Lords Sitting of 20 November 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 Oxford.

Lord Saatchi
Maurice Saatchi, Esquire, having been created Baron Saatchi, of Staplefield in the County of West Sussex, for life—Was, in his robes, introduced between the Lord Tebbit and the Baroness Hogg.
Lord Tweedsmuir Lord Tweedsmuir—Sat first in Parliament after the death of his brother.
The Earl of Denbigh The Earl of Denbigh—Sat first in Parliament after the death of his father.

The Lord Chancellor: Leave of Absence
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, before the commencement of business, I take the opportunity to inform the House that with the approval of Her Majesty the Queen I am to visit Strasbourg on Monday, 25th November. Accordingly, I trust that the House will grant me leave of absence on that day.

Illegal Drugs Problem: Cost
2.50 p.m.
Lord Peyton of Yeovil asked Her Majesty's Government:
What is their estimate, to the nearest £100 million, of the total amount of resources under their control and that of local government which is absorbed by all aspects of the problem of illegal drugs.
The Minister of State, Home Office (Baroness Blatch): My Lords, in addition to the estimated government annual expenditure of over £500 million devoted to tackling drug misuse, there are other costs which result from the problem. These include costs associated with unemployment, housing and childcare, as well as the cost of dealing with other forms of crime linked with drug misuse which cannot easily be estimated with any kind of accuracy.
Lord Peyton of Yeovil: My Lords, I am grateful to my noble friend for the effort that she has made to put together information which is truly shocking. I ask this Question with absolutely no tone of criticism. I very much hope that she will do what she can to initiate some effective international action. These awful figures must be reflected in the cost that is borne by other nations as well.
Baroness Blatch: My Lords, what is truly shocking is the problem of drugs itself. It is very important that the
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Government leave no stone unturned in tackling this problem. That is why we have a strategy for tackling drugs misuse which includes treatment and rehabilitation programmes; prevention and education; deterrence and control; police, Customs and enforcement; and, as my noble friend just said, the importance of international action, too.
Lord Taverne: My Lords, in view of the enormous size of the problem, will the Minister assure the House that there is effective co-operation between the different departments involved and that there is no sense, as it were, of territorial ownership and rivalry between different ministries? In view of the size of the problem, would it not be best to have one department in overall charge of the battle against drugs?
Baroness Blatch: My Lords, we have a very positive answer to that point. The Lord President of the Council chairs a Cabinet sub-committee which represents all the relevant departments. It is important that, in developing policy, it considers the part that it needs to play in developing drug strategies. More important, and at a more practical level, is the development of drug action teams which are collaborative at a local level; that is, all the professionals from health services, the police, prisons, local authorities and the community coming together corporately in effective collaboration at local level, while the Cabinet sub-committee works at a national level across departments and exchanges intelligence and information internationally.
Lord Stoddart of Swindon: My Lords, will the Minister state what proportion of the £500 million relates, first, to soft drugs and, secondly, to hard drugs?
Baroness Blatch: No, my Lords, I am unable to answer that question. All the programmes that are in place tackle the whole issue of drugs. It is very important that the taking of drugs, whether soft or hard, is dealt with as part of an overall drugs problem. There is no breaking down of the moneys in that way. The figures are broken down in relation to treatment, rehabilitation and education programmes, international spending etc., but not as between hard and soft drugs.

Immigration Act Powers: Use of Bail
2.53 p.m.
Lord Dubs Lord Dubs asked Her Majesty's Government:
On what basis they judge the effectiveness of the bail system as a safeguard against improper use of detention powers under the Immigration Act.
Baroness Blatch: My Lords, detention is used very sparingly but must be available for people who would otherwise not comply with their admission conditions. Effective safeguards are provided through review at senior levels in the Immigration Service, bail and, where appropriate, review by the courts.
Lord Dubs: My Lords, I thank the Minister for that Answer. Does she remember that when this House debated the asylum Bill in the summer she gave repeated assurances that the use of bail was an effective remedy against the abuse of powers by officials who detained people under administrative procedures? Can she reconcile those assurances with the answer she gave to a Parliamentary Question a couple of years ago, when the Government admitted that they had no information at all as to whether bail was working in the case of persons detained under Immigration Act powers? Was that not misleading?
Baroness Blatch: My Lords, I have certainly not misled the House on this issue. If the noble Lord is comparing remarks made during the course of the Bill's passage through this House which were based on updated and current information with an Answer given two years previously when information was perhaps not available and the database not so up to date, I have to ask him to accept my more current information given to him during the course of debate on the Bill. I give him the reassurance now that we believe that the system is working effectively and that the safeguards that are in place are sufficient.
Lord Dubs: My Lords, the Answer to the Parliamentary Question is dated 6th November this year. In the light of that, will the Minister reconsider her reply?
Baroness Blatch: My Lords, in his supplementary question the noble Lord said, "a couple of years ago", and I answered in that light. If the noble Lord meant a couple of weeks ago, the answer is that the system is used sparingly. It is an effective use: keeping people in custody or allowing them out on bail and, after proper consideration allowing them an appeal. We believe that the safeguards are in place and are sufficient.
Lord Campbell of Alloway: My Lords, will my noble friend accept that it does not appear, certainly to me, that there is any essential inconsistency at all; and that judicial discretion as to whether or not bail is granted is properly exercised and has not been criticised so far as I know?
Baroness Blatch: My Lords, my noble friend is right. If the noble Lord, Lord Dubs, believes that there is an inconsistency and that there has been a breach of procedures, we should be pleased to hear about it.
Lord McIntosh of Haringey: My Lords, I have not heard any accusation that there has been a breach of procedures. However, is it not the case that the Minister replied to my noble friend only two weeks ago that she could not answer the question as to how many bail applications were successful and how many of those detained who applied for release were asylum seekers? Surely that is not information that could be provided only at disproportionate cost; it is fundamental information which is required by Parliament in order to understand the situation.
Baroness Blatch: My Lords, there is nothing inconsistent about that. If the noble Lord asks for the
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number of applications for bail that are successful, they are very many indeed. It would be disproportionate to go back into the accounts. What is important is not to spend time and a great deal of money and effort retrieving that information, but the number of people detained in custody who fail to receive bail; namely, 1 per cent. of all applications. If the noble Lord is interested, I can give him the figures. As of 1st October this year, 864 people were detained. Of those detained, 82 per cent. spend less than six months in detention; some 28 per cent. spend less than one month in detention; only 34 of the 864 spend more than one year in detention.
Lord McIntosh of Haringey: My Lords, is it not still the fact that Britain has the highest proportion of asylum seekers in close detention of any country in Europe? Will the Minister agree that there is a case for looking at non-detention lodging houses where basic facilities could be provided, rather than the present combination of detention and throwing asylum seekers on the mercy of local authorities?
Baroness Blatch: My Lords, as the noble Lord will know following our long and arduous discussions during the course of the Bill, this country has a very high level of asylum seekers. We on these Benches have done what we can to minimise the number of abuses in the system. Happily, those reforms are now working, without the support of noble Lords opposite.

Minicabs: Regulation
2.59 p.m.
Lord Montagu of Beaulieu Lord Montagu of Beaulieu asked Her Majesty's Government:
Whether, and if so when, they intend to introduce regulations covering the ownership and use of vehicles as minicabs.
The Earl of Courtown: My Lords, minicabs outside London are already regulated in a similar fashion to taxis. The Government are committed to introducing the necessary primary legislation for minicab licensing in London when parliamentary time permits.
Lord Montagu of Beaulieu: My Lords, I thank my noble friend for that reply which will go some way towards alleviating the disappointment felt by many taxi and hire car organisations and people that the foreshadowed legislation was not in the Queen's Speech. Does my noble friend agree that compared with the approximately 16,000 black cabs in London, famously admired the world over for their reliability and knowledge, the 70,000 minicabs now operating pose a potential threat to personal and public safety? Does he agree that there is no time to be lost in regulating the situation?
The Earl of Courtown: My Lords, I entirely understand the concern felt by my noble friend. I emphasise once again that the Government's

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commitment to legislate remains unchanged. I also agree with my noble friend that the black cabs in London do a marvellous job and help many noble Lords home.
However, we must not forget that minicabs provide a valuable service to the people of London. Many thousands of journeys are made every day without difficulty. I believe that that fact needs to be acknowledged, even though the Government accept the need for regulation.
Lord Clinton-Davis: My Lords, is the Minister aware that that is a somewhat unsatisfactory response to a highly relevant and important Question? The black cab taxi drivers, rightly acknowledged by the noble Earl to be the finest in the world, feel themselves under great stress. The more dubious variety of minicabs are not competing fairly, they undercut savagely, yet they do not carry the overheads that the black cab taxi drivers are compelled by law to adopt.
Is it not true that, after so much consultation and discussion, an issue which would prove to be relatively uncontentious politically should be a matter of grave and immediate concern? The Government should already have legislated.
The Earl of Courtown: My Lords, I thought I had made clear to the noble Lord, Lord Clinton-Davis, that it is our intention to legislate as soon as parliamentary time permits—after the next election. We are committed to legislating on the issue. We envisage a licensing system for operators, drivers and cabs.
Lord Peyton of Yeovil: My Lords, will my noble friend take pains to erase from his brief that awful phrase "when parliamentary time permits"? It was designed by people other than himself in order to discourage. In that alone, it is successful.
The Earl of Courtown: My Lords, I shall take note of what my noble friend said.
The Earl of Winchilsea and Nottingham: My Lords, the Minister said that he would be willing to consider future legislation to bring minicabs under control. I do not know whether it would be helpful if that legislation could be discussed in collaboration with black cab organisations so that we could have a more balanced view.
The Earl of Courtown: My Lords, the noble Earl makes a good point. Yes, I am sure that all interested parties will be consulted in the matter.
Lord Burnham: My Lords, does not the chief problem with minicabs lie with insurance? It would be dealt with satisfactorily if minicab drivers' credentials in terms of insurance were examined.
The Earl of Courtown: My Lords, as to future legislation, licensing of minicabs outside London would ensure that the drivers are correctly licensed, that the
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cars are in a fit condition with the appropriate MOT certificate, if required, and that they are properly insured for the purpose.
Lord Clinton-Davis: My Lords, is the Minister satisfied that such rules as exist to control the worst practices of minicabs are being properly enforced? If he is, then most people outside this House certainly are not.
The Earl of Courtown: My Lords, many licensed minicab drivers outside London do a worthwhile job. There have been problems in the past with plying for hire by minicab drivers, as well as touting. That is one of the reasons why under the Criminal Justice and Public Order Act 1994 touting for hire is illegal. That legislation has helped to reduce the problem at London mainline stations. We are aware that the problem still exists, but prosecutions have taken place and the situation at mainline stations has improved.

Israel: Arms Sales
3.5 p.m.
Lord Mayhew Lord Mayhew asked Her Majesty's Government:
Why they are holding discussions on arms sales with the new Israeli Government.
Lord Chesham: My Lords, our defence links with Israel are limited, but progress in the Middle East peace process over the last few years has allowed the development of contacts of the kind we would expect to have with any friendly country.
Lord Mayhew: My Lords, can the Minister recall Mr. Rifkind's recent statement urging the Israeli Government, in the most detailed and serious terms, not to stall the peace process? The statement urged them in particular to stop the building of settlements on the West Bank which Mr. Rifkind described as illegal and an obstacle to peace. If it is persisted in, it seems likely to lead to an explosion of violence in Palestine. Is the Minister aware that since Mr. Rifkind said that, there has been no change in the policies of the Israeli Government? Not only that, but they have just announced a massive settlement building plan in the West Bank. In those circumstances, is this the right time to invite an Israeli minister to London to promote the sale of British arms to Israel?
Lord Chesham: My Lords, I am aware of what the Foreign Secretary said when he visited Israel and the occupied territories on 3rd November. He also visited Hebron. We shall maintain a firm line on the key issues, the principal one including settlements.
The reference to inviting the Israeli Defence Minister here is not accurate. He is here on a routine private visit. He is meeting the Foreign Secretary shortly and Mr. Rifkind will ask for an update on the interim agreement implementation, including Hebron redeployment. He will also raise reports of settlement

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expansion and the effects on aid delivery of the Israeli closure of the West Bank and Gaza. Those matters will be raised very firmly.
Lord Wright of Richmond: My Lords, can the Minister give us an assurance that even if arms sales to Israel are no longer dependent—as they were, I think rightly—on Israeli withdrawal from South Lebanon, the Government will continue to press the Israelis to withdraw from that part of Lebanon which they occupy in defiance of United Nations Security Council resolutions?
Lord Chesham: Yes, my Lords.
Lord Archer of Sandwell: My Lords, wherever the responsibility may lie for the difficulties with the peace process, can the noble Lord set at rest the minds of the House and the nation? Can he assure us that the stated guidelines for the sale of armaments are really the criteria and that Israel or anyone else will be judged by those guidelines and not by any hidden agenda?
Lord Chesham: Absolutely, my Lords.
Lord Jenkins of Putney: My Lords, is the Minister aware that if we were less dependent upon arms sales for our economic welfare, it would be possible for the Government to be more discriminating?
Lord Chesham: My Lords, I do not really accept that.
Lord Mayhew: My Lords, the Minister referred to the Israeli Defence Minister's meeting with the Foreign Secretary and what would be the agenda. He did not say that he would also be discussing the promotion of British arms.
Lord Chesham: My Lords, he will not be discussing the promotion of British arms with the Foreign Secretary. I believe that he will also see the Secretary of State for Defence who will discuss bilateral defence relations and regional security questions.
Lord Williams of Elvel: My Lords, in that case, will the Secretary of State for Defence be trying to promote British arms? If so, will he also be promoting the sales of British arms to the Palestinians?
Lord Chesham: My Lords, it is the Government's policy to support the sale of British defence equipment overseas where this is compatible with our political, strategic and security interests. Exporters need a licence from the Government for the sale of defence equipment. Applications are considered on a case by case basis which take into account, inter alia, the human rights record of the purchasing country.

Obscenity Bill [H.L.]
The Earl of Halsbury: My Lords, I beg to introduce a Bill to amend the law on obscene publications and obscene performances of plays. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time.— (The Earl of Halsbury.)
On Question, Bill read a first time, and to be printed.

