be wasted by having this formula in statute after statute. It is in fact a sort of "draftsman's tick"; the words come up on the computer in this sort of context. That is one situation.
The other is that put forward and defended by my noble and learned friend on the Woolsack. He says that it is right in these circumstances to consult the Treasury. The noble Lord, Lord Irvine, is perfectly right when he says that the Treasury has expertise, and so it has. But that is expertise that should not be tapped in the context of this clause because the Treasury is an interested party. I hope that I shall not myself be thought in any way inimical to the interests of the Treasury; on the contrary, I freeze with horror whenever I hear the word "Treasury" hissed out in tones of hatred, which is the general mode of expression. But here it seems to me that my noble and learned friend is absolutely right. The Treasury is an interested party and therefore these words are not merely unnecessary but malign because they direct my noble and learned friend the Lord Chancellor to do something that he should not do merely because the Treasury has expertise. As the noble Lord, Lord Irvine, said, it should not be consulted because that expertise is put to an interested use. Therefore, I support the amendment of my noble and learned friend.
Lord Meston: My Lords, it has to be said that the reference to the Treasury originates from the Law Commission's draft Bill. But it is certainly correct that the reference to the Treasury can only be said to be very necessary because the Government have departed from the recommendations of the Law Commission. Its considered view was that it was preferable to discount by reference to returns of ILGS, which was considered to be both realistic and fair. The Bill does not adopt that recommendation, and the noble and learned Lord the Lord Chancellor at the previous stage said expressly that he wished to be able to consider other rates.
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Like the noble and learned Lord, Lord Ackner, I have had the benefit of a very interesting paper from Sir Michael Ogden. There has to be great force in his point that there would be no need for the forecasts of the Treasury if in fact the Bill had simply said, as the Law Commission Bill said, that the normal rate should be based on ILGS. Another way of looking at it is to say that by adopting ILGS rates the Treasury would have had an input already because it decides on the rate.
The more I think about this matter the more I feel that there is force in the point that the Treasury's involvement should be minimal as it underwrites the awards against government departments when they are defendants to actions for personal injuries and death.
7.30 p.m.
The Lord Chancellor: My Lords, in my submission, if and when the Lord Chancellor is minded to make an order fixing a rate, it would be right for him to consult widely and certainly to consult the insurance industry as well as representatives of those who are plaintiffs in actions.
As the noble Lord, Lord Meston, said, the Law Commission proposal which refers to other than the rate on those securities which are independent of inflation contains the provision that the Government Actuary and the Treasury should be consulted. This clause is modelled on that provision. In my submission, proper consultation with those interests is perfectly in order. It is for the Lord Chancellor ultimately to decide. Of course, the Lord Chancellor himself is a potential defendant in actions from time to time, but the responsibility has to rest with a Minister, and I suggest that in this context that Minister should be the Lord Chancellor.
I believe that the Lord Chancellor should be able to consult the Treasury. That is the primary point about which my noble and learned friend Lord Ackner is concerned. As I have said before, my noble and learned friend Lord Simon of Glaisdale appeared to be taking a somewhat different point on the last occasion and he elaborated on that today. Fundamentally, however, the argument that you do not need to mention the Treasury because the Treasury will be consulted anyway is a different argument from and, to my mind at least, is not entirely consistent with the view that the Treasury should not be consulted in the circumstances of a particular case.
I have considered carefully what my noble and learned friend Lord Ackner has said, but I believe that it is appropriate that "the Treasury" should be left in the clause on the basis that any representations that the Treasury may make will have to be considered carefully, bearing in mind that it is potentially responsible for the effect of any awards against the Government. Equally, that could be said in respect of the insurance industry, for example, when it makes representations. In my submission, it is entirely appropriate that that industry should be consulted. Therefore, I invite your Lordships not to accept the amendment.
Lord Ackner: My Lords, I hear what the noble and learned Lord says about his intention to consult widely.

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He has mentioned the insurance market. I imagine that in that consultation he will include also trade unions and solicitors' societies concerned with personal injury litigation. When he receives advice from the Treasury. I have no doubt that the noble and learned Lord will ask for comments on that advice from such organisations, which are likely to have rival or opposite interests; otherwise this legislation has identified one privileged class of litigant, the Treasury. I am surprised that the prospect of having such a provision on the face of an Act of Parliament has not been condemned by the noble Lord, Lord Irvine of Lairg. However, in view of the observations that have been made and my hopes that the wide consultation will be on the basis that I have suggested, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Lord Chancellor The Lord Chancellor moved Amendments Nos. 3 to 5:
Page 1, line 18, leave out from ("references") to ("to") in line 19.
Page 1, line 19, leave out ("respectively").
Page 1, line 20, leave out ("to damages and").
The noble and learned Lord said: My Lords, I spoke to Amendments Nos. 3 to 5 with Amendment No. 1. With the permission of the House, I beg to move them en bloc.
On Question, amendments agreed to.
Clause 4 [Enhanced protection for structured settlement annuitants]:
Lord Meston Lord Meston moved Amendment No. 6:
Page 2, line 45, at end insert ("and as if any reference in those sections to liquidation were a reference to liquidation or provisional liquidation").
The noble Lord said: My Lords, as the House knows, most structured settlements are funded by means of annuity policies. To meet concern about the long-term security of such funds, the Bill as currently drafted would enhance the protection offered by the Policyholders Protection Act 1975, which guarantees payment of 90 per cent. of the policy value where an insurer goes into liquidation, to 100 per cent. in the case of structured settlement annuities. That reform is welcome, but it seems that it will not provide adequate protection for all those injured who find that an insurer cannot meet its liabilities because the protection does not extend to insurers in provisional liquidation.
A situation which has been drawn to my attention has arisen when an insured person has suffered real hardship because he has not been paid by the general insurer and has not so far been able to recover the sums owing because the general insurer is in provisional liquidation. In such situations, the Policyholders Protection Act 1975 fails to provide protection for the injured person, who also has no power to compel the liquidator to make matters final so that payment would be guaranteed under the Act. In the case in question, the general insurer has apparently continued to receive the proceeds of the annuity policy purchased when the case was settled, but, despite requests, the general insurer also continues to refuse to allow the annuity policy to be assigned to the
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particular plaintiff, despite the fact that such assignments have become common practice since the Finance Act 1995.
There seems to be a gap in the legislative protection. The simplest solution seems to be to extend the 1975 Act to provisional liquidations in the case of structured settlements. It is on that basis that this simple amendment is proposed. I beg to move.
Lord Irvine of Lairg: My Lords, I am not sure but I suspect that the amendment arises as a result of a recent dispute involving Municipal Mutual Insurance. It had entered a state of provisional liquidation, with the result that the plaintiff victim who had agreed a structured settlement with the company was unable—or was thought to be unable—to recover payments under the settlement, although the company continued to receive the sums payable under the annuity which had been purchased in order to implement the structured settlement.
The view was that the protection provided by the Policyholders Protection Act 1975 could not be relied upon by the plaintiff victim. That was thought to be because the protection under Sections 10 and 11 of the 1975 Act appeared to be limited to liquidation and did not extend to provisional liquidation.
These Benches would welcome the advice of the noble and learned Lord on this specific point: if Sections 10 and 11 of the 1975 Act do not extend to provisional liquidation, it appears to us that the argument in favour of the amendment moved by the noble Lord, Lord Meston, is a powerful one.
The Lord Chancellor: My Lords, I have sought to consider this question which is not entirely easy. However, having looked at the Policyholders Protection Act 1975, I have reached the conclusion that if this is a good point, it is a much more general point and does not apply only to structured settlements; it also appears to affect third parties' rights against insurers. The provision is the same.
I have not had time fully to consider this matter. My present belief is that if a person is the creditor of a company in provisional liquidation he will be able ultimately to enforce liquidation. If he has a claim which is liquid against the company I do not believe that his petition for liquidation can ultimately be refused. That is my very superficial answer to the problem. But I wish to look at the matter thoroughly. I believe that if this is a good point it is a much more general point which does not apply only to structured settlements. I am not sure that simply to put into Sections 10 and 11 of the 1975 Act, as this amendment seeks to do, references to liquidation as including liquidation or provisional liquidation will solve the problem. This is an important matter. I should like an opportunity to consider it further. The advice that I have been able to obtain so far is on the lines I have suggested. If there is a real problem here it goes a great deal beyond structured settlements. We may need to look at something more fundamental.
In the meantime, if the noble Lord, Lord Meston, is willing to withdraw his amendment I will undertake to have the matter looked at as thoroughly as possible

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before the next stage is reached. I shall try to intimate to both the noble Lord, Lord Meston, and the noble Lord, Lord Irvine of Lairg, the result of my inquiries before we part with the Bill.
Lord Meston: My Lords, I am grateful to the noble and learned Lord for that indication. I am not able to say whether the case brought to my attention was that referred to by the noble Lord, Lord Irvine of Lairg, to whom I am grateful for reinforcing the point. It appears that there is something of a lacuna. I accept that it is not an easy matter. It struck me that the problem might extend beyond structured settlements. This Bill would enable the problem to be dealt with only in so far as it affected structured settlements. That explains why the amendment finds its place here. With respect, it may be an over-simplification to look for an answer in persuading the court to finalise the liquidation. That appears to have been an obstacle in the case to which my attention was drawn.
I am most grateful to the noble and learned Lord for undertaking to give the matter further consideration. On that basis I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 [Guarantees for public sector settlements]:
The Lord Chancellor The Lord Chancellor moved Amendment No. 7:
Page 4, line 40, leave out ("Exchequer") and insert ("Consolidated Fund").
The noble and learned Lord said: My Lords, Amendment No. 7 is a small drafting amendment to substitute a more precise reference to the proper destination of any moneys which may be recovered from the principal debtor by a Minister whose guarantee has been called upon. I beg to move.
On Question, amendment agreed to.
7.45 p.m.