Pensions: Future Problems in Europe
3.10 p.m.
Lord Taverne Lord Taverne rose to call attention to the Federal Trust's publication The Pension Time Bomb in Europe; and to move for Papers.
The noble Lord said: My Lords, it may perhaps seem somewhat egocentric that I should draw attention to a publication written by myself. In fact, it had been my intention to discuss the Select Committee report of the other place on pensions in Europe. But as the other place has not yet debated it, I understand that it would be out of order for me to do so. Although the publication to which I draw attention is written by myself, it was the result of a very distinguished international working party and I was merely the rapporteur.
The problem about pensions which most European countries face is very serious. It derives from three factors. The first is a falling birth rate. The birth rates in Italy and Spain have now fallen to something like half the replacement rates. Assuming that there are three generations per century, it would mean that within 200 years in Italy there would be only one baby born for every 64 that are born today. That trend will not continue. Nevertheless, it raises a serious problem while it is there.
The second problem is one of much greater longevity. In this House we are familiar with some of the evidence of longevity, although I add at once that, having previously had experience elsewhere, I am glad to say that greater age does not mean that the debates in this House are any less worth while than those in the much younger other place. But the evidence of the trend is quite dramatic. Just about a year ago a recent article by a Dutch expert in the Financiele Dagblad projected that babies—indeed not just Dutch babies—born in the year 2010 (which is not so far away) could expect to live 115 years.
The third aspect of the problem is that most countries in the European Union base their pensions on the pay-as-you-go system, whereby, as your Lordships know well, existing contributors pay for existing pensioners. Combining that with demographic factors, one finds the uncomfortable situation that an ever shrinking workforce is paying for an ever larger pensioner population. What is more, as people are living so much longer, pensioners will also be very much more expensive. Clearly there is a problem. In the publication to which I have drawn attention, the matter was raised nearly two years ago.
Following the Select Committee report, certain editors suddenly discovered the problem and some alarmists have used it as another stick with which to beat the concept of monetary union. It means, they say, that other countries will incur great debts in the future—they will incur future obligations that they will be unable to meet—and we shall have to bail them out; our pensions will suffer and we shall have to pay extra taxes to pay for their profligacy. To many people, the European monetary union is somewhat remote. But, if one starts to say that it is something which will prejudice our pensions or will mean that we shall all have to pay higher taxes, it could lead to demonstrations in the streets.
There is only one thing wrong with that alarmist view. It is based on an analysis which is wholly fallacious. In the first place, there is no bail-out allowed under the very strict provisions of the Maastricht Treaty. I am very glad that the Prime Minister pointed that out as soon as the Select Committee report appeared. The terms are quite clear: no bail-out under Article 104(b). What is more, the limit on deficit of 3 per cent. and 60 per cent. on debt will continue to apply after monetary union starts.
There seems to be an assumption on the part of some people that the moment that nations have qualified to become members of the monetary union they will immediately relax and profligacy will prevail. I see no reason to suppose that those who are members of the union will not wish to see it work. And in any event, for reinforcement and as a kind of double safeguard, there has been a move towards a stability pact, which I am very glad to say Her Majesty's Government strongly support. The details have not yet been finally settled. Severe penalties have been agreed but whether they should be automatic or applied case by case has not yet been agreed. But that pact is there to ensure that member states of the Union will not incur enormous and unjustified debts. So that is the first fallacy. They assume that there can be a bail-out but there can be no bail-out.
The second fallacy is to treat the hidden debts that flow from pension obligations like the conventional debt within the national accounts. Those hidden debts are theoretical debts and everyone knows that they are debts that will not be paid. Governments consistently break their obligations to pensioners. It is not some continental vice; we do it ourselves. We did so dramatically in 1981 when we changed the basis on which pensions were uprated from being uprated with earnings to uprating in accordance with prices. Personally, I think that that was a wise move, although it should have been followed by other provisions to prevent poverty in old age, because we too face a major problem, although it is a very different problem. We too need dramatic reform but it is reform to ensure that all our population can have decent pensions and that we do not condemn one third of our pensioners to poverty.
But we too break our obligations to pensioners. We did so again in the Pensions Act last year, when again the benefits payable to those who stay in SERPS were decreased. It is happening on the Continent as well. But we too have other hidden liabilities that do not appear
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in the national accounts. The decommissioning of power stations will impose very considerable obligations on us in the future. We do not know what they are and so they do not appear in the national accounts. We are building up a number of unaccounted for liabilities under the private finance initiative. Others will not have to pay for those debts any more than we shall have to pay for theirs.
The third fallacy is that the alarmists seem blissfully unaware of what is being done in other countries. In Germany, France and Italy there has been a spate of reforms in recent years—several since the Federal Trust's publication was issued—which have increased contributions, lowered benefits and in many cases increased the official retirement age.
Some people reply that there were protests; and of course there were protests. When governments introduce unpopular measures, there are protests. It did not stop reforms being introduced or will not stop other reforms taking place. I hate to suggest that one should advise foreign governments, but it seems to me that they will have to do more and several of the reforms they have already announced will have to be accelerated. But let us not pretend that nothing is being done and that those hidden liabilities are, as it were, fixed in tablets of stone and are unchangeable as the laws of the Medes and the Persians.
The fourth fallacy is that the alarmists completely ignore the very considerable move which is taking place on the Continent towards equity funding. In France there has recently been introduced a Bill which greatly encourages the private provision of pensions and indeed goes so far as to suggest that those private funds must be 60 per cent. invested in equities. That is not a matter of which the committee took any account.
There are the very impressive Italian reforms. I do not know whether the committee ever looked at the Amato reforms or the Dini reforms, which have produced what is likely in the long term to be a very viable mixed system of combined state pensions and private pensions. The Italians have made considerable strides in promoting private pensions and many people expect an explosion of private pension funding in Italy in due course.
In the Netherlands the public servants' pension fund—the ABP—has always been funded; but now it is investing in equities. Previously the total investment allowed into equities and property was only 5 per cent. In the last year since it was privatised it has risen to 30 per cent. Dutch pension funds in general are investing to a much greater extent in equities.
An influential report was published recently by the European Federation for Retirement Provision, which has been well received and is likely to promote the move towards private pensions. That report projects the impact there is likely to be on the provision of private capital in Europe. It assumes that by the year 2020—a questionable assumption but not totally unrealistic—around 25 per cent. of previous earnings will be replaced by privately funded equities operating in partnership with the state funds. It also assumes that the coverage of the second pillar—the occupation pillar—will be

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60 per cent. of the working population. That again is not unrealistic because the second pillar in France is 100 per cent. and in the Netherlands about 85 per cent.
On those projections the total pension fund assets would amount to something like 60 per cent. of GDP, which one should note is considerably less than the over 80 per cent. which pension fund assets now constitute as a proportion of GDP in the United Kingdom. If those projections are right, by the year 2020 pension fund assets would amount to something in the nature of 10,000 billion ecus, or double the amount of pension fund assets in the United States at the present time.
We are seeing a move which, though it may be slower than projected, will have a dramatic effect on the liquidity of capital markets in Europe and on the capital available for industry in Europe. It is enormously encouraging for industry in Europe and should be viewed as encouraging and hopeful for Britain because of the exceptional expertise which we have in pension fund management.
If one sums up the situation, what do we find? I shall try to state the position with every attempt at objectivity and moderation. In the words of an eminent Cambridge economics professor, one of the best economists of our time, William Buiter: the alarmists have shown themselves to be politically naïve and economically illiterate. I would add that they have also shown a total, if not wilful, disregard for what is actually happening to pensions in Europe. I beg to move for Papers.
3.23 p.m.
Lord Dean of Harptree: My Lords, I congratulate the noble Lord, Lord Taverne, on his good fortune in the ballot and also on the important and interesting topic that he chose for debate this afternoon. I am sure we are all looking forward to the maiden speech of the noble Baroness, Lady Ramsay of Cartvale. I can assure her that I shall not keep her in suspense for long because I do not intend to make a long speech.
I must declare three interests in British pensions. I am lucky enough to be in receipt of a national insurance pension, a war pension and also a parliamentary pension—a fortunate position in which to be.
I agree with the analysis in the pamphlet referred to by the noble Lord, Lord Taverne, and will now read one sentence from that analysis. It appears on page 1 of the report:
"without radical changes, maintaining levels of benefits provided by Pay-As-You-Go schemes in line with present expectations will impose a burden on future generations of taxpayers which is likely to prove unacceptable, will worsen the competitiveness of industry and will harm the prospect for employment and for the economy as a whole".
That seems to be the problem in a nutshell. But as the noble Lord, Lord Taverne, said, the problem is much greater on the Continent than it is here. Most of their pension schemes are on a pay-as-you-go basis and are therefore unfunded. As the noble Lord also said, changes are afoot in many of the countries in Europe. They have now realised that the burden is rapidly becoming insupportable and have also recognised how extremely unpopular moves to clear the rapid growth in
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the pensions debt are; the French and the Germans in particular discovered that with the strikes and civil unrest which have taken place. A great deal of determination will be required therefore before that mounting pension debt is dealt with satisfactorily.
I am sorry that the noble Lord, Lord Taverne, did not dwell a little more on that, both in the pamphlet and today, and give a little more credit to the British scheme with regard to the development of funded occupational pension schemes and personal pensions. Thanks to the Government's financial incentives and other encouragement, we in this country now have large and growing pension savings which provide valuable seedcorn for future prosperity. The total value of those pension investments is now no less than £600 billion. That is more than all our EU partners put together. As a consequence of that substantial development, whereas in 1979 43 per cent. of people retiring had an occupational pension, the figure is now 66 per cent. and rising.
As a further consequence of that, since 1979 pensioners' incomes on average rose much more quickly than for the population as a whole. Admittedly, that does not apply to all pensioners, but it applies to a growing proportion of the population. It is a real success story of which our country can be justly proud. Our present position in the European Union can be illustrated in another way. A recent OECD study calculated that, given certain assumptions, the net value of unfunded public pension schemes is 19 per cent. of GDP in the United Kingdom, whereas in France it is 89 per cent., in Italy it is 113 per cent., and in Germany it is 139 per cent. Whether one takes those figures or any other figures that are available, I suggest to noble Lords who favour the social chapter that those figures need serious pondering.
There is no doubt that in most of the countries of our partners in the EU the employers experience much higher costs over and above pay than is the case in this country. Inevitably, those higher costs are bound to be a drag on their economies and they are bound to exaggerate the problems of unemployment. One of the benefits of being able to keep our costs down is that we are a magnet for inward investment because those who are investing realise that our costs over and above pay are substantially less than those of most of our EU partners.
Therefore, the healthier position in this country than for most of our EU partners does not mean that we have nothing to worry about. As my noble friend the Minister will no doubt remind us, the social security budget is now £90 billion a year of which pensions are by far the biggest item. So it is still appropriate that we should ask ourselves whether we can afford it. Are we handing on to the next generation a bill which will be too big a burden for it? To their great credit, the Government have scaled down the rate of increase in the pension bill by introducing economies and by focusing resources more directly on those most in need. These reforms were not popular, but the search for economies must go on. I remind the House in passing that I do not believe that

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any of these reforms received support from the Opposition parties; they were carried out entirely by the Government.
Finally, I turn to the very interesting report of the Social Security Select Committee of another place. Its report was published on 23rd October of this year and is entitled, Unfunded Pension Liabilities in the European Union. It is a valuable report, as one would expect, because the committee is chaired by that well-respected and experienced MP, Mr. Frank Field.
There have been press reports which have suggested that the Select Committee report stated that the British taxpayer will have to find huge sums of money to bail out European pension debts. The Government have firmly denied that and I hope that my noble friend the Minister will be able to repeat that denial when he comes to wind up. However, as I understand it, the Select Committee report suggested that governments on the Continent, with their big pension liabilities, may be tempted to meet their pension debts by printing money, which could have an effect on inflation and interest rates which in turn could affect the United Kingdom economy. This is a worrying assumption if it is correct. I hope that my noble friend the Minister will be able to clarify the position when he winds up the debate.
3.37 p.m.
Lord Peston: My Lords, may I say how much I am looking forward to the maiden speech of my noble friend Lady Ramsay of Cartvale. I thank the noble Lord, Lord Taverne, for introducing this debate. I promise not to regard it as a precedent: I shall not be demanding that my own works on macro-economic policy be debated in your Lordships' House in the near future.
I agree with much of what is in the tract, but there are areas about which I strongly disagree, as I shall make clear. This is an area which is worthy of debate. Whether one agrees or disagrees, we are a long way from any final decision or interpretation.
I find it odd, in a world in which the gross domestic product, productivity and the expectation of life are all rising—all of which I regard as boons—that people seem to contrive the notion that we have a crisis here and that we are convincing ourselves that somehow we were all better off when we were poorer and not living as long. I regard that as quite absurd. I agree that there are problems, but I do not for one moment accept that they cannot be solved. In so far as we have a crisis it will be one that we create for ourselves. That is the whole of my position, although I shall elaborate on it in due course.
I entirely agree with the noble Lord, Lord Taverne, about EMU. The point about the debt provisions at Maastricht and of EMU mean that we cannot have fiscal and monetary profligacy, but I thought that we were all agreed that we did not want that anyway—in other words, that cannot be a point of controversy and contention. I also agree with the noble Lord that we need a stability pact, which is our method of controlling the position in the short term. However, my view of the proposals being put forward by Herr Waigil are that they are quite unsatisfactory. If I were asked to assess them
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I would say that he is constructing an instability pact and not one which I hope Her Majesty's Government would sign. I could devise a more suitable formula that would get us out of those problems.
I wish to be at least partly optimistic. Perhaps I may immediately put the Minister on the spot. My advisers tell me that the Government Actuary has made a forecast of the national contribution rate needed to finance state pensions over the next 50 years. He has calculated that it will be exactly the same as it is at the present day, and once the baby boom is over it will fall. Therefore, for those who believe that there is some financing problem here, the Government Actuary says that they are wrong.
Perhaps I may now make a few points which I believe are obvious. They are more a matter of arithmetic than economics. If the ratio of old people to the working population rises and nothing else happens, average incomes must fall. That is purely a question of arithmetic. If those in work demand the same incomes as they would otherwise get, a fortiori the incomes of retired people must fall. Since retired people were overwhelmingly workers once, another way of putting this point is to say that the individual, in maintaining his or her spending while in work, will then be poorer in retirement. Again, that is arithmetic and has nothing to do with policy or anything else. That is true and it is a point that is always missed. I believe that it was missed by the noble Lord, Lord Dean of Harptree. It is true whether one is discussing a pay-as-you-go scheme or a savings scheme in any other form. If the given cake is there to be divided and if some people get what they were expecting to receive and there are more other people, they (the latter) will get less. The real error made—including by some of my honourable friends in another place—is to somehow believe that the scheme can get away from the arithmetic, but it cannot.
Since state pension schemes are at least partly redistributive towards the poor, if we maintain the incomes of those who work then we shall be clearly disadvantaging the most poor people in our society. Again, that is a matter of arithmetic and I am not yet saying anything about economics. Therefore it follows—and I believe that everyone takes this view—that even those who advocate the so-called funded savings scheme still advocate some state subsidy for the poor. The overwhelming point is that if workers insist that they get what they expect notwithstanding, then someone else must pay the price.
Another way of putting this matter much more positively is to note that if the potential population of old people rises then that can be offset by people working longer. Most economists would argue that if we are to live an extra number of years, one might take some of those years as leisure and others in doing extra work. That would be a standard proposition of economics. Alternatively, if one does not want to do that, then somehow we have to raise the productivity of the working population in order to deal with the dependency ratio.
Clearly then, the problem before us has nothing to do with schemes but with factors such as productivity and how long we work. I believe—and some economists