Clause 8 [Short title, extent and commencement]:
Viscount Chelmsford Viscount Chelmsford moved Amendment No. 8:
Page 5, line 24, at end insert ("but section 1 applies only to causes of action accruing on or after that date").
The noble Viscount said: My Lords, Amendment No. 8 is not about the terms of the Bill but its attachment. I believe that if the Bill were passed today and my noble and learned friend the Lord Chancellor used the index-linked rate, the rate applied to a particular case would almost halve and, conversely, the amount of lump sum to be put in for interest would almost double. As far as concerns the insurance industry whose brief I hold in this matter, that is not necessarily a problem provided it can rate its policies accordingly.
I raised this point in Committee. The problem arises, if the Bill is enacted as currently drafted, in terms of the pipeline claims currently before the courts. I said in Committee that it was the belief of the insurance industry that pipeline claims would cost motor insurers alone the equivalent of £200 million and that across the whole market, including all bodily injury, the cost would
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be perhaps between £500 million and £1 billion. The amendment seeks to provide protection in respect of pipeline claims.
In Committee on 13th May my noble and learned friend the Lord Chancellor, replying to the noble Lord, Lord Meston, said at col. 381 that he believed that my amendment need apply only to Clause 1. Therefore, the amendment has been altered as he suggested. My noble and learned friend said at col. 374:
"The normal rule of statutory enactment that I have been accustomed to seeing followed is that one does not make retrospective alterations".
I hope very much that my noble and learned friend will stick to that, despite the fact that he is awaiting the result of a particular appeal, because there is good precedent for it. I draw to the attention of the House three pieces of legislation: the reform of the Fatal Accidents Act 1976, which was introduced for accidents occurring on or after 1st April 1991; the consumer protection Act, which applied to products supplied on or after 1st March 1988; and the Social Security Administration Act 1992, which related to incidents occurring on or after 1st September 1989. Therefore, we have put down an amendment which applies to causes of action accruing on or after the date on which the Bill becomes law. I beg to move.
Lord Irvine of Lairg: My Lords, the principle underlying the amendment is very important: that Parliament does not and should not legislate retrospectively except in very exceptional circumstances. I am sure that the noble and learned Lord will agree with that general proposition. The effect of the Bill, if implemented as drafted, is that the prescribed rate which the noble and learned Lord requires the courts to apply in discounting compensation awarded for future pecuniary loss will apply to any claims which are, as described by the noble Viscount, Lord Chelmsford, already in the pipeline, even if the cause of action has accrued before the date of the new determination by the Lord Chancellor.
Therefore, the argument of the noble Viscount, Lord Chelmsford, is that if the prescribed rate is lower than the current assumption of 4 to 5 per cent. the awards that the insurance industry will have to pay out will be higher than anticipated. If I do not over-simplify the matter, the noble Viscount argues that that is inequitable because the premiums for such policies would have been higher if the new prescribed rate had been anticipated. I am not persuaded that there is any element of retrospectivity in Clause 1 of the Bill. As the noble and learned Lord on the Woolsack pointed out in Committee,
"the aim of the power should be to try to arrive at the figure that the courts would think is the right figure at the present time".— [Official Report, 13/5/96; col. 382.]
That is the reason given by the noble and learned Lord for the proposal that the prescribed rate will be determined in light of the guidance to be given by the Court of Appeal in two cases to be heard later this year. Also, guidance from the Court of Appeal is not a new phenomenon. The current assumption of a 4 per cent. to 5 per cent. rate is based on a Court of Appeal case

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decided in the mid-1980s, which itself involved applying the dicta by the late Lord Diplock in your Lordships' House in its judicial capacity in an earlier decision of the House.
My view is that the insurance industry can reasonably be expected to have been aware of the previous Court of Appeal guidance and of its necessarily contingent nature; that is to say, that it was guidance only which could well change by court decision over time as economic conditions changed. That is what may well happen in the decisions to be handed down by the Court of Appeal later this year.
To my mind, therefore, it follows that setting the new rate will not be inequitable, because it is a contingency that the insurance industry, which, in my experience is highly skilled in assessing in advance the risks that it faces, would, or should, in ordinary prudence, have taken into account already when settling premiums for past policies. Without hearing further argument, I have to confess that I am not persuaded that there is real merit in the amendment.
Lord Meston: My Lords, I, too, wonder a little about this amendment, particularly in view of the fact that the noble and learned Lord the Lord Chancellor has said several times now that it is his intention to consult, among others, the insurance industry. I also wonder whether in Clause 1 the provision for an order to be made from time to time would allow for an order to do precisely what the amendment seeks to do, by saying that the prescribed rate within that order should apply only to causes of action arising after a certain date.
The Lord Chancellor: My Lords, the basic answer to my noble friend's amendment is that, if the exercise of the power in Clause 1 were to double or to halve the rate that would otherwise be payable, then my noble friend would have a good point because the power would be used completely to alter the level of damages that heretofore obtained. My purpose in this power is to simplify the procedure required to reach an award, not to change the level of the awards, so that instead of having to have a different, detailed calculation in every case I would be able to prescribe a rate which would apply generally.