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would argue—that if labour becomes scarcer then the market system will work to raise productivity. That is another way of putting the matter. We shall economise on a scarce asset and therefore we can be optimistic about that.
There is also the point that whether we have a savings scheme or a minimum state scheme, the level of private savings will rise and that will again be the way in which the system works. Assuming—and this is where those of us who call ourselves Keynesian economists differ from others—that the savings are invested in real assets, then our output will be that much higher. Most of us argue that that cannot be assumed and that we have to make sure that it happens. Either way, if the system is allowed to work—if it can be encouraged to work—there are good grounds for saying that, irrespective of whether we have a save-as-you-go scheme or a pay-as-you-go scheme, the economy will be able to deal with the problem.
In passing, I should say that I agree that this country should raise its propensity to save. If a savings scheme could do that, I would be wholly in favour of it. We have one of the lowest propensities to save in the industrialised world and we need to do something about that.
I am not sure whether I have yet used the expression "full employment", but I have to point out that if we operate a system in which the workers are out of work, we have created two major benefits problems for ourselves. One is that when people are out of work we pay them benefit; the other is that because they are not earning, they cannot save in order not to be a burden when they retire. There are thus two consequences of having a policy of less than full employment. There are social security problems in the short term, generating further social security problems in the long term. One of the reasons that some of us say that full employment is central to all economic policy is that it helps us to solve such problems.
In commenting briefly on the question of savings schemes for pensions, I must remind your Lordships—I am sure that you are no different from me—that we must bear in mind what I call the myopia, even the irrationality, of people when they are young. I confess to such shortsightedness myself. When I started out as an assistant lecturer in economics I resented paying the compulsory contribution for my eventual retirement because it was 40-odd years away. It was hard to live on one's income then, but time goes by and eventually one reaches retirement age. I had one of my last retirement parties this week and I now have a fully funded index-linked retirement pension—
Noble Lords: Hear, hear!
Lord Peston: My Lords, the point that I am making is simply that we cannot rely on individual free choice in the area of pensions provision. There has to be some compulsion—not for the sake of having a nanny state, but simply because one forgets that time goes by. In my view, that also means that because people are myopic
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and irrational the state cannot duck out of its responsibilities. It cannot simply say that people can be left to fend for themselves.
I do not have the time to develop the other problems of private savings schemes, but with any luck we may return to the matter in the future when I can point out other difficulties. Perhaps I may say now, however, that in my view the solution is that the state should provide a basic pension, as it does now, and that people should be encouraged—in my view they should be more than encouraged; they should be made—to have their own pension scheme as well. In other words, I am saying—I know that this is extremely tedious of me—that taking a balanced approach, which is based not on dogma but on common sense, is the way to make some progress.
I turn finally to the minimum level of the state pension. I remind noble Lords that we must do this in dynamic terms. One must never forget that the old, by definition, were young—but people do forget that. They also forget when they are young that they will grow old. When workers tell me how revolting they find the Conservative Government for breaking the wage link with pensions and opting only for a price link, I ask them, "How did you vote when you were in work? Did you vote for tax cuts and a higher disposable income?" When they say that they did, I say, "Well then, you established the criteria by which your current pension is being determined". That may sound cynical, but it is not meant to. It is a fact that people have to face harsh realities. If you choose to say, "I no longer want a large pension for current pensioners", you are voting for a smaller pension when you become a pensioner.
In my view, those of us who have a position in your Lordships' House or in society in general have a duty 'to tell people that they must choose and that they will get what they have chosen. Therefore, I do not entirely blame noble Lords opposite and their party for the fact that pensions are too low; I blame the people who voted for them—but it was not me.
3.45 p.m.
Lord Marsh: My Lords, I should first declare an interest as somebody who has earned, and does earn, his living largely in the pensions industry both here and in the United States.
We are indebted to the noble Lord, Lord Taverne, for raising this issue. Although it could be a wide issue as it brings into question the whole way in which we approach the welfare state at this time, I was slightly surprised and disappointed that the noble Lord took a somewhat uncharacteristically narrow view.
It is difficult to get across to the Europhiles that people who disagree with them are not Europhobes and that the future of the entire world does not depend on whether we do or do not enter economic and monetary union. There is a massive imbalance between some continental national pensions liabilities and our own, and that raises some serious problems. Our problem is less serious but fundamental changes need to be made. It is worrying that people dismiss pensions liabilities as not being hidden debts which have to be repaid, and say that somehow or other we shall be able to cut pensions

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in a bookkeeping exercise. Pensions are liabilities, and the fact that they do not attract interest (as would other liabilities on the balance sheet) does not hide the fact that there is an increasing call for their repayment at a higher rate. The pensions liability is a major problem if fundamental changes are not made.
We now come to the narrow point, which is the question: if we are a member of the European Union and if the Union develops as people think it will, will we be called upon to pay part of those other liabilities which are so much larger than our own? At a time when, in order to qualify for membership of the single currency, senior finance ministers in other EU countries are fiddling the books to an extent which would put them in gaol if they were running a public company in any respectable country, and at a time when we are paying for wine lakes and grain mountains and towards the cultivation of highly carcinogenic tobacco in northern Greece at the same time as paying our contribution to the anti-smoking campaign which the European Union has quite properly established, we must face up to the major financial problem of Europe's pensions.
If one believes that any member of the European Union could stand aside and watch such pensions problems develop, it is but a fairly short step to believing in fairies at the bottom of the garden. It beggars belief that that would happen any more than that a serious problem in any part of any national state would be disregarded by the whole. Apart from the fact that I believe that membership of the single currency would be on a par with volunteering for the flood, as somebody who like the noble Lord, Lord Taverne, takes an objective view of the whole argument I must stress that anybody who believes that misses the point.
This is a serious issue which now affects all modern industrialised countries. I agree with much of what the noble Lord, Lord Peston, said although I suspect that I believe that the problem is more serious than he suggested. I do, however, agree that a solution exists. The first big problem is the one to which he has alluded and to which I will return. I refer to the great problem that one experiences if one tries to sell life insurance in the dreaded diseases market. It is very difficult to sell policies to those aged 25 to 30 to protect them from the effects of Alzheimer's disease in old age.
The second problem is bigger. All democratic governments have an inability to plan seriously for the long term. All of them would like to do it; many of them genuinely believe that they do. However, in reality political planning is dominated in the medium term by "News At Ten" and tomorrow morning's newspapers, and in the longer term by the date of the next general election. That is not cynicism but the reality of representative government. Right reverend Prelates and churchmen of all faiths and denominations have an easier job in saying to their flocks that although it is rough now in the distant future it will be all right. As those of us who have stood for election have learned to our cost, the electorate is not like that. It wants it yesterday and it is not really interested in what happens in 10 years' time; and this is all about what will happen
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in 10 years' time. It is for that reason that I am grateful to the noble Lord, Lord Taverne, for introducing this debate.
Some argue that the problem is exaggerated. It may be that the noble Lord, Lord Taverne, is in that camp. I believe that the political, social and economic consequences of what is, interestingly, called the pensions time bomb are potentially very serious indeed in terms of the sheer scale of it. As the noble Lord, Lord Taverne, has said, there will be a temptation in some quarters to say that there is a way out of it if benefits are cut. No Member of this House believes that for those who have to rely purely on the state and have no other provision for their old age pension benefits are, at their best, anything but grossly inadequate for a pleasant lifestyle. No serious commentator denies the existence of the problem. It is an actuarial certainty. It is not about the boundaries of science but about arithmetic. Nor is it a problem unique to the United Kingdom, and it is certainly not a purely European problem. The same debate is taking place in countries as diverse as Australia, Canada, Japan and the United States.
It is increasingly clear that satisfactory levels of social expenditure, particularly pension provision, cannot be funded on the existing basis. To fiddle about with the universal availability of bus passes for the over 65s—who are frequently able to buy bus companies, if they want to do so—is froth. To try to deal with the fraud that exists in the field of social benefits is an uphill task because they are so complicated. In this country we provide for 7 million people who make no private pension arrangements. At the last count, the figure for a single pension was £61 per week; for a married couple it is £98 per week. Obviously, they get other benefits as well because they have to. However, the result is that even with additional benefits one is paying for a pretty miserable end to a working life.
The brutal fact must be faced that the National Insurance scheme is an underfunded and increasingly expensive shambles. It is inadequate for the people who require pension provision and a waste of public money for those who do not. We need to sit back and take a look at the whole situation, but we do not have time to do that today. Whatever we do, it is becoming increasingly clear that, except for the very poor, people must take responsibility for a large part of the provision for their retirement years, and that can be achieved only by compulsion. The noble Lord, Lord Taverne, deals with this at the end of his pamphlet. It is at that point that I take issue with the noble Lord. I read it in full:
"This kind of Europe-wide pension scheme could even be a vehicle for compulsory pension contributions if in due course any EU member felt that universalisation was desirable".
Unless there is compulsory provision for private pensions the problem can not be solved. A high proportion of people do not make adequate provision. All governments in advanced countries find it increasingly difficult to meet the massive increases in public expenditure that are required to maintain even civilised basic living standards. Unless more people make their own pension arrangements an increasingly

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large proportion of pensioners will face a miserable retirement of under-provision and already inadequate state benefits.
Surprisingly, compulsory pension provision may not be as unpopular as governments fear. In September of last year a poll conducted by NatWest showed that 55 per cent. of people in work believed that it was up to individuals to make provision for their own retirement. Of two options that they were given—one was increased taxation and the other was compulsory savings—48 per cent. opted for compulsory savings provided that the savings remained clearly their property. Another poll question explained the whole problem very simply and sadly. When retired people were asked when they first began to think seriously about the financial implications of retirement, 45 per cent. replied that it was when they retired. That is too late.
One comes back to the statement of the noble Lord, Lord Peston, about the problem of trying to sell pensions voluntarily to young people. If a young man on an average wage wants to provide a decent pension of two-thirds of his earnings at the time of retirement he will have to contribute about £200 a month from the age of 25 until the age of 65. If he delays it until he is 30, when he is still young, the monthly contribution rises by 120 per cent. to £420 per month for the same level of pension. That is the crucial reason for compulsion to get people into the scheme early enough; otherwise, there is no solution to the problem. The extent of the problem will hit us in the next 10 years or so. It is a much bigger subject than we have time to go into this evening but the solutions—and there are solutions—have to be found now.
4.57 p.m.
Baroness Ramsay of Cartvale: My Lords. I rise with trepidation, having been introduced to this House only eight days ago. I have been encouraged to do so for two reasons. First, I have been received with such warmth and kindness by so many of your Lordships. I am also fortunate in having long-standing friends from Scottish student politics both in the other place and in this House. Lest it be thought that they are all of the same political persuasion, I should say that part of the encouragement of seeing friendly faces from that time comes in this very debate from the presence of the noble Lord, Lord Mackay of Ardbrecknish.
The second reason that I feel moved to speak is that for most of my 20-year career in Her Majesty's Diplomatic Service I was deeply involved in European affairs. I therefore have a particular interest in the subject under discussion. Although I do not share all of the views expressed in the report of the Federal Trust, I congratulate the authors on having produced such an admirably clear and concise statement of the potential problems which face Europe's pension funding systems and for outlining their preferred options for change. The report is commendably user friendly, even when setting out complex and detailed statistics. I am sure that I am not alone among the readers in being duly grateful for that.
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It has been clear for some time that there was a potential problem for several European governments in their pension funding arrangements. Most of them—as, for example, in Germany, France and Italy—have been moving to carry out the necessary adjustments. The combination of a growing pensioner group with a decreasing workforce means that a pay-as-you-go scheme can no longer be the complete answer, if indeed it ever was.
I should, however, in passing like to make a point which is increasingly being raised in debates on the subject. The effect of funded pension systems on the whole economy is something to which much more research and consideration should be given because it is still unknown territory.
The Federal Trust report has dealt with 12 member countries of the European Union. I presume that it is because of the timing of the work undertaken by the study group that the three most recent entrants—Austria, Sweden and Finland—do not figure. This is understandable, but it is a pity because these countries in particular have interesting lessons for us.
In the course of my diplomatic career I spent three years in Sweden and five years in Finland, and I have kept in close contact with those two countries ever since. In the whole field of social security there is much that can be learnt from them. In Finland, for example, private sector pensions are operated by private pensions insurance companies, with premiums paid by employers and employees. Employers may regain part of their payment if the income from the insurance company's investments exceeds a certain percentage, which is decided annually by the Ministry of Social Affairs.
The pensions insurance companies are not allowed to offer any services other than pensions insurance. The pensions paid by the insurance companies are financed by approximately one third of the investment income and approximately two thirds of premiums paid. There is also an official body which checks that all employers insure their staff and circulates regular reports to employees on the state of contributions to their individual pensions.
Your Lordships will be relieved to hear that I do not intend to give all the details of the Finnish pension system, but it is surely of interest that the Finns do not feel threatened by some future time bomb. They are adjusting their system by negotiating about raising the pension age to 65 and allowing pension insurance companies to undertake higher risk investments. But, in the main, they seem to feel that their system of private pensions insurance companies, closely regulated by the Ministry of Social Affairs, will adequately serve their needs.
What has been depressing in the past few weeks is the way that pension funding in Europe has occasioned so many alarmist stories about the British taxpayer having to pay the bills for the inadequacies of pension funding systems in other countries. I am trying hard to avoid at all costs being contentious. I sincerely hope that I am not being so if I say that, in my opinion, based on my knowledge of what is laid down governing this matter, it is inconceivable that this could happen. Article