Basically, what I am aiming to do, using this power, is to arrive at what the Court of Appeal will decide is the proper rate in present circumstances. Difficulty may arise at a much later stage, but at present I submit to your Lordships that that is the correct way forward. I do not intend to alter the nature of the burden that would fall on the insurer in respect of pipeline claims, but merely to simplify the method by which that calculation is carried out.
Looking to the future, it may be right to have some power to alter the level as well as to replicate it. This power is not intended to do that. It is intended always to reflect what the courts would do generally apart from this power. I am willing to consider putting into Clause 1 more express words than are there at the moment so as to achieve more clearly what the noble Lord, Lord Meston, said; in other words, to make it
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clear that the power can be exercised in relation to claims not yet accrued in a way that might be different from the way in which it affects claims already accrued.
The purpose of this provision is to reflect the current level of damages, not to alter them, as they are to be determined in accordance with the present law by the Court of Appeal in the light of the various powers that it has. Of course, as the noble Lord, Lord Irvine of Lairg, said, the insurance industry has had to take account of that in the past. I, too, agree with the proposition that it is pretty skilled at estimating the future and making reasonable returns for those interested in the outcomes. The level of decapitalisation that has been used over the years has altered, and it alters also to some extent from case to case in the light of the evidence. So such risks are involved in the present situation.
My purpose in using this power is to simplify the method rather than alter the level of damages in the particular case. That is why this proposal differs from that in the Law Commission's original draft Bill appended to its report. In the light of that explanation and assurance, I hope that my noble friend will feel able to withdraw his amendment.
Viscount Chelmsford: My Lords, the insurance industry can certainly put up with the slings and arrows of court decisions and is accustomed to doing so. The amendment was born of the concern at what looked like a right-angled change between current rates and plain index-linked rates. We have heard a great deal this evening. I am grateful to my noble and learned friend the Lord Chancellor for a number of the things he has said which give great comfort to me and I hope to the insurance industry. I should like to look at them with care. I am interested in my noble and learned friend's suggestion that he may alter Clause 1. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.

Hong Kong (War Wives and Widows) (No. 2) Bill [H.L.]
7.58 p.m.
Lord Willoughby de Broke: My Lords, I beg to move that this Bill be now read a second time.
It gives me a great deal of satisfaction to be able to open a Second Reading debate on this Bill. The Bill follows the announcement of my right honourable friend the Prime Minister in Hong Kong on 4th March that the Government would support a Private Member's measure to give British citizenship to the wives and widows of men who fought in the defence of Hong Kong during the Second World War.
British citizenship is something about which the wives and widows and their supporters have been petitioning the Government for several years and it has been the subject of a long campaign in Hong Kong itself. That perseverance, and cross-party support both in your Lordships' House and in another place, not least from the Foreign Affairs Committee, has finally won the

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day, for until the announcement in Hong Kong by my right honourable friend the Prime Minister it seemed that the Government were not persuaded that anything could or should be done. So that was indeed a most welcome commitment.
Although this is not a government measure, I should like to express my gratitude to the Government for their help in drafting the Bill. I am sure that your Lordships will he aware of the fate of Hong Kong at the hands of the Japanese forces during the Second World War. When the Japanese attack came on 8th December 1941, British and other forces fought valiantly but were overwhelmed and forced to surrender on Christmas Day that year. Many were taken prisoner and endured terrible hardship, even execution, at the hands of their captors.
In 1986 the then Home Secretary used a discretion to grant British citizenship to those surviving ex-servicemen in Hong Kong who already held a form of British nationality but had not automatically become British citizens when the British Nationality Act 1981 came into force in 1983. His discretion did not, unfortunately, extend to the wives and widows of those men and citizenship could not be granted to them in the same way. The Government had some sympathy for the women's position. In 1990 those women were given an assurance by the then Home Secretary that they would be allowed to come to the UK for settlement if they were still resident in Hong Kong and had not remarried.
The present Home Secretary repeated that immigration assurance in 1994 when he wrote a personal letter to each of the 53 women believed to qualify. The letter promised them that they could come to the UK for settlement at any time and that that could be facilitated by the endorsement in their travel documents of an entry clearance of indefinite validity. Those letters were sent to the Hong Kong immigration department for onward transmission. They were delivered to 53 women, 40 of whom were resident in Hong Kong, two of whom have since died. The other 13 were no longer resident in Hong Kong. Since then the Government's attention has been drawn to a further three still living in Hong Kong, making a total of 54.
Clearly, in the light of those numbers, the Bill has no significant immigration potential for the United Kingdom. The women concerned are mostly British Nationals (Overseas), although some are of foreign nationality. In both cases they are subject to United Kingdom immigration controls. As the law stands, they can be granted British citizenship only if they come to settle here. If the wives and widows chose to take up the offer in the Home Secretary's letter they would be able to meet the residence requirement and obtain citizenship in the normal way. However, their preference is to go on living in Hong Kong and for that reason they have continued to press for British citizenship without having to fulfil the UK residence requirements. They and their supporters see the possession of British citizenship as essential to full recognition of their husbands' or late husbands' wartime service.
To give them British citizenship without UK residence requires the introduction of primary legislation, hence the need for this Bill. It is a simple
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one. It gives the Secretary of State a discretionary power to register as British citizens those women resident in Hong Kong who have received one of the immigration assurance letters written by him. Clause 1 would enable the Secretary of State to register as a British citizen any of the women who was the recipient or intended recipient of the immigration assurance letter and who, in line with the immigration assurance, is principally resident in Hong Kong and has not remarried. The power to register would be discretionary to allow for the possibility of British citizenship being refused in the extremely unlikely event of any of the applicants being found unacceptable on character grounds. It is not envisaged that qualified applicants will he refused for any other reason.
Clause 2(1) will provide for the British citizenship acquired under Clause 1 to be otherwise than by descent, which is the same as they would have obtained had they settled in the United Kingdom. Subsection (2) would extend to the Bill some of the provisions which already apply to applications for citizenship under the British Nationality Act 1981.
Clause 3 gives the Short Title and provides for the Bill to have the same extent as the 1981 Act provisions referred to in Clause 2(2). Applications for citizenship would, in practice, be made to the Governor of Hong Kong. He would first check that the applicant had had an immigration assurance letter from the Home Secretary, still had her home in Hong Kong and had not remarried, and then forward the application to the Home Secretary. I believe that the Bill will be welcomed by the wives and widows and by all those who have taken an interest in and supported them during their long-running campaign. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Lord Willoughby de Broke.)
8.4 p.m.
Lord Wilson of Tillyorn: My Lords, I warmly support the Bill. We are indebted to the noble Lord, Lord Willoughby de Broke, for bringing it forward and to the Prime Minister for making that possible. It appears to be a small measure, affecting no more than some 50 people, but it is nevertheless a measure of considerable significance. It rounds off our debt of honour to those who fought in the defence of Hong Kong more than 50 years ago.
There is an old Chinese custom that one should pay off one's debts before the lunar New Year. We missed this year's lunar New Year and we missed those of several previous years. However, the measure, late though it is, is extremely welcome and will be welcomed not only by the small number of war widows and wives but by a large number of people in Hong Kong who believe that it is right that at long last this move is being taken.
Although slightly at a tangent, it is fair to mention at this stage the fact that the measure will draw attention to one other issue in respect of which we have not moved. That is to deal adequately with the issue of the non-Chinese ethnic minorities—those who have a form

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of British nationality but no right of abode in Britain. It is a small number and there is no need to go into all the details which were rehearsed at great length when a Bill was passed by your Lordships' House more than two years ago but foundered in another place. The number is small and the concern of those people is great. It is one issue in respect of which something needs to be done.
It is also an issue in respect of which there has been some recent movement in terms of the assurances that those people have been given. The Prime Minister, when in Hong Kong, at the same time as making the commitment to the war wives and widows, which is now being realised, also made a commitment to this group to guarantee that if they came under pressure to leave Hong Kong they would be given a right of entry and settlement in the United Kingdom. More recently, at the beginning of last month, the Shadow Foreign Secretary, Mr. Robin Cook, gave an assurance that if there should be a Labour Government measures would be taken to allow those people into the United Kingdom for settlement without any need for special circumstances. The world has moved on, therefore, since the previous Bill was passed by your Lordships more than two years ago.
I suggest to the Government, not for immediate response because I imagine that it would be similar to responses made in the past, but for consideration, that when the Bill is passed, as I hope it will be, they will look again at the other unresolved issue.
However, none of that should be allowed to detract from the great importance of passing this small but important measure. It deserves a fair wind and a safe entry into port as soon as possible.
8.8 p.m.
Lord Eden of Winton: My Lords, it is a great pleasure to speak in support of the Bill so ably introduced by my noble friend Lord Willoughby de Broke. He has worked hard to achieve it. It is also a great privilege to follow the speech of the noble Lord, Lord Wilson, a distinguished former Governor of Hong Kong. It is worth underlining that the genesis of the Bill owes much to the personal intervention of the Prime Minister and that it is supported by the presence in the House tonight of two former Governors of Hong Kong, the noble Lords, Lord Wilson and Lord MacLehose.
It is interesting that, even in a matter of apparently minor significance in the normal course of national events, those who have had such an important part to play in the affairs of Hong Kong are showing with their presence and support for the Bill how right they think it is that the Government should take the steps proposed.
I wish also to mention Mr. Jack Edwards. My noble friend pointed out that he has been the most tremendous campaigner. The fact that his campaign has achieved success and that he and others who support him have managed to achieve this legislation demonstrates what can be done when the cause is right by persistent, patient perseverance and by good, efficient lobbying and sound representation.