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104b of the Maastricht Treaty, for example, states that member states will not be liable for each other's liabilities under EMU. I cannot help feeling that to the long list of Euro-myths with which we are all wearily familiar—such as straight bananas, square strawberries and hairnets for fishermen—we can now add an item about British taxpayers having to pay foreign pensioners.
What is particularly regrettable about this story is that it worries and dismays vulnerable, elderly pensioners who are concerned about the future of their pensions. It gives me no pleasure to have to say that I sometimes despair of any important European issue ever being publicly discussed in this country in a calm, rational and intelligent manner. It is because of this that, although not agreeing with all its contents, I welcome the Federal Trust report as a useful contribution to the debate on how best to deal with an important and serious issue which is facing all the countries of Europe, including our own, and about which we can surely learn from one another.
4.5 p.m.
Baroness Seccombe: My Lords, it is indeed a pleasure and a privilege to congratulate the noble Baroness, Lady Ramsay of Cartvale, on that memorable, thoughtful and powerful speech. She told us that she had been at Glasgow University and she also mentioned her colleagues. It may be that, as president of the students' union whilst there, she indulged in political debate. Following that she went for a distinguished career in the diplomatic service and from 1992 became the foreign policy adviser to the right honourable John Smith MP. So she brings with her a wealth of experience. I am sure that I can say on behalf of the whole House how much we look forward to hearing her frequently and soon.
Noble Lords: Hear, hear!
Baroness Seccombe: My Lords, I too add my congratulations to the noble Lord, Lord Taverne, for bringing this matter before us today. This debate on the pension timebomb in Europe is both emotive and very timely. It underlines the vital importance of the United Kingdom being involved in the detailed discussion on the criteria for the implementation of a single currency. Whether one believes in this country going in as early as possible or, at the other end of the spectrum, refusing to sign up at any stage, there are bound to be ramifications for the United Kingdom in the pensions field.
I would like to declare an interest as I am chairman of the Trustees of Nuffield Hospitals Pension Scheme. I hasten to say that it is not a financial interest in any way. Indeed, I am the only trustee who is not a member or a beneficiary of the scheme. In fact my only pension is the one I receive as the wife of my husband. We have a comparatively young fund and are placed around the middle of the list of funds in size. Our scheme is based on final salary. Both men and women retire at 65 with widows and widowers eligible for pension.
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I know that my noble friend Lord Dean of Harptree has mentioned this, but the one thing that we must never forget—and I stress it by repetition—is the fact that there are more people covered by pension schemes in this country than the rest of Europe put together, with £600 billion invested. Over 10 million people are in company pension schemes; in excess of 5 million have contracted-out personal pension schemes and, in addition, approximately half a million have other personal pension schemes. I have taken this information from official figures from Government in 1992. I would suspect there may be even more by now.
Each year there are fewer people who receive only the state pension. Amongst existing pensioners about three-quarters have extra income from investments and two-thirds of pensioners receive an occupational pension in addition to the state pension.
As we have heard, many other countries pursue a pay-as-you-go policy but demographic changes, with an ageing population, a smaller workforce and higher rates of unemployment being experienced by our European partners, must be of great concern to them. But the problem is also of great concern to us. The single market development must not be allowed to put our forward planning and financial prudence in jeopardy.
I feel that the Government grasped the mettle and gave the vital lead with financial and other incentives to which the employers and employees have responded. The majority of schemes in this country are contributory with the balance of costs being paid by the employer. It is far easier for a large employer to take on the very sizeable contribution required, but I have been very heartened by the number of small employers who have made pension arrangements for their employees—both those in part time work as well as full time work. They have shown concern and respect and have acted in a most responsible way for their workforce in retirement.
The Government have at the same time maintained the value of the state pension by increasing it each year in line with prices. I believe in addition that no one has to live on the basic pension as targeted income of £1.2 billion per annum is given to those who need it to top up their incomes.
The standard of living has also increased for pensioners over the past 18 years with many more having cars, freezers, washing machines and, of course, practically all having fridges and telephones. One of the most dramatic changes is the rise in the number having central heating—78 per cent. now compared with 46 per cent. in 1979. That is such good news. I always remember my mother saying she would rather be warm and hungry than the other way round. Warmth during winter is essential to keep old people healthy and I hope the increase will continue. Perhaps the most fascinating statistic is that 44 per cent. of all pensioners have a video. I only hope they can get theirs to work—I always have difficulty.
Providing for the total of the social security budget is now costing every working person £15 each working day and is about one-third of all public expenditure. It is, therefore, vital that the costs do not spiral. Among

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the measures being taken personal responsibility is being encouraged, benefit fraud is being rooted out and punished and saving is also being encouraged.
Our partners in Europe have a much more difficult problem. The honourable Member of another place Frank Field said in his report:
"They can't cut pensions because people will go out on the streets and riot. If they issue bonds interest rates go up and if they print money it causes inflation".
The report goes on to say that attempts so far by countries such as France and Germany to reduce their public debt by cutting social security benefits had met with "fierce political industrial counter-action".
Perhaps the very best action to help pensioners maintain their standard of living is the control of inflation. In the late 1970s we all knew people who retired on fixed incomes, confident that they would be able to enjoy a comfortable lifestyle. But no one can withstand the onslaught of 27 per cent. inflation. It was immensely saddening to see people unable to do what they had planned. In many cases they were only able to live out their lives in misery and penury. It was that experience which motivated my right honourable friend the Prime Minister to take measures to eradicate inflation from the system.
We all want our citizens to be able to have a dignified, decent, and happy retirement; to live their life to the full and not to have to worry about future financial insecurity. The Government are determined to try to deliver those aspirations.
I fear New Labour's plans for a flexible decade of retirement will end in disaster. It is splendid in theory, but who would pay for it? The public purse could not and should not be expected to fund the extra £15 billion per annum that it would eventually cost. The alternative would be a reduction of £20 per week from the basic pension—not exactly an exciting prospect for those approaching retirement. I was most interested to peruse the report by the Federal Trust and to note that the rapporteur was the noble Lord, Lord Taverne.
I agree wholeheartedly with the view that the field of pensions in the European Union is difficult and in need of urgent consideration. I am, however, concerned that I could not find any reference to the fact that it was the UK which took the necessary action with policies and reforms that will benefit our economy well into the next century. The national debt will consequently be reduced. In Germany and France, where reforms are being attempted, the national debt could double as a result of their pension commitments. People in this country who have made provision should not be made to pay for our partners in Europe.
I was delighted to hear my right honourable friend the Chief Secretary to the Treasury say in another place that there was "no question" of Britain taking on other countries' pension costs. Other countries,
"will find themselves … either having to cut pension entitlements, as some of them are trying to do now and causing trouble in the streets, or they will have to put up taxes".
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The Government should be congratulated on anticipating the problem. I hope your Lordships, particularly the noble Lord, Lord Taverne, will agree with me.
4.16 p.m.
Lord Bruce of Donington: My Lords, I should like, first, to join in the congratulations that have been offered to my noble friend Lady Ramsay of Cartvale. On the basis of what she said this afternoon, it seems that we may argue from time to time on a number of matters upon which our views may differ. Nonetheless, I welcome her because the House of Lords remains one of the places where argument is still possible, as distinct from the caterwauling which often happens not very far from here.
I am puzzled about the origins of this debate. I gather from now on, as my noble friend Lord Peston indicated, we can now have Motions drawing attention to works that may have come from our own pens. Perhaps I should give notice that I shall ask the Leader of the House to draw attention to a paper on the Common Market that I wrote nearly 33 years ago, the contents of which I am afraid, in the light of events, are indisputably correct, but that is for another occasion.
I listened with great interest to the noble Lord, Lord Taverne. In expressing his anxieties, he drew attention to the tendency for private pension arrangements to show increasing growth, which might in due course enable us to solve the problems that he raised. That is interesting. I have no means of disputing his predictions—they are predictions—but whether they will spread over the entire European spectrum is another matter upon which he did not venture to offer an opinion.
However, the proceedings of the other place are a little puzzling—notably the Social Security Select Committee, which culminated in the publication of a report (No. 23), which has attracted some public attention. I went through the report, and noted in particular the composition of the committee. I do not wish, obviously, to pass any comment—adverse or otherwise—on procedures adopted in another place; but I am bound to note that throughout the existence of that committee devoted to the production of that report, not one member of the Liberal Democrat Party in another place was on the committee. I find that surprising, particularly in the light of the contribution that we have heard today.
On reading the report, I found that there were four Members of my own party in another place and seven Members of the party opposite. However, I did not see a prominent Euro-sceptic among those who comprised the committee. They all seemed to be open-minded—I might almost say Europhile—and there was no one whom I would recognise as being an out-and-out sceptic. Yet they appear to have arrived at some unanimity.
Moreover, the membership of the committee contains a number of highly qualified people, including economists like my noble friend Lord Peston—although perhaps not in the same high bracket as he occupies.

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There was a chartered accountant, who must always be listened to in matters of mathematics, and a number of other distinguished people of varying opinions. They produced a report and, to say the least, it is uncharitable to rubbish it in advance of its discussion. The report made some very important observations, including the observation that the pension arrangements abroad and the arrangements for refunding might have some adverse consequences on the United Kingdom; that is on the assumption that the United Kingdom joins the single currency arrangements.
The fact that that should have come from a committee headed by my honourable friend in another place, Mr. Field, makes it immediately worthy of attention. The report states:
"As the UK's outstanding public pension liabilities are substantially below those of other EU members, there would be a risk that if the United Kingdom joined a single currency British taxpayers could be called upon to help finance the pay-as-you-go pension obligations of other EMU members, or suffer the consequences of being tied to interest rates on the single currency that were forced up by the market pressures of financing certain countries' inherited pension commitments".
I do not believe that such an observation should give offence to anyone. I believe that if the risk is correctly apprehended by people who have studied the subject for three or four years—that is the period during which the committee has been dealing with it—the observation merits something other than derision.
In citing the International Monetary Fund's six-monthly report, the report points out that:
"Countries such as Japan, Germany and France, however, face contribution gaps of nearly 3.5 per cent. of GDP a year. To avoid a further buildup of pension debt over the next fifty-five years, these countries need either to permanently increase social security tax collections by roughly 3.5 per cent. of GDP, or scale back benefits by a similar amount, or implement a combination of tax increases and payout reductions of this magnitude".
Surely, such observations from the IMF should be given some attention. They are not frivolous observations—and I have often been accused of making those by reason of my well known views on the subject. The observations are from a cross-party committee in another place quoting a perfectly reputable body and I believe that, to put it at its mildest, there is a case to answer.
I know that my noble friend Lord Peston believes that it is ultimately a question of arithmetic and that ultimately it will solve itself. That is a most comforting observation, but perhaps not as comforting as it might be bearing in mind that he referred to the "brutal" facts. My experience of people who give voice to brutal facts is that they have rarely suffered personally from any brutality or, at any rate, from some of the ignominy, despair and hopelessness that is endured daily by at least 2 million of our population in the United Kingdom. They are the people with whom we must ultimately be concerned.
The OECD study on the impact of demography on the levels of saving and government spending on pensions, health and education commented:
"It is clear that if present [public] pension payments are left untouched, the pension schemes in some countries would impose major burdens on their societies in the next century, either through
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requiring higher taxation or other spending cuts, or by rapidly increasing public debt burdens resulting from high primary deficits".
Figures have already been given which show that in funding the United Kingdom has done better than the rest.
The committee had the opportunity of visiting the European Commission in Brussels, notably DG2 and DG10, and made some observations. A note on its visit states:
"The European Commission document considered at Verona had recognised that national sovereignty over tax matters would continue, at least for the moment".
I give some emphasis to that comment because it was always said that the taxation arrangements would remain undisturbed.
The issue must be faced. Let us say, for example, that the efforts towards voluntary pension arrangements—particularly as they affect the poorer sections of the Community, many of whom have not yet had the opportunity of obtaining employment—have a partial success. That still leaves some unfunded debts. I know that contingent liabilities have no meaning for economists: because they are contingent, they are unascertainable and therefore they are not by reference to any particular mathematical formula. But they are important. With the provisions of the Maastricht Treaty as they are—in particular Article 104C—every sentence, bar sentence 14, being applicable to the UK whether it opts in or out, it is quite clear that the proposed new mechanism in the stability pact may well involve the UK's bankers, who will of course be the Community's bankers (the ECB). They may have to act in a way which helps other member states to finance their own deficits in this respect. If that happens, we cannot escape our own financial responsibility here. And our own financial responsibility will be determined by our bankers, who are not elected but who will be our bankers and in possession of our foreign exchange reserves once the single currency comes into operation.
Therefore, I believe that the Select Committee's report deserves far wider examination, and far more dispassionate examination at that, before we can dismiss it as another Euro-sceptic stunt. I am not interested in stunts; I am interested in arriving at the truth, and sooner or later the truth must be ascertained.
4.30 p.m.
The Earl of Clanwilliam: My Lords, the debate of the noble Lord, Lord Taverne, is extremely apposite, but I must take issue with him slightly at the start because I believe that his paper begs the question as regards whether we should even join the EMU at all. At the same time, he continues to believe that there is a huge time bomb, as he so aptly describes it. It is indeed a huge time bomb. I am less sanguine than he is as regards the ease with which we shall be able to cope with that time bomb. The cost to our colleagues in Europe will be significant as it will be to a lesser extent to ourselves and to the Dutch.
My noble friend Lord Dean of Harptree expounded very clearly on the strength of the position which we have in the United Kingdom from which we can start

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planning further investment provision for the future. Therefore, I need not dwell on that at length. But in my view it is evident that convergence decisions which do not account for discernible debts which can be calculated in terms of tens of billions of pounds in the future—that is, within 10 or 15 years—amount to nothing less than creative accounting and will be the final nail in the coffin of EMU, if indeed it ever happens.
Therefore, the question is raised whether we should take part in such a deception. If the funds are to be found by the French and the Germans from their own pockets—and the paper clearly details the costs that they will incur—and if they are to make sufficient provision for their pensioners in the future, they will have to raise taxes. That will damage their economy. If we are in there with them, we shall have to raise our interest rates and increase the unemployment factor throughout EMU.
The noble Lord, Lord Taverne, has already mentioned what steps are being taken in that respect and how increased contributions are being imposed and pension dates are being delayed. Benefits are being reduced. But all that will result in lower employment—and not only that, it may cause serious political unrest throughout Europe. That must be quite self-evident.
The problem is perhaps not so much what the European Central Bank will do, as I suspect that it will be as hard on the finance ministers as it should be; the problem is what the Commission will do. If we are not careful, it will find ways to weevil through legislation which will provide that we should all be taxed together to show our communautaire spirit in the cause of health and safety at work. However, I take heart from the words of the noble Baroness, Lady Ramsay of Cartvale, who made a very wise and comforting maiden speech. She seems to be quite happy about the future but I have some suspicions. That is why it is so important to stop the Commission and its politically motivated Court in its tracks at the present time and to ensure that the elected Parliament in our unique parliamentary democracy must have the final say in the imposition of taxes and control over our way of life in this country.
The noble Lord's report demonstrates clearly that the Commission, having failed to interfere through a new directive, is now beavering away to bring to bear influence through the capital liberalisation directive. I have not read that directive, but it would appear that it may bring great benefits to City investment houses and institutions. I do not know whether the noble Lord, Lord Barnett, will have a few words to say on that. I am very much open to be convinced on that point.
The pension time bomb lives in our own economy in a very real way, and the pungent paper prepared by Mr. Frank Field, who was of course a contributor to the noble Lord's report and who was chairman of the Select Committee in the other place, is a remarkable example of the need for additional compulsory provision. It has been said that such provision will be seen as a tax. Indeed, in a sense it will be but it will be no more than the present national insurance contributions which source current old-age pensions. The funds so accumulated will be actual savings that each individual
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tax-paying employee or self-employed individual can account for and be able regularly to value the fund in preparation for retirement.
There is a need for all employees to start making provision as soon as they start employment. The noble Lord, Lord Peston, said that the Government Actuary suggests that we can proceed at the existing rate. I believe that he is referring to the Government Actuary's suggestion in Mr. Field's report that pension payments would start at the age of 18. The noble Lord, Lord Marsh, mentioned that there would need to be provision of £200 per month at the age of 25 and £400 per month if one started at the age of 30. That demonstrates quite clearly the vital need for compulsory pension contributions to start at the earliest possible opportunity: as soon as any single individual starts paying national insurance contributions. Indeed, I am on record making that proposal in previous debates on pensions while I have been a Member of your Lordships' House. If that is done, there will be a good chance that we shall be able to leap the hurdle of the noble Lord's time bomb, and we shall fall at that hurdle, without doubt, if we fail to do so.
There is some talk of a stability pact which it is hoped will prevent unassociated European countries from putting a spanner in the works; for example, by taking advantage of exchange rate variations. Just such a pact may involve us in bailing out our less provident colleagues. I am all for a stability pact which will deliver stability so long as it does not destabilise established relationships in our country. We must be on our guard and I have confidence in the Prime Minister's assurance that we shall not be caught in any such trap.
4.37 p.m.
Lord Barnett: My Lords, I begin by congratulating my noble friend Lady Ramsay who made a quite remarkable and excellent maiden speech. In the other place we have always said that we shall look forward to hearing the maiden speaker often in the future. I say it and mean it. We very much look forward to hearing from my noble friend. She showed a quite remarkable knowledge and we look forward to hearing from her on many occasions in the future.
Like many others in this debate, I begin by declaring an interest in the sense that I have an MP's pension, a ministerial pension; but, much larger than that, to indicate the benefits of the tax system, I have a very large pension fund which I have not yet drawn on. It is a marvellous system. For every £1,000 one pays in, it costs only £600 but it grows from the £1,000. It is a marvellous system, as I am sure the noble Lord, Lord Marsh, will be aware. Therefore, I declare that interest.
Perhaps I may revert to the subject of the debate and the title of the report. I welcome the fact that the noble Lord, Lord Taverne, has had the opportunity to introduce this debate. I know that my noble friend Lord Bruce of Donington takes a keen interest whenever Europe is mentioned. I have constant disagreements with him on that subject, although I am very fond of him. Moreover, he generally takes great care in quotes that he makes, although on this occasion he quoted

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Article 104c, but not the more important one, which is Article 104b. In relation to that, the Chancellor, in answering a question on 6th November, made it quite clear, quoting the no bail-out clause of the Maastricht Treaty—as did the noble Lord, Lord Taverne—that a member state cannot be liable for another member state's commitments in any area of spending.
Unlike the noble Lord, Lord Marsh, my noble friend is not a cynic. The noble Lord, Lord Marsh, told us that he is not a cynic. I am bound to say to him that if he is not a cynic, he would not be sitting on the Cross-Benches. He would be sitting where he normally should be—on the opposite Benches. However, I do not wish to be difficult with him. He chose another reason why there will have to be a bail-out. He said that there are fiddles in Europe by member states trying to get within the 3 per cent. of GDP. Of course that is true. I never indulged in creative accounting during the whole of the five years when I was Chief Secretary to the Treasury. Neither did I indulge in fiddles or fudges. The noble Lord said that in his view, because of all that, there would inevitably be occasions when we would have to bail out those member states. That was the implication of what he was saying.
That was unlike my noble friend Lord Bruce of Donington, who said he did not believe in stunts. I agree with him. He does not believe in stunts; he is just a strong Euro-sceptic all the time. When the word "Europe" is mentioned, he is immediately sceptical, whatever the subject that is being discussed. The noble Lord, Lord Marsh, in his uncynical way, must concede that if those countries can fiddle their accounts in the way he suggested—and that might happen in the future—there would then have to be new European Union legislation going beyond the Maastricht Treaty to allow those bail outs to occur. The noble Lord is nodding in agreement. I shall leave that point because the plain fact is that at the moment there is no possibility of member states, including the UK—whether or not we are in economic and monetary union—having to bail out other countries' debts, whether those have arisen because of pensions funds or anything else.
I now turn to the report itself. There is a strong foreword by Sir Brian Corby. I agree with much of what he stated about future costs. However, on that point, I do not agree with my noble friend Lord Peston. Of course the future costs constitute the real time bomb. There may not be a crisis as of this moment. My noble friend Lord Peston referred to Government actuary figures which claim we can manage for another 50 years. We can manage, but on inadequate pensions. That is how we shall manage. It is quite wrong to imagine that we shall be able to manage in that way for 50 years, or for anything remotely like that length of time. I am glad to see my noble friend nodding in agreement.
I agree with Sir Brian Corby when he says we must not saddle our children and grandchildren with burdens that they would find difficult to deliver. That is absolutely right. However, I disagree with him when he states that the generation approaching retirement will be wealthier than its predecessors. That is right. But he further states that that generation will be better able to
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provide for its own retirement needs. That depends how one defines the word "approaching". If one has only a few years before retirement but one has not taken out adequate insurance or a pension scheme, one will not be able to manage. I certainly do not accept that for all those approaching retirement things will be easier. They will certainly not be easier for all those who are approaching retirement now. We shall need to look after them.
I agree strongly with chapter 3 of this report which has the excellent heading "No Easy Solutions". Certainly there are no easy solutions to this serious problem. It has been said in this debate that there is a possibility of raising the retirement age, which could be justified by fiscal means and the fact that people are living longer. We in your Lordships' House can certainly say, "Thank God for that". However, we had better accept that no government in the foreseeable future will raise the retirement age or reduce benefit with the ensuing consequences for pensioners. I do not believe that will happen. I say that without being a cynic, if I may say so to the noble Lord, Lord Marsh. I do not believe that any government, whether Labour, Conservative, or even in the remote possibility of our having a Liberal government, would do such a thing.
I now turn to chapter 7 which concerns the transition to private funding. The alternatives set out in this report in chapter 5 as regards book reserve schemes are worth noting. As regards book reserve schemes, Germany and other countries have introduced that scheme and have thereby helped their pensioners considerably. It is worth noting, incidentally, that those schemes apply generally to large companies but not to small companies. Privately funded pension schemes are referred to in chapter 6. It has already been said in this debate that we shall have to move to privately funded schemes, even if that will help the insurance companies, in respect of which the noble Lord, Lord Marsh, declared an interest. We shall have to adopt privately funded schemes. However, the question that arises is whether they would need to be compulsory or voluntary.
My noble friend Lord Peston spoke of the time when he was a young worker, if one can call an assistant lecturer a worker! However, I am sure he worked hard and that his students could vouch for that. There is no way young working people will be willing to save enough money for their eventual retirement, not just because they do not think they will retire one day, but because they need the money from their wages now. They will not save enough; there is no question about that. We shall have to grasp the nettle that there will need to be compulsory privately funded schemes. I do not see how we can avoid recognising that fact. I certainly recognise that need and support them. I now turn to chapter 7 which concerns the transition to private funding. The report states that this will inevitably be gradual. It will certainly have to be gradual if we are to try to persuade young, middle aged and older people to take out privately funded schemes on anything like the required scale. That will not happen unless it is made compulsory.

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I like the report because it is honest, and all of us must be honest about this subject. The report is sensible, but we have to accept that there is no immediate answer to the problem. There will not be a solution in the next few years for those who, in the words of Sir Brian Corby, are "approaching" retirement. I am sorry to upset my noble friend Lord Bruce of Donington by mentioning the word "Europe" again. However, a Europe-wide scheme which would allow for mobility of labour, and all the things that are referred to in the annex, would be helpful, especially if the privately funded schemes had the kind of tax relief that I was able to take advantage of.
A Europe-wide scheme would be helpful and could be achieved either by using a privately funded scheme, and/or a book reserve scheme. However, as I say, we are bound to recognise that it would not help those who are approaching retirement now. We have to do something to help them. The state had better recognise that it will have to help them. The money will have to be found out of taxation. We shall not get it from any other member state in the European Union, just as they cannot get it from us. We shall have to finance people now before we reach the stage when people entering retirement have adequate privately funded pension schemes. We must not pretend that the situation will be anything other than the way I have described it.
4.50 p.m.
Lord Desai: My Lords, we have had a good debate on the publication, The Pension Time Bomb in Europe, and an interesting maiden speech by my noble friend Lady Ramsay of Cartvale. Most of what I had intended to say has already been said—luckily for me. Therefore, I speak from a slightly different angle.
We are talking about distribution. My noble friend Lord Peston took an economist's view, an economy-wide view: that at any point in time pensioners can only have what earners will not consume. In considering funded or unfunded pension schemes we take a micro-economic view. A funded pension scheme at a given point in time can be relatively independent of the economy's performance. It can do somewhat better than the economy. But all pension schemes cannot do better than the economy. The problem is not as regards the individual myopia that my noble friend Lord Peston and others have mentioned. I believe that there is a collective myopia. In western Europe when we had the best years of growth, the elderly population was small in number. It was easy to give generous pension entitlements because at that time the outgoings were small and with a large population of working age there was large growth. It seemed to be the Utopia that we all wanted.
However, in the past 15 years growth in western Europe has slowed down, and I do not envisage the average GDP in Europe accelerating very much. To some extent we may benefit from the East Asian miracle, emerging economies and so on; but the more one invests outside the country, the less one invests at home, and there will be problems.
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We are facing a crucial issue. The GDP is not growing as fast as in the 1950s or 1960s. We have a larger elderly population. Who will lose out? As my noble friend Lord Barnett and others have said, to a certain extent there is a severe distribution problem. Within that distribution problem, as occurs with some privately funded schemes, some people will do slightly better than others. I am more worried about those people not covered by privately funded schemes. Those, like myself, who are covered by privately funded schemes will be all right. Yes, we shall suffer; we shall not have as much as we had thought, but we shall not be on the streets. The real problem relates to those who have to rely, by and large, on state pensions. Even if they have a private scheme, their lifetime incomes will not be high enough for them to afford large savings for a pension at the end of the rainbow.
I am also worried that nothing in the report takes care of problems relating to women, who often do not work or who work for an insufficient period of time, or who are left widowed. Pension scheme rules are not always honest. I am not as much an enemy of capitalism as I used to be, but I am no great friend of it, because people make profits by not giving as much as they should. We have witnessed the scandal of private pensions. Even after the scandal, there are still no payments. I have heard cynical remarks by members of insurance companies who say that their actuaries have told them that the longer they wait, the less they will have to pay out because the claimants will be dead. The claimant's estate may be able to make a claim—with violins playing in the background. But basically some people are being robbed and they are not being compensated. However, I leave that aside; it is perhaps contentious.
Increasingly there will be those in the population who will not build up sufficient savings over a lifetime of work to finance a pension. That may apply to 30 or 40 per cent. of the workforce. Technology is changing. We know that there will not be the work perspective to which the noble Lord, Lord Marsh, referred—of starting work at 20 and working for 45 years. Jobs will not be like that. Although there will be mobility of pensions, we shall not be able to compensate for the fact that there will not be work for quite a lot of people. What does one do about those people? That will be the real time bomb as regards pensions.
What my noble friend Lord Barnett said is crucial. Governments will have to stop pretending that the problem does not exist and ask whether society, through taxation, wants to pay a decent pension to people who would otherwise be left in poverty. We do not need detailed research into poverty statistics. We know that that will include the elderly, single mothers and the unemployed. The numbers in those three categories will not decrease; if anything, they will increase, notwithstanding the palaver about family values. We have not tackled that large problem.
Although it will affect a smaller part of the population, the problem will be greater. In the rush for private pensions, those who take out such pensions will be reluctant to pay through taxation for the state pension. That is what we have found. After all, we have

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reneged on a promise made to pensioners rightly or wrongly. When the rules were changed from average earnings to index linking, we reneged. Breaking such promises will occur again in the future unless we inculcate the culture that people must have an entitlement to a minimum standard of living, especially in their old age. Excellent though the report is, it does not tackle that problem.
As my noble friend Lady Ramsay pointed out, the report deals with only 12 of the European Union countries. What worries me is this. We know that when the expansion towards eastern Europe takes place, the problem will be more serious in terms of budgetary burdens on the European Union of transfer payments and other matters. If one takes a longer term perspective, the problem of adequate pensions for elderly people will be more serious. Excellent though privately funded schemes are—I am sure that there will be more of them—they do not tackle the problem which will cause serious social deprivation in Europe. Until we face up to that, we shall not have taken care of the pension problem.
4.58 p.m.
Lord Ezra: My Lords, the fact that we have had an informed and at times lively debate on this vital issue justifies the action taken by my noble friend Lord Taverne in raising it today. The noble Lord, Lord Bruce of Donington, seemed to criticise my noble friend for phrasing the subject of the debate by reference to a report in which he was involved. However, my noble friend explained carefully why he had done so. He would have preferred to have debated the report of the Select Committee in another place but he was advised that that could not be done because it had not yet been debated there. Therefore, he did the next best thing, and I believe that he was quite justified in the action he took.
How refreshing it was to hear the maiden speech of the noble Baroness, Lady Ramsay of Cartvale. I was particularly impressed—I hope we all took it to heart—with her concluding remarks. She said that it was about time we tackled some of the European issues in an objective and informed manner. I believe that we should address the subject of the so-called pension time bomb in that manner.
In the course of the debate today there has been a certain amount of common ground, as there often is in the debates in this House. The common ground has been, first, that undoubtedly there is a problem. Indeed, that was made clear not only in the report with which my noble friend is associated but also in the report of the Select Committee of another place and in the report from the European pension organisation to which my noble friend referred.
The reasons for the problem have been clearly stated. One is increased longevity. As the noble Lord, Lord Peston, said, we should be the last to complain about that. It is a great social asset that people are living longer. We must aim to make their longer lives happier and more secure. Falling birthrates may or may not be regarded as a good thing. Widespread unemployment is certainly undesirable and must be overcome. Early
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retirement is quite contrary to what should he happening given our longer lifespan. Recently, we have seen lower economic growth generally; and there is budgetary stringency. All those factors have contributed to the problem. The question is how it should be dealt with.
There are many aspects to the problem. For example, the noble Lord, Lord Desai, said that the issue will be made even more difficult when the central and eastern European countries become members of the enlarged Community. All those aspects have to be considered.
As I found when reading material in preparation for this debate, not only in this country but elsewhere, too, the problems are being taken very seriously. One aspect of the debate on the single currency is often missed; namely, it has concentrated minds on the proper running of the financial and economic affairs of each country. I cannot think of a time, during our lifetime or before, when it could positively be stated that 15 countries in western Europe and a number of other countries aiming to join the Union were so undividedly concentrating their attention on getting their budgetary systems and government expenditure right, dealing with the problems of unemployment and so on. We are living in a unique situation of transparency and recognition of the problems that we face. Surely that is a positive aspect to the debate, whatever we may feel about joining or not joining a single currency.
The same is true in relation to pensions. We may say that they present a major problem and ask how it will be dealt with. But at least it is being looked into and dealt with seriously in the parliaments of a number of member countries. My noble friend referred to action being taken in Italy. The measures are creating trouble and difficulty, and sometimes there are riots in the streets. But governments in Italy, France, Germany and other countries are seizing the problems and trying to deal with them. These are positive developments indeed.
In this context, as a number of noble Lords pointed out, the UK is more fortunately placed. We have a much better balanced pension arrangement as between funded and unfunded schemes. The European Commission introduced a pension fund directive, referred to in my noble friend's report, in which it tried to encourage more funded schemes and open up investment by those schemes in a wider range of countries than the member country concerned. Unfortunately, the proposal was objected to and therefore did not come about. I hope that soon a further initiative will be taken in that respect.
The question of moving into a higher proportion of funded schemes is being seriously considered at the present time. It is right, as pointed out by the noble Lords, Lord Peston, Lord Marsh and Lord Barnett, that we should have a clear combination of the state scheme—the noble Lord, Lord Desai, emphasised the importance of that—and a funded scheme; and that a degree of compulsion should be introduced into the funded element. That is an important point which emerged from the discussions we had. It is another area where I believe there was, if I dare use the word, a "convergence" of opinion emerging. Perhaps the noble Lord, Lord Mackay of Ardbrecknish, in replying, will take up these points.