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There is a lesson here which is worth underlining. It shows that it is not always necessary—in fact, it may rarely be desirable—in order to achieve your aims to resort to more extreme measures of representation. I hope that that message goes beyond even the people of Hong Kong to others who may shortly take over responsibility to a greater degree in Hong Kong so that they come to recognise that much is to be gained from persistent, patient representation of causes which are in themselves sound and just.
I have a question for the Minister who is to reply to the debate. The procedures outlined for dealing with those who are eligible for citizenship under the Bill involve the receipt by them of a letter and the clearance or approval of that letter through the office of the Governor of Hong Kong before its transmission to the Secretary of State in this country. That sounds a rather cumbersome procedure. I am sure that it will receive the careful attention of the Governor of Hong Kong. Through his actions during his time there he has shown how much he has at heart the interests of those I describe as the ordinary people of Hong Kong. I hope that he will make clear that the procedures are to be carried through swiftly. In fact, it is part of the requirement of the legislation that they should be carried through in good time. Should it be necessary, I hope that all assistance will be given to the widows and wives concerned to ensure that no slippage is occasioned by inadvertence on their part. If my noble friend can give assurance on that point, I am sure the House will be grateful.
The noble Lord, Lord Wilson, referred to the fact that this is something that should have been done some time ago and probably could have been done some time ago and that similar causes are waiting in the wings to be treated, it is to be hoped, in a similar way. Nevertheless, the Bill is a small but, for those involved directly, a critically important step towards justice and honour. As such, we do well to support it.
8.15 p.m.
Lord St. John of Bletso: My Lords, I too support this Bill wholeheartedly. I congratulate the noble Lord, Lord Willoughby de Broke, on the enduring stamina that he has shown in bringing this Bill to your Lordships' House.
There is no doubt that it is well overdue. With so few beneficiaries it is more of symbolic significance. The noble Lord, Lord Willoughby de Broke, elegantly outlined the background to the Bill. I am sure that many noble Lords feel that it is a pity that in 1986 the Home Secretary did not grant British citizenship to the wives and widows of ex-servicemen in Hong Kong.
I was rather amused by a recent cartoon in the South China Morning Post on 16th May which portrayed a war widow watching two politicians, or they may have been civil servants, battling it out on a Union Jack with the caption, "Promises, promises, promises". I am pleased that those promises have at last been fulfilled.
Like my noble friend Lord Wilson of Tillyorn, I hope that this Bill will pave the way for the granting of British citizenship to the non-Chinese ethnic minorities—those

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who have a right of abode in Hong Kong but no nationality, travel documents and no citizenship. There have been a number of estimates of the number of such non-Chinese ethnic minorities and they appear to range between 3,000 and 4,000.
Therefore, like so many other noble Lords, I welcome the recent concession made by the Prime Minister on his recent visit to Hong Kong in relation to admission to and settlement in the United Kingdom of non-Chinese ethnic minorities in Hong Kong who have—I believe the words are—"come under pressure to leave Hong Kong" after 1st July 1997. However, is it not the case that in all likelihood, if there were to be cases of that nature, there will be some difference of opinion as to the interpretation of the words "under pressure to leave Hong Kong". I hope that the Minister will be able to offer some enlightenment with a more definitive statement as to what conditions there will be for the granting of such citizenship.
In fact, I notice that the Bill states:
"The Bill will not result in any additional public expenditure… There will be no increase in public service manpower … The Bill has no cost implications for business".
If British citizenship were to be granted for the non-Chinese ethnic minorities, I do not believe that that would have any of those implications.
I warmly welcome the Bill and wish it a hasty passage through both Houses. I hope that it will pave the way for a more definitive concession for those non-Chinese ethnic minorities in Hong Kong to gain, at long last, full British citizenship.
8.19 p.m.
Lord Rennell: My Lords, I was delighted to be approached by my noble friend Lord Willougby to speak very briefly—I use his words—on this Bill. Like other noble Lords, I congratulate him on his tenacity in rescuing this debt of honour, which it really is, from the delays and demands and democratic democracy in another place.
As a young officer in the late 1950s, I served in the Royal Navy in the Far East in Hong Kong, Singapore, Japan and all over the place. As the youngest and most junior member of the wardroom I was given the greatest number of jobs. They consisted of looking after the forecastle and managing the office and the pay. I can still remember that the yen was 2,018 to the pound, or something like that. Of course, I was also in charge of the sports activities wherever we went.
Finally, of particular interest was the Chinese division which I was asked to look after. There were some 20 Hong Kong Chinese sailors on board out of a total crew of about 120, who were mainly cooks and stewards. We also had a tailor on board, So-so, a cobbler, Shu-shu, and two laundrymen—dhobi men. We also had two or three senior Chinese Hong Kong sailors who had served in the Second World War. I always remember one of them, who was probably about 35 or 38 at that time, known as Siu Lim Ying. He would be beavering away, cleaning up the tables and setting out our food. He was absolutely charming. I would say to him, "Siu, could I have some tosi cha, moi fried bread
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please?" I used to speak a bit of Chinese in those days. Siu would continue beavering away, cleaning up the tables and would take no notice of me. I would then remember that I did not have to say that, and that I should say, "Siu! Tosi Cha, moi fried bread please, Siu!".
The point was that Siu was rather deaf and could only hear high-pitched noises. In fact he had suffered from gunfire damage during the war. That was something that I too experienced when I was in the navy. I had stood rather too close to a 10-inch gun without wearing an ear protector and am also rather deaf. That is just one of my memories.
Another enduring memory of the Chinese division of which I was in charge—and this was no thanks to me—was the fact that they were never in the rattle; they never got into trouble and were never called in front of the captain or the first lieutenant for being late back on board or being drunk. There were plenty of "Gazza" incidents, but the Chinese division were never involved. Indeed, throughout the whole 18 months of my time on the ship not one Chinese Hong Kong sailor was up before the beaks, as it were. They were loyal, reliable, honest and dedicated to Her Majesty's Navy. Basically, they had three priorities in life: first, their families; secondly, their pay—they did not like to be paid too much or too little, they wanted it exactly right; and, thirdly, their service in the Royal Navy.
Therefore, my memories of them consist of great admiration and respect. So my plea to the Government is that we must no longer let them down. We must honour the wives and widows of those loyal and brave servicemen who fought on our behalf. The wives and widows want recognition now. For all the reasons that have been outlined in tonight's debate, they need and deserve the security of a British passport and British citizenship. Certainly, there seems to be general agreement in the House on that point. As other speakers have said, I am delighted that my right honourable friend the Prime Minister, who is a caring man, has given his commitment to the cause. I support the Bill wholeheartedly. Like other noble Lords, I hope that it will pass quickly through the House and become law before the end of this Session.
8.24 p.m.
Lord Redesdale: My Lords, I rise briefly to express my support for the Bill. I too should like to thank the noble Lord, Lord Willoughby de Broke, for presenting this Private Member's Bill. We on these Benches support the legislation wholeheartedly, as I believe do all noble Lords in the House.
The issue on war widows is so clear cut that I do not believe I need to dwell upon it at great length. However, I should like to mention the cause championed by Lord Bonham-Carter two years ago; namely, the position of the ethnic minorities in Hong Kong who, in the worst scenario, face the problem of becoming stateless persons under Chinese occupation. It is rather sad that so little has been committed to them.
I know that the Government have moved in some small way during the time since those debates two years ago when that Bill passed through this House. However,

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it would be most helpful if the Minister could once again give some assurances that the Government will not neglect the issue in the future. Much has been said about how worthy the Bill is and how it should perhaps have been undertaken some time hack. It would be unfortunate if the position of those ethnic minorities in Hong Kong were to be left to the last minute.
8.26 p.m.
Lord McIntosh of Haringey: My Lords, as always, I shall preface my remarks when speaking to a Private Member's Bill by saying that I speak for myself and not for my party. However, I do not think that noble Lords will be surprised to learn that a number of my noble friends strongly support the Bill without qualification. Before I conclude my brief remarks I shall say a few words about the procedures for ensuring that the legislation is enacted.
I have only one qualification about the wording of the Bill which is resolutely sexist. From the way in which Clause 1 and the Explanatory and Financial Memorandum are drafted, I presume that the number of people who are recipients or intended recipients of a letter of settlement is finite. Clause 1 says that it applies to those who,
"before the passing of this Act",
are recipients or intended recipients. But there must have been women serving in the forces in Hong Kong during the war. Surely their husbands or widowers are equally entitled, if they are still alive, to the same consideration. If the Minister tells me that of the 50 or so in that finite number there are no widowers or husbands of women service personnel, then I suppose that the wording of the Bill will have to go through as it stands. However, when we have a tradition in our legislation to use the word "he" for both sexes, it seems unfortunate for us to break it on this occasion in order to provide for a group of people whose numbers, and presumably names, we know.
My second observation is on the point raised by the noble Lords, Lord Wilson, Lord St. John and Lord Redesdale; namely, the wider issue of the non-Chinese ethnic minorities. I supported Lord Bonham-Carter two years ago when he proposed that those people should be given the right of admission into this country. As I recall, every speaker except the one on the Government Front Bench took the same view. It is a matter of sadness that two years have passed and nothing has been done to reassure those people that they will have a right of entry and will not be left stateless after the hand-over on 1st July next year. Along with other speakers, I hope that the Minister will be able to give us an assurance that suitable legislation will be passed before that time.
I conclude with a word about the timetable. I understand that it was because of an error by an Opposition Whip in another place that the Bill was quite unnecessarily committed to a Standing Committee rather than being considered by the whole House. Therefore it has been necessary to have this No. 2 Bill in order to make sure that the Bill goes through. I repeat the apologies
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which I believe have already been given to the sponsors of the Bill for that error. I give the assurance of the Opposition in another place that whatever is necessary to secure the passage of the Bill, even if it involves the suspension of standing orders, will be supported by the Opposition because we want to see this Bill go through.
8.30 p.m.