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What is so interesting is that the consideration on the Continent of the introduction of more funded schemes raises the question of equity markets. On the whole, we in Britain, the United States and some other countries have had a very much more highly developed equity market than have the continental countries. Generally, people on the Continent have been worried about how they invested their money and have gone for bonds, saving schemes and so on, in which they have been much encouraged by various tax incentives. Now, however, they are beginning to realise that they need to move more and more in the direction of equity investment which is related to privately funded schemes.
The recent issue of Deutsche Telekom in Germany represented an historic departure in the attitude of the German investing public, in that it was over-subscribed several times. More and more privatisation issues are likely to arise in Germany and elsewhere which will awaken interest in equity funding. If the funded schemes to which we refer can get off the ground and the range of equity funding can be widened, substantial amounts of capital could be released for investment in European business activities, manufacturing and other productive engagements. So we can see coming out of this development something that is very positive. It is a serious problem; however, it has another side to it which could be positive.
That leads me to consideration of the role that the UK should be playing. Frankly, I was a little dismayed to read the views expressed in the report of the Select Committee of another place. The committee seemed to think that the only impact on the UK could be that we should be asked to finance the pension deficits of other countries. In my opinion that proposition is totally ludicrous. We could not even begin to do that, as was pointed out by some of our friends on the Continent.
I believe that the role of the UK should be to try to help our continental friends to move in the direction in which we have moved: to enable them to achieve a better balance between funded and unfunded schemes, and to explain to them how the equity market works and how it could be widened and opened up in our common interest. That could be a positive role for the UK. Given remarks already made by the Government in response to the Select Committee's report, I hope that will be a route that they feel we should pursue.
5.8 p.m.
Lord Mackay of Ardbrecknish: My Lords, we have had a most interesting debate. I, like every other speaker, am grateful to the noble Lord, Lord Taverne, for introducing it. We have ranged a little wider than the report we were invited to consider; however, this is a very wide subject.
Before I respond, I want to say how much I enjoyed the speech of the noble Baroness, Lady Ramsay of Cartvale. I nearly said "my noble friend", because, as she indicated, we go back a long way. I met her only once during her long and distinguished career with the Diplomatic Service, when I visited Finland in my capacity as Scottish health Minister. Then, much to the
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surprise of both of us, we discovered in the line-up that we knew each other. We were probably considered pretty rude for the rest of the evening, since we sat in a corner, partook of some of the wine of our country—even in Finland, and despite its price—and discussed all our mutual friends. Many of them are in this Palace in one capacity or another. My noble and learned friend Lord Hailsham introduced me one day as "one of the Lord Mackays". He said, "I am beginning to think you need to be called Mackay to get in here". I believe my noble friend may have to rephrase his remark. You may have to have been at Glasgow University between about 1955 and 1965 in order to get into either House. As the noble Baroness said, we are a pretty "cross-party" lot. In the other place the right honourable Member for Garscadden, Mr. Donald Dewar, the honourable Member for North-East Fife, from the Liberal Democrat party, and in my own party the honourable and indefatigable Member for Southend East are three examples of the same vintage. To show that in Scottish politics we embrace all sides, for a brief time until I put a stop to it, the Scottish National Party was represented by Mr. Iain Maccormick, who was also one of our number.
In case noble Lords think that that happens merely in politics, a particularly important achievement by the noble Baroness was to be not only the first woman president of the Students Representative Council, SRC for short, at Glasgow University, but also the first woman president of the Scottish Union of Students. Those are two considerable achievements when we realise that it was back in the 1950s. She succeeded another of our colleagues who has just given up the office of president of the International Bar Council. So noble Lords can see that we are a fairly cross-party and cross-purpose group.
Perhaps our most famous colleague at the time at the university achieved something else more important. For many years he created—not manufactured—the Macallan whisky on Speyside. That ceased recently. Noble Lords can see that it was a vintage few years at Glasgow University! We warmly welcome the noble Baroness, Lady Ramsay, to our midst and look forward to hearing many more of her contributions in the future.
Hardly a day goes past without an opportunity to read about the latest report or study on the ageing of Europe's population and the issues that raises. This is particularly the case in relation to pensions. Most recently, the Social Security Select Committee in another place reported on the unfunded pensions liabilities in all the member states and in particular some of those on the mainland of Europe. That has been an issue for some time and has brought to the fore the 1994 report of the Federal Trust which forms the kernel of our debate this afternoon.
I agree with much of the report and I am glad to see that its conclusions are broadly in line with the policies pursued by the Government in this area. Moreover, since the report appeared in 1994, many European countries have recognised the problem and are beginning to take action.

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To put the debate into context, fertility rates have declined while longevity has increased. I welcome both, although it seemed that the noble Lord, Lord Ezra, welcomed only the longevity. I am not entirely sure that I do not welcome both because in a crowded little island like ours in an increasingly crowded world, it seems to me that fertility rates continuing at their high level would cause us enormous problems, far greater than those we are discussing today.
The average male life expectancy is set to increase from today's 74 years to 76 by 2010 and 78 by 2025. One interesting fact—I was going to say "useless", but it is not useless because it illustrates the problem posed in our own system when we examine our own pension provision—is that in 1945, when the welfare state as we now know it was created, the average life expectancy of a man was 63. You do not have to be an actuary to realise that pitching the retirement age at 65 was not a bad actuarial decision. Today men's retirement age would have to be 75 if we were honouring exactly the same promise as was made in the 1940s. Sometimes those who use the pension promise that was made in the 1940s and 1950s use it too glibly because they do not appreciate that the position has moved dramatically since that promise was made.
The number of workers compared with the number of pensioners is set to fall from just over 3:1 in 1994 to just over 2:1 in 2040. That takes account of the equalisation of the state pension age for men and women. So there will be fewer workers paying fewer taxes and contributions when at the same time there are more elderly and retired people in the population.
The issue of increased pension liabilities, particularly unfunded or pay-as-you-go liabilities, as the population ages is a serious one which we in this country have already recognised. We began to take the necessary steps in the early 1980s. I was pleased that the noble Lord, Lord Peston, seemed to recognise that. However, I was not entirely sure whether the beginning of his speech and the end of it were quite logical. I shall come to that in a moment. The noble Lord recognised it and asked me whether it was true that the Government predict that contribution rates will not rise in the long term. The rate of contributions is predicted to vary slightly from the current level as the post-war baby boom and the 1960s baby boom move through to retirement. No long-term increase is predicted.
The reason for that is that, since the Conservatives won the election in 1979 we have taken serious steps—without the approval of the Opposition—to ensure that actuarially the system can work and continue into 2010, 2020 and beyond. We broke the link between the basic state pension and earnings. The noble Lord, Lord Taverne, said that that was a wise move. I am not sure that the noble Lord, Lord Peston, agreed at the end of his speech. I thought he complained a little about it. His noble friend Lady Hollis, with whom I am more usually locked in debate, as your Lordships know, has criticised me on a number of occasions for breaking that link, but as I understand it, it is as near a part of official Labour Party policy as anything that is official Labour Party policy. Perhaps we are reaching the same ground and I look forward to not being criticised on it again.
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It is important to say, and the scale of the figure is well worth mentioning, that, if we had not broken that link but had kept it, this year the welfare budget would have cost £7.4 billion more. I am glad to hear that other people are joining us, looking back and saying that the decision in 1981 was correct.
We also began to encourage individuals to make greater provision for themselves through the introduction of greater flexibility and choice in pension options. That is largely through the 1988 Act put through by my right honourable friend Mr. Norman Fowler. Money purchase schemes, both occupational and personal, were allowed to contract out of SERPS. As a result of those efforts to encourage private provision, over three-quarters of employees opted out of SERPS. Over 20 million people have rights in occupational pension schemes and over 5 million people are holders of appropriate personal pensions.
My noble friend Lord Clanwilliam returned, as he has on a number of occasions, to compulsory pension provision. I notice that the noble Lord, Lord Barnett, said that he never undertook any fiddles, but those of your Lordships who have read his book will realise that they are classified under the title "wheezes". I always enjoy debating with him. The noble Lords, Lord Marsh and Lord Peston, together with the noble Lord, Lord Barnett, discussed the problem of compulsion.
We already have a compulsory second-tier pension in this country for employees who earn enough to pay national insurance contributions. They must either be in SERPS or in a contracted out scheme which provides at least equivalent benefits to SERPS. So a compulsion exists for those in employment and sometimes I feel we tend to forget that when we discuss the possibility of compulsion. I appreciate that the debate can move on from that to compulsion for those people who are self-employed, although many take out pensions, and for compulsion to go further than the equivalent of SERPS. Those are issues to which all parties will return in the months and years ahead because I do not believe the problem of pension provision will be easily resolved or go away.
We have continued to deal with the demographic situation, building on the changes which we introduced in the 1980s. We have reformed SERPS. Again, that has been pretty unpopular with the party opposite. We have done so not because we wish to be miserly, but because we wish the scheme to be affordable. I sometimes wonder how people could have sat round the table in the Department of Social Security and devised SERPS. I wonder about the actuaries who advised them. By 2030, unreformed, SERPS would have imposed a burden on taxpayers—because it is a pay-as-you-go scheme—of £41 billion. Because of the changes we have made, it is now £12 billion and it is clearly much more affordable. We have also equalised the state pension age at 65 and we had a debate in this Chamber during the course of the pensions Bill. I was invited to go for 60 but the cost of that would have been about £15 billion extra by 2025.
I was asked to go for a flexible decade of retirement, so that retirement could take place any time between the ages of 60 and 70. But, of course, everybody who retired

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under 65 years of age would impose additional costs. While the cost of everybody retiring at 60 might not have reached £15 billion, it would have begun to approach that figure as more and more people retired at 60 and took advantage. So the additional cost would have been there. I now see that a "wobble" is being put on that policy by the party opposite. In fact, the party opposite says that people can retire early but that their pension would be cut by the actuarial calculation of that early retirement. That could easily mean that somebody retiring at 60, instead of having the £61 that has been mentioned, would have barely £40 a week. And that would not be just until that person was 65; it would be £40 a week for the rest of his life. Then, to avoid claims by those people for income support, if that is what they need, one would have to make sure that they could not do it or else the cost would still be in the area of the £15 billion that I mentioned.
So we took steps to make the situation affordable and to resolve the problem in this country. Private funded pensions need to be secured. We took steps with the Pensions Act, after the Maxwell affair, to give people confidence in occupational pensions. I did not see the television programme last night. I decided that I had not taken enough sick bags from aeroplanes over the past few weeks in order to allow me to see the programme through. I gather from this morning's reviews that I probably missed nothing from that point of view. The Act of course increases the security of members, which is very important.
We welcome the growth of group personal pensions among those employers who do not currently run an occupational scheme but who wish to do something for their employees' retirement. We certainly want to encourage that. I believe that the Act provides the framework that we need to build on to encourage people to provide for their own retirement. A number of noble Lords mentioned young people and that issue was vividly illustrated by the noble Lord, Lord Marsh. We have run a campaign in one part of the country to test how we get through to young people to get them to start pensions. It has been quite successful and the feedback has been good. We have tried to bring in the pensions industry to take on that campaign and direct some of its campaigning in an attractive way at those young people. I have to say that some of the captions used might have made some of your Lordships gulp a little, but they certainly had the desired effect of bringing the advertisement and the problem to the young people's attention.
All those steps are helping and they have helped with the £600 billion that we have invested in private pension funds. It is invested not only in the United Kingdom. More than a quarter of funds are invested overseas. So to an extent, we have spread the load around and made sure that even if some time in the future our economy does not perform so well as it might do, we have perhaps investments in other economies which are performing well. So those are good things.
The positive effects have been recognised by, for example, the OECD. The OECD recognised that there is a partnership between public and private provision
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which places us in a healthy position. We are alone with Canada in avoiding the mounting debt problems faced by other OECD countries as a result of the growing costs of pension provision. The policies which rely in a very big way on pay-as-you-go can lead to very difficult problems, as my noble friend Lord Dean of Harptree mentioned. The OECD estimates that the net present value of the liabilities of unfunded public pension schemes in this country is just 19 per cent. of GDP; for France it is 98 per cent.; for Italy it is 113 per cent.; and for Germany it is 139 per cent.
My noble friend Lady Seccombe illustrated in very real terms the improvements in living standards that we have seen for our elderly people as more and more pensioners retire with second and third-tier pensions and in a very much better position than people were 10, 20 or 30 years ago. I do not normally take issue with the noble Lord, Lord Desai, but I believe that pensioners are becoming much better off and indeed the proportion of pensioners in the lowest income decile has fallen significantly since 1979, from 31 per cent. to 8 per cent. I am sure that we all welcome that.
The IMF, in its World Economic Outlook for May 1996, drew attention to the problem and suggested that countries such as Germany and France would have either to raise social security tax collections or reduce pension liabilities by around 3.5 per cent. of GDP.
I do not wish to give the impression that our European partners are not taking steps to deal with their problems. Of course they are. Indeed, mention was made by a number of noble Lords, including the noble Baroness, Lady Ramsay of Cartvale, about what is happening in other countries. The French Government are to submit an amended finance Bill to the parliament in December with a view to encouraging some funded second-tier pensions for private sector employees. They have also changed the way that unfunded pensions accrue and have introduced a new tax of one-half of 1 per cent. in order to reduce the welfare deficit. Indexation of pensions in France is now based on prices rather than earnings—a little like this country. Italy has instigated a number of reforms. Spain and Italy have introduced tax incentives for private schemes. Germany will see a gradual raising of the retirement age for women from 60 to 65 and for men from 63 to 65. Clearly, more will have to be done but I believe that a start is being made.
For the last two or three minutes of my speech I want to return to the Social Security Select Committee report. There has been considerable speculation in the press and elsewhere—indeed, the noble Lord, Lord Bruce of Donington, brought it to the fore in this debate—that, because we have funded schemes in this country and many Continental countries have large unfunded schemes, we might find ourselves having to pay for their large unfunded schemes. I want to make it absolutely clear that there is no question that we shall pay for pensions for the workforces of Germany, France, Italy or any other country.
Many noble Lords have mentioned that Article 104b of the Maastricht Treaty is perfectly clear. I draw your Lordships' attention in particular to two passages. The first reads:

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"The Community shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State".
That is quite clear. The next sentence goes on:
"A Member State shall not be liable for … the … undertakings of another Member State".
So it is perfectly clear in Article 104b that each individual member state will have to bite its own bullet, so to speak, and deal with the problem inside its own boundaries. They will have either to raise taxes or reduce pensions. It is perfectly clear that that is what they will have to do. Some of them are beginning to move in that direction. Moreover, the next part of the same Maastricht Treaty—Article 104c—makes clear that the rules of excessive deficits will apply. In fact, in the very first sentence it states:
"Member States shall avoid excessive government deficits".
It goes on to suggest how they will do it. The stability pact is under consideration. I have a Question on that to answer tomorrow and so I may leave it until tomorrow to deal with that problem. So, other member states will have to address the pensions problems that they have, just as we have had to address the problem that we have in this country. Nobody should be in any doubt about that.
I welcome the attention that has been focused on this issue this afternoon and I am glad that international organisations such as the OECD as well as the Social Security Select Committee and the earlier report of the noble Lord, Lord Taverne, have recognised the strong position that we are in in the United Kingdom. Our policy is simply based. We believe in a triple partnership between the individual, the state and the private sector. Our aim is to encourage funded pension provision while at the same time ensuring that the state pension system remains affordable and the less well off pensioners are given adequate support through the benefit system. That means maximising choice and flexibility. It means providing adequate protection. It means that the whole system and the economy have to be run on a sound financial footing. It is through that kind of partnership that we have demonstrated to Europe how to deal with the pension problem.
This has been an interesting debate. A certain amount of common ground is beginning to emerge as the party opposite begins to agree with some of the matters with which they have disagreed over the past 17 years. That is to be welcomed. I believe that it is certainly welcome for the pensioners of the future.
5.30 p.m.
Lord Taverne: My Lords, it occurred to me after I moved the debate that perhaps I should have declared an interest. I do not believe it is relevant, but I am a director of an international insurance company.
I cannot refer to all the valuable contributions which have been made in the course of the debate, which I much enjoyed and from which I learnt a great deal. I therefore want to concentrate on two main issues. First, as the noble Lord, Lord Mackay of Ardbrecknish, pointed out, there has been a considerable measure of agreement. There has been agreement that there must be some sort of
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compulsory second tier. The noble Lords, Lord Peston and Lord Marsh, and the noble Earl, Lord Clanwilliam, felt that we should go further than what is perhaps a compulsory element at the present time. It was felt that it must be funded and involve a measure of state aid if everyone is to be helped, because it must be universal.
There is a great deal to be said for a Select Committee of this House looking at the problem of pensions in this country. We face a grave and serious problem. We sometimes boast about the relatively good fiscal position we are in; but we must remember that the reason we are in such a good position is that we still tolerate a degree of poverty among the elderly in this country which would be regarded as intolerable by some of our European partners whose fiscal position we criticise.
The second main point I wish to address was particularly well covered in the impressive maiden speech of the noble Baroness, Lady Ramsay of Cartvale. I am sure that in future all our debates will he greatly enhanced by the experience, eloquence and insight which she can bring to bear.
The noble Baroness said that we can learn from Finland. I entirely agree. I believe we can learn from many other countries too. We have a great deal to learn from Australia, Switzerland—which also passed a referendum in favour of a compulsory second tier—and the Netherlands. We have much to learn from all those countries about transition and securing a simple form of ministration for those universal pensions which is much less costly than that available at the present time.
I agree with the noble Baroness that there are shortcomings in the Federal Trust report. It was written two years ago and a great deal has happened since. There have been many developments over the past two years, some of which were referred to by the noble Lord, Lord Mackay, not only in the reforms that have been made in terms of limiting the Government's commitments to the future, but also in the shift that is now visible towards funded schemes. The noble Lord, Lord Marsh, said that those hidden debts are matters of actuarial certainty. That is true, but they are not certain debts. Politics and commitments change and all sorts of changes have been taking place even since the Select Committee sat. My criticism of the Select Committee is that it does not appear to have paid sufficient attention to the changes which have taken place in other countries.
Finally, I am glad that the noble Lord, Lord Mackay of Ardbrecknish, confirmed in the clearest possible terms that there is no question of our being liable to bail out other countries for their pension debts. I was glad also to have the endorsement of such an impressive, authoritative and uncontroversial maiden speech that the Select Committee's report is based on myth and belongs in the same category as the straight banana and the square strawberry. I hope that the issue of monetary union will be discussed on its merits and will not be affected by the gigantic red herring drawn across our path by the Select Committee. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

The National Lottery: Second Weekly Draw
5.33 p.m.
Lord Howell Lord Howell rose to call attention to the likely impact upon charities, trusts and foundations of the decision to hold a second weekly National Lottery draw; and to move for Papers.
The noble Lord said: My Lords, I am delighted to have the opportunity to call attention to the likely impact upon charities, trusts and foundations of the decision to hold a second weekly National Lottery draw. In doing so I am particularly glad to see that the noble Earl, Lord Effingham, intends to make his maiden speech, and I know that we shall listen to him with great interest and wish him well.
The words "the likely impact" in the title of the debate are something upon which I should like to comment. To quote a famous phrase: we do not have to look in any crystal ball in relation to this matter; the books are on our tables for us to see what the impact has been of the existing National Lottery and therefore we can calculate what the future holds.
Before dealing with the substance of the debate I must declare a number of interests. First, I was a member of the National Lottery Promotion Company which had in its membership Mr. Richard Luce of the other place, my noble friend Lord Birkett and myself, under the inspired leadership of Mr. Denis Vaughan. We promoted the National Lottery and I do not believe Mr. Vaughan received sufficient recognition of the work undertaken in promoting that good cause, which I have always supported and still do, despite some of the comments I shall make today.
When I was a Minister I instigated the Football Trust by persuading the football pools companies to allocate a large sum of money from their "Spot the Ball" competition. That created the Football Trust and the Foundation for Sport and the Arts, both of which have done excellent work. I am also a director of Wembley Stadium which hopes, in due course, to see some of the lottery money, though it is taking a long time to arrive and for the Government to make up their mind about the question of a national stadium. I predict that we may get an answer to that question any time now.
I want to declare an interest of personal involvement in a lot of charity work. I happen to be the president of CRAB (Cancer Research in Birmingham) which raised £1 million for cancer research over the past two or three years. My experience is that it is extremely hard work to persuade large numbers of people to sell badges, take out collecting tins and write to firms to obtain donations. I am therefore well aware of the impact there has been on that organisation. My last interest is that I am chairman of the Birmingham bid for the Academy of Sport. I do not know whether or not we shall win; if we do there is £100 million of lottery money on offer for it and I should therefore declare that interest.
My objective in raising this matter was to find the answer to the question why the decision was made to hold a second weekly lottery draw. Parliament was never told that there might be a second weekly lottery
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draw. Parliament was not consulted after the decision was taken which affects so many interests, including the betting industry—I am pleased to see the noble Lord, Lord Wakeham, in his seat—which I had hoped to include in my title but which seems to have got lost on the way.
Why has the Secretary of State been overruled? She appeared before the Select Committee in another place and in answer to a direct question clearly said that she could see no reason why we should have a second weekly draw. Within weeks she was overruled, presumably by the Prime Minister. Why—most important of all—have the affected parties not been consulted? When the Government take a step like this it is usual to make sure that all affected parties are given a hearing so that they can explain their interests and say how such a decision may affect them. No such courtesy was granted to them on this occasion.
With respect to the Minister the noble Lord, Lord Inglewood, we know the answer to the question before the debate begins; before I speak and before the Minister speaks. The Prime Minister spoke on this matter last Friday in his constituency. The Birmingham Post of Saturday, 16th November, reported that the Prime Minister defended the mid-week lottery due to start next year and said that he did not see why the "nanny state" should stop it. So there is going to be a mid-week lottery, "I, the Prime Minister, have spoken"; and all the interests concerned can get lost in the thought that they are trying to sponge on the nanny state. It was a regrettable comment.
I have heard from the National Council for Voluntary Organisations which represents all the charities—there are over 125,000 in this country. Most of these charities are bound to be affected, without consultation, by a second weekly lottery. They estimate that the loss to charities already suffered because of the first lottery amounts to £350 million in 1995. That figure is calculated as a result of a very detailed NOP survey. Although some of the large charities which depend on covenants and fixed donations are not as badly hit, what is revealed by the survey is that those charities which depend on raffles, street and door-to-door collections have suffered the most. The income from raffles is down 16 per cent.; from street collecting and from door-to-door collections the figure is down by 8 per cent.
What has the Prime Minister to say to them and the thousands of people who volunteer to stand rattling their tins making collections? He said, "You can spend more time in the snow and the rain, but do not expect to make any appeal to us, the nanny state, in order to help you. Why should the cry of despair from the charities produce any response, and especially why should they expect to be consulted?" I have great regard for the Prime Minister, but I am sorry to say that I consider his comments are a calculated insult; namely, that when charities make their appeal they are appealing to the nanny state.
The National Council for Voluntary Organisations has written about the impact of a second draw and stated,
"A second weekly draw will further drain away funds from other forms of charitable fund raising, in particular charities reliant on traditional forms of fund raising, namely street collections … raffles and ticket sales".
That is the point that I have been making on their behalf. It is astonishing that no thought has been given to any of their considerations bearing in mind the thousands of volunteers who give up their time to make the wonderful voluntary work of this country so successful.
Then there is the question of the football pools. Their income is down 40 per cent. I also include the spot-the-ball pools. The football pools organisation tell me that they estimate a further drop in income this year of 20 per cent., which will put in great jeopardy the magnificent work that they are doing in restoring our football grounds and other works. The Football Trust has a shortfall of £35 million if it is fully to implement the Taylor report on football ground safety. I shall not say much about The Foundation for Sport and the Arts because the deputy chairman, the noble Lord, Lord Brabazon of Tara, is here and no doubt he will tell us about the situation there. I understand that at its peak that organisation was receiving £1.4 million a week and that figure has now been reduced to £700,000 a week. The secretary to the trustees, Mr. Grattan Endicott, tells me,
"You will readily appreciate that a mid-week lottery will provide intense competition to the pools just when they are picking up the coupons each week. The benefits of their recent marketing efforts will be damaged and their finances would he in no condition to mount an extended defence to their (much reduced) market share. Where a further reduction in pool betting duty was a crucial need it now becomes an exercise in emergency relief for a storm-battered industry".
Those are very wise words. To put the matter in my own way, and not referring to the nanny state all the time, it ill becomes the Prime Minister to tell the pools industry to stop whingeing. That is really what he is saying. That industry is entitled to feel aggrieved.
I welcome the participation of the noble Lord, Lord Wakeham, who will no doubt tell us about the horse racing industry. It is a very important industry and I personally support its case. It is an industry which gives great pleasure to millions of people. It now finds itself in a difficult state. It has a legitimate concern, which I hope the Government will listen to. In all these matters, although the Prime Minister appears to be off-putting, I hope that the Chancellor of the Exchequer will show more imagination next week when he produces his Budget.
The questions for the Government are these: will the second weekly lottery reduce the pools tax? Will it reduce the betting tax? How do the Government intend to protect football, sports, arts, racing and especially the charities, from the proven effects of a second weekly lottery? But the nanny state is not dead. We all know that the Prime Minister deserves a great deal of credit for getting the national lottery going, but when his pet scheme is under threat because of a drop in income, particularly the danger to the scratch card scheme, at a stroke the Prime Minister invokes the nanny state
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without any consultation. The state will agree to a second weekly lottery and the problems will presumably then be solved.
There are other matters of concern such as addiction, which is a moral question. I believe that the Government have a duty to address it. I declare another interest. I spend £5 a week on the lottery. I make a further declaration: I have won five amounts of £10 on the National Lottery. But now I am put in a position which faces millions of people. If we have a second weekly lottery and we already have our numbers, do we have to double our stake to £10 in case the numbers come up in midweek when one may not have backed them? That is a clear incitement to addiction.
Although I am against a second lottery, I have a suggestion and I hope that the Minister will be helpful in his reply. Let us have a different kind of second lottery. Instead of having the same numbers 1 to 49 which apply to Saturday, will the Government and the regulator consider having the numbers 50 to 99 on Wednesday, so that we do not all feel compelled to stick to our numbers? It seems to me that that is a rational way to tackle this matter. I hope that that suggestion finds some favourable response.
Then there is the performance of the regulator, Mr. Peter Davis, before the Public Accounts Committee. Mr. Robert Sheldon compared his unfavourable performance as the regulator of the National Lottery when set against the performance of all the other public service regulators who had appeared before the committee. Mr. Alan Williams made some scathing comments about the way in which the regulatory regime had allowed Camelot to make a windfall profit of £7 million in a year on uncollected prizes. If the uncollected prizes were paid over to good causes, as we all want, it beats me why Camelot should be allowed to keep the interest. That is a matter that ought to be looked into. The National Audit Office has also complained about this matter as regards the £135 million shortfall in prize payouts with Camelot keeping the interest. So, the performance of the regulator is something that requires attention.
There is also growing concern about the difference in procedures between the English Sports Council and the Welsh Sports Council. I should like to know why, because it is certainly unjustified. In England the local authorities and the sports governing bodies are not allowed to have a say in decisions about lottery payments. What happens in Wales is totally contrary to that. There, the local authorities and the sports governing bodies are seen as having a great role to play.
There is also the question of increasing bureaucracy. It is one year ago next week since I spoke at a conference of the CCPR, drawing attention to the decision not to help St. Andrew's Church, Handsworth. That church is in an ethnic area where there is great poverty and unemployment. The church was told that it could not have a grant and was asked questions about its endowments and investments. As anybody who knows Handsworth will recognise, they were ludicrous questions to ask there. As a result of that intervention, the church was told that it would have a grant, but here

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we are, tone year later, and it has not yet received a penny although we hear that the National Lottery is supposed to be getting on with things. We need more decisions to be taken regionally—and they certainly need to be taken more speedily. I hope that the Minister will look into that point.
If I am to make a rounded assessment of the National Lottery I must say a word in praise of the Government's new initiative. I have mentioned the National Academy for Sport. Although I have some difficulties with some of the details, in essence it is a good idea which should be welcomed. A week or so ago funding was announced for our top sports people to give them an income on which to base their careers. However, there are still some problems. Birmingham and Sheffield, for example, have spent millions of pounds of their ratepayers' money on building first-class sports facilities. They have not had a penny from the lottery for that. That raises the question of when there will be some revenue funding to match the capital requirements. I was once told by a Treasury official, "Always remember, Minister, that every capital project has a revenue consequence", but I believe that if Birmingham and Sheffield have used money from their ratepayers' pockets, the Government should at least help them with revenue funding.
I have noted the time, so I turn finally to the question of our inner cities losing out because capital grants are not at the moment enabling local authorities and schools to be supported. Long leases should attract capital grants otherwise inner cities lose out. I hope that the Minister will look at that point also. More importantly, however, in view of the things that I have thought it necessary to say, I hope that the Minister will think it right to have a thorough-going review of the working of the National Lottery, which most of us wish to continue to support. My Lords, I beg to move for Papers.
5.52 p.m.
Lord Wakeham: My Lords, first I should like to congratulate the noble Lord, Lord Howell, on raising this important matter today and on doing so with the broad scope and in the style which I have known for many years. I am delighted to see that he has lost none of his touch of years ago. However, I hope that a bust-up with a Select Committee of another place is not necessarily in itself grounds for criticism, as I had one myself just a few days ago.
We are delighted that the noble Earl, Lord Effingham, is to make his maiden speech in a few moments' time. I wish him well in that endeavour and hope that it will be the first of many speeches in this House. One's first speech here always has some tricky moments, but I am sure that the noble Earl will acquit himself extremely well.
I have no objection to the National Lottery. Indeed, I recognise that many good and important projects are developing from lottery funds and I wish them well. However, like most things in life, there is a price and it is on some aspects of that price that I wish to comment today. By comparison with the noble Lord, Lord
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Howell, I feel a certain inadequacy in terms of a lack of interests to declare. However, as some of your Lordships will know, I am the chairman of the British Horseracing Board and it is to the impact of the National Lottery on the great national sport and industry of racing that I wish to draw attention this afternoon. Lest any of your Lordships view the link between the terms of the Motion and horseracing as a tenuous one, perhaps I may reassure you that there are within racing a whole number of trusts, notably the Racecourse Holdings Trust and the Animal Health Trust, which receive support from the horserace betting levy, which has been very badly hit by the lottery.
The introduction in November 1994 of the lottery with only a single weekly draw had a serious effect on betting turnover and thus on the betting levy, which constitutes one of racing's most important income streams. In October this year a report by the Henley Centre showed that in 1995 levy income was £5.4 million or 10 per cent. below what it would have been but for the introduction of the lottery—money which will never be recovered. That same report showed that, compared to what would have been the case without the National Lottery, 400 betting shops had closed; 3,400 jobs were lost; overall government revenues fell by over £82 million or 10 per cent.; and betting shop profits declined by £52 million or nearly 35 per cent. Betting shop closures give rise to the risk of illegal gambling, and turnover, once lost, is unlikely to be recovered, at least in full.
The Government have been good to racing in many ways. The Chancellor's welcome decision last November to cut betting duty by 1 per cent. from last March appeared to have helped to stabilise the situation this year, but even before the mid-week lottery draw was announced last month, racing had made a cogent case to the Chancellor for a further reduction in betting duty of 1.75 per cent., allowing the punters' deduction to be reduced by a further 1 per cent. to 8 per cent. and for a direct transfer from betting duty to betting levy of 0.75 per cent. The resultant yield to racing of some £33 million should, we have proposed, be mainly used to provide for a significant injection of additional prize money—additional prize money which is desperately needed to enable us to attract adequate investment in ownership domestically, to maintain the quality of our bloodstock and to compete effectively internationally. All five Derby winners between 1991 and 1995 have been exported to Japan, where the prize money structure can support much higher nomination fees.
The average race in Japan has a first prize of something like £170,000, whereas for a similar race in this country the first prize is about £5,000, so we should not be surprised that Japan can afford to buy the best bloodstock in the world. Unless our prize money levels can be made more competitive with those in other major racing countries, there will inevitably be serious long-term damage to our racing and breeding industry. I do not talk of sudden disaster, but of a steady, long-term decline which I believe to be totally unacceptable.