The Minister of State, Home Office (Baroness Blatch): My Lords, I have listened with great interest to what noble Lords have said about this Bill. I would like to thank my noble friend Lord Willoughby de Broke for agreeing to adopt the Bill and for his clear and persuasive explanation both of its provisions and its merits.
The British Nationality Act 1981 already contains provisions for people to be granted British citizenship if they are accepted for settlement in the United Kingdom, and the wives and widows had been promised that they could come here for settlement at any time. That seemed to the Government to be a perfectly satisfactory and logical response to the case that had been put on their behalf.
However, over time it has become clear that support for the case for these ladies being given British citizenship without having to uproot themselves from Hong Kong has grown in all quarters. My right honourable friends took note of the strength of feeling on the matter and were persuaded that the time was right to offer the Government's support to a Private Member's Bill, as the Prime Minister did during his visit to Hong Kong in March.
During the debate on Hong Kong in this House on 24th April some noble Lords expressed concern at the apparent lack of progress on the Bill. I hope their fears have been put to rest today. I can assure the House that there has been no dragging of feet and that ever since the Prime Minister's announcement officials and Ministers have been working hard behind the scenes to ensure that the Bill will do what the Prime Minister promised in the most effective way.
There have been those who were disappointed that the Bill was not a government Bill, but we considered the Private Member's Bill route the easiest and quickest way of getting the legislation on to the statute book. We are looking to have the Bill on the statute book by the end of July and to bring the legislation into effect immediately so that the wives and widows have their citizenship before the end of the year. As my noble friend Lord Willoughby de Broke has said, the Bill is a simple one. It would give British citizenship to the same wives and widows who have received a personal letter from the Home Secretary confirming their eligibility for settlement in the United Kingdom.
I would say in response to a point raised by the noble Lord, Lord McIntosh, my understanding is that the surviving partners of those who fought in defence of Hong Kong in World War II are all women. That explains why Clause 1 is couched in the way that it is. The procedure for applying for registration as a British citizen under the Bill will be made as quick and easy as possible. Each of the wives and widows would be asked

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by the Hong Kong Immigration Department to complete a short application form and, after checking and initial processing, these would be passed to the Home Office which would issue the certificates of registration. I can give my noble friend Lord Eden of Winton the assurance that he seeks. It is our understanding that this will he carried forward as speedily and effectively as possible and that all assistance will be given to the wives and widows to help them through that process.
Several noble Lords have raised the question of British citizenship for the non-Chinese ethnic minority British nationals in the territory. Members of this community have received repeated Government assurances over the years about their position in terms of admissibility to the United Kingdom. When he was in Hong Kong in March the Prime Minister gave the clearest commitment yet. He said that the Government are now prepared to guarantee admission and settlement to the non-Chinese ethnic minorities with no nationality other than British if at any time they came under pressure to leave the Hong Kong Special Administrative Region. The Government are satisfied that this guarantee fully safeguards the position of the ethnic minorities and believe that there is a quite insufficient case for introducing new legislation to give them British citizenship. I cannot emphasise enough the fact that the Prime Minister gave a guarantee on 4th March to the ethnic minorities in Hong Kong. The Prime Minister also undertook in Hong Kong to consider whether we should seek to identify specific circumstances—
Lord McIntosh of Haringey: My Lords, before the Minister leaves that point, I hope she will say a little more about what is meant by being under pressure. Is it not possible that one of the pressures which might exist would not be their being told to leave by the Chinese authorities but that, not having any other passport, they could not travel away from Hong Kong and return?
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Would that be considered pressure which would qualify them under the guarantee which the Prime Minister gave?
Baroness Blatch: My Lords, I think that I shall come to that matter. At the same time the Prime Minister undertook to consider whether we should seek to identify specific circumstances that should be met. He also made clear his view that setting down in advance a specific set of circumstances would not necessarily give better protection than broad guarantees already in place. I am sure that Ministers of the day would not interpret Britain's commitment narrowly. We have accepted that evidence of discrimination could indeed be a relevant factor. I think that goes some way to assure the noble Lord that simply pressure to leave would not be the only factor taken into account. I thank my noble friend for introducing the Bill. I support the Motion that this Bill be given a Second Reading.
8.36 p.m.
Lord Willoughby de Broke: My Lords, I am most grateful to everyone who has spoken so eloquently on this sensitive subject. I hope that the people in Hong Kong who are affected by this measure and their supporters—Mr. Jack Edwards has been mentioned—and the war wives and widows will draw great comfort from what has been said tonight by noble Lords on all sides of the House. Several noble Lords mentioned the non-Chinese ethnic minorities. I share the concerns, but it is, I believe, another battle for another day which I look forward to joining.
I am also grateful to the noble Lord, Lord McIntosh of Haringey, for his generous apologies concerning the unfortunate events in another place. I welcome most warmly his assurance of support on this occasion and as regards the detailed way in which we hope to proceed. There is little more I can say other than to commend the Bill most warmly to your Lordships. I ask that it now be given a Second Reading.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
House adjourned at twenty-three minutes before nine o'clock.