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The mid-week lottery cannot but have a further depressing effect on betting turnover and the levy and reinforces an already overwhelming case for another duty cut. The Henley Centre report, to which I referred just now, concluded that, if expansion of the National Lottery has a similar effect on bookmaking as the current level of sales has had, for each additional 10 per cent. in lottery sales, gross turnover would fall by a further 0.8 per cent., the levy would be hit once again and betting industry profitability would be reduced by over £7 million. The Henley Centre further concluded that an expansion of the National Lottery of around 40 per cent. would completely eliminate the beneficial impact of last March's duty cut. I hope that the Treasury, the Department of National Heritage and the Home Office will liaise closely to ensure that the effects of the mid-week draw are properly and regularly monitored.
I congratulate the Government on the success of the National Lottery, but that success comes at a price in other sectors of the economy. I take this opportunity to send a last message to the Chancellor. The racing and betting industries employ over 100,000 people. In 1995 racing and breeding employed the equivalent of one in eight agricultural workers. It had a turnover of £600 million plus, and it generated tax revenues approaching £500 million. It employed assets which exceeded £2 billion. All of that will be at great risk if the over-taxation of betting and the consequences of the under-funding of racing are not tackled urgently and decisively. The inevitable negative impact of next year's mid-week lottery must be pre-empted by the introduction of a more level fiscal playing field next Tuesday. I strongly urge the Chancellor to recognise the case that we have made.
6 p.m.
The Earl of Effingham: My Lords, I ask the indulgence of the House for my maiden speech. I thank the noble Lord, Lord Howell, for introducing this subject in your Lordships' Chamber.
In 1992 I retired from the Royal Navy in which I had spent the last 10 years based in London in the Ministry of Defence and in Washington DC working on naval intelligence. I declare an interest. I now work for the Royal British Legion, the leading ex-service charity, and I am responsible for the promotion of fund-raising and the co-ordination of welfare grants-in-aid in Essex.
What is the likely impact on charities of the first midweek lottery draw which will take place on 5th February? Foreign lotteries have conducted successful second draws in the short term but in the longer term have experienced a steady decline in sales. For every pound spent on a lottery ticket, 28 pence is divided equally among the five good causes: arts, sports, heritage, millennium and charities. It is estimated that the midweek draw will increase ticket sales by about 20 per cent. Experience overseas suggests that the split will be approximately 55 per cent. on the Saturday draw and 45 per cent. on the Wednesday draw.
Charity Aid Foundation has reported recently that, on the whole, donations have risen. The foundation admits, however, that matters may look less rosy as far as
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concerns contributions to street, house-to-house and static collections. To give the example of the Royal British Legion poppy appeal in 1995, the remembrancetide collections amounted to £16.3 million, which was an increase of £1.1 million (about 7 per cent.) over the previous year. The National Council for Voluntary Organisations, which has already been referred to by the noble Lord, Lord Howell, has been consistently critical of the impact of the lottery. It points to a 10 per cent. shortfall in individual giving and states that this is evidence that money previously given to charities is being redirected to the purchase of lottery tickets. It is also concerned that it may lead to a net loss of over £90 million for voluntary groups. Voluntary income growth has shown higher profits from charity shops and bigger corporate and trust donations. This has enabled charities to increase their income in the second quarter of this year by about 6.6 per cent., but local fund-raising income, on which many charities rely heavily, has stagnated.
The lottery neatly clobbers charities from both directions. On the one hand, it hoovers up all of the £1 coins that might otherwise have ended up in collection tins. On the other hand, it also allows the public to make a donation with the expectation that they may win something rather larger in return. It is a fact that the lottery is played mainly by those who can afford the least but give the most. Religious organisations believe that it is an inherently bad thing to play the gambling habit and it compromises the moral standards of charities. Others have expressed rather more worldly concerns about the extent to which spending on lottery tickets eats into their income, and the evident public confusion about how much lottery money actually goes to good causes.
The impact of the lottery is based on limited and somewhat anecdotal information. Some charities, particularly those in the medical and social welfare fields, claim that their fund-raising has been seriously damaged as the lottery's fortunes have risen. Others say that, on the contrary, their income has been given a boost by lottery mania and point to the way that charity scratch cards have piggy-backed onto the Camelot and charity instant scratch card market. UK Charity Lotteries Limited, which is the largest operator of charity scratch cards, has seen its sales rise. The Royal British Legion's scratch card, which was launched in 1995, is a very successful example. There were four top prizes of £100,000, four million tickets were sold and £800,000 was earned for the poppy appeal, which subsequently provided revenue for the legion's central benevolent fund.
Many charities are victims of the lottery, but the overall picture is very mixed. Research has been carried out which shows that 69 per cent. of lottery players say that they are giving the same amount to charity as before. Sixteen per cent. are giving more, and approximately 15 per cent. are giving less. I believe that the motivation to play the lottery is nothing to do with giving but is to do with winning, and that it is an increasing addiction. While the Charities Board sits on a pot of millions, many less efficient charities will go to

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the wall. With about 4,000 new charities being launched each year, the situation resembles a pond of spawning fish in which the water level is dropping.
Finally, a second weekly draw will mean that those charities most affected will need to adopt a more proactive fund raising campaign if they are to survive. It may be that the first political party to make the charity sector a major issue can find itself a winner.
6.8 p.m.
Lord Aberdare: My Lords, in nearly 40 years in this House I have never before had the opportunity to compliment a maiden speaker. To that extent, I too am a maiden. The noble Earl makes my task easy. He made an outstandingly good maiden speech which was fluently delivered. He spoke with deep knowledge of the subject. His involvement in charities in general, especially the Royal British Legion, is obvious. The Royal British Legion is a body for which we all in this House have the greatest respect. I believe that the noble Earl also has some qualification as a participator in the lottery, and is even a modest winner. I wish him all the best in his efforts to win the jackpot. I also hope that he will address us again on many occasions.
I should like to thank the noble Lord, Lord Howell, for giving us the opportunity to debate this subject and also for his kind words about the Football Trust. I should declare an interest in that I have been chairman of the trust since 1979.
I start by quoting from a speech made by Mark Antony, as reported by William Shakespeare:
"If you have tears, prepare to shed them now".
A few lines further on in the speech one sees:
"I am no orator, as Brutus is:
But as you know me all, a plain, blunt man".
The plain, blunt truth is that the Football Trust has seen its income reduced by over 50 per cent. since the lottery came into being. Unlike the charities mentioned by the noble Earl, Lord Effingham, we have no access to lottery funds.
I shall confine myself to a few remarks on the position of the Football Trust. Our story began in 1975 when, as has already been mentioned by the noble Lord, Lord Howell, the Football Grounds Improvements Trust was established, set up by the late Cecil Moores of Littlewoods Pools and, to his great credit, by the noble Lord, Lord Howell. Its purpose was to help professional football with the cost of implementing the Safety of Sports Grounds Act. Then, in 1979, the Football Trust itself was formed, with the primary object of tackling hooliganism, which was a very great problem within grounds at the time. Both bodies were financed by a proportion of the receipts from spotting the ball, which was run by the Pool Promoters Association, now changed to Littlewoods spot the ball. Fulfilling that objective of combating hooliganism pioneered the installation of closed circuit television in all football league grounds. That has proved to be the single most important measure in the campaign against hooliganism. We can take a certain amount of credit for the fact that hooliganism within grounds is now rare.
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In 1989 there occurred the disaster at Sheffield Wednesday's Hillsborough ground in which 96 spectators lost their lives and 730 were injured. This led to the appointment of an inquiry by Lord Justice Taylor, and one of the most important recommendations of his report was that all football league grounds should be converted to all-seated accommodation. That entailed vast expense. To help with the considerable costs to clubs of achieving their targets the Government, in 1990, made a 2.5 per cent. reduction in pool betting duty on the condition that the proceeds were to go to the Football Trust, enabling us to grant aid the objectives of the Taylor report. At that point we merged the Football Trust and the Football Grounds Improvement Trust to form a new Football Trust 1990 to fulfil our new responsibilities.
So far we have concentrated our efforts on the clubs in the premier league, the first division of the football league and the premier league in Scotland. These three bodies were all required by the report to have their grounds all seated by the start of the 1994–95 season and we therefore had to give them priority in grant aid. We have now allocated some £91 million towards projects which have cost in total some £322 million.
Thanks to our substantial contribution we can take pride in the number and quality of our top football grounds. The hugely successful Euro '96 competition staged at eight host venues was testimony to that. Now we are determined that our efforts in respect of the lower divisions should be as successful, and this is where we are concentrating all our efforts on the smaller clubs. They have substantial, although of course less costly, needs but their means are much less, and that requires higher levels of grant aid in terms of percentages.
Just when we had reached this crucial stage we now face a crisis. This is entirely due to the run-away success of the National Lottery which has caused an enormous fall in the income of the pools companies. Since November 1994 the pools industry has lost between 40 and 50 per cent. of its business and the result for the income that we receive has been disastrous.
Before the lottery we received an annual income from the reduction in pool betting duty of some £22.5 million and from spotting the ball £14 million. This year the most we can hope for is from pool betting duty £13.5 million, as opposed to £22.5 million, and from spot the ball £4 million, as opposed to £14 million before the lottery. Next year the most optimistic assessments are down again to £11 million from the reduction in pool betting duty and £3 million from spot the ball. So your Lordships will understand why I invited you to shed tears at the beginning of this speech.
It seems likely that our total income over the 10-year period from 1990 to 2000 will now be about £167 million, against the original estimate of £200 million, a shortfall of £33 million, although if we were to implement the Taylor report in full we would probably require some £53 million to see the whole task through. Now it has been agreed that the lottery is to introduce a mid-week draw which will undoubtedly further reduce the income of the pools companies and our own income.

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We recognise the enormous benefits brought to many good causes by the lottery and we acknowledge its success. But we look on ourselves as a good cause too—the vital cause of spectator safety at football grounds. Despite an excellent first five years, our originally agreed aims are now at risk.
We fully support the case made to the Chancellor of the Exchequer by the Pools Promoter Association. It does seem to us unfair that the pools should pay betting duty at 26.5 per cent. and the National Lottery at only 12 per cent. A further reduction in pool betting duty would help the pools companies to consolidate their business and thus help prevent further decline in our Football Trust income.
We have put the case to the Chancellor of the Exchequer and to the Secretary of State for National Heritage, and we also seek an extension of time to reach our objectives. An extra three years on the same basis as at present until 2003 would restore our income to what was originally expected and give us the chance to plan a redevelopment programme in conjunction with the clubs over a longer timescale. We cannot makes sensible plans with individual clubs if we are in grave doubt about our future. Such an extension might appeal to the Government as it would not require any immediate cash commitment from them.
It is often said that football is awash with money and needs no support from the Government. This is true of the clubs at the top of the premier division, but for the rest the scene is very different. The 1996 annual review of football finance made by Deloitte and Touche made some salient points. Only 20 per cent. of clubs in the football league made an operating profit; 73 per cent. of clubs still have accumulated losses; and 38 per cent. have an overall deficiency on their balance sheet. Seventy-seven per cent. of clubs have borrowings outstanding at the bank and all divisions of the football league have now incurred operating losses for the past three years.
We intend to continue to press the premier league, which has benefited most from large television contracts, to make a significant contribution to the needs of the lower divisions. Coupled with government support, this could achieve our aim of ensuring that the implementation of Taylor does not flounder and that the needs of spectator safety continue to be met throughout football.
6.20 p.m.
Lord Brabazon of Tara: My Lords, I start by declaring an interest which I believe is well known to many Lords and was referred to by the noble Lord, Lord Howell. I am the deputy chairman of the Foundation for Sport and the Arts. I am grateful to the noble Lord for giving us the opportunity to debate this important subject. I, too, am concerned by the introduction of a second, mid-week lottery game and its negative impact upon charities and other good causes such as the foundation and the recently developed Sports Grounds Initiative.
The Foundation for Sport and the Arts was founded in July 1991 following negotiations between the football pools companies and the Treasury. We are entirely
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funded by donations from Littlewoods, Vernons and Zetters, at the rate of 8p. in every 105p. they collect (3p. of which comes from a reduction in pool betting duty).
The object was to widen the range of good causes which the pools could fund beyond football, to which my noble friend Lord Aberdare referred. We have succeeded in our objectives beyond our expectations, and our activities are supported and applauded not just by the thousands of organisations which have benefited from our support but also by politicians in all parties. The foundation's indefatigable and able secretary, Grattan Endicott, has received hundreds of letters of support from MPs and the recipients of our grants.
So far we have dispensed nearly £300 million of grants to over 21,000 organisations, very often to those projects which would not attract the interest of the lottery and, indeed, which also fall outside the remit of those covered by the National Lottery's grant giving bodies. We have often been praised for our rapid response to applicants which is borne from the fact that we are not overburdened by complicated administrative procedures and hierarchical structures.
In the past couple of years, however, we have faced considerable funding problems as a consequence of the effect that the National Lottery has had on the football pools companies, our sole source of income. Our income is now running at little more than half its pre-lottery levels: down from £68 million in 1994 to perhaps some £41 million this year. That means that a grant above £100,000 is now most unusual and an absolute ceiling of £150,000 has had to be adopted. All my fellow trustees and I are acutely aware of how these limitations translate into disappointment and dashed hopes.
The Sports Grounds Initiative, which came into being in May last year and which we fund, is also under threat. It was set up to provide for ground safety improvements in rugby, cricket and Vauxhall conference football clubs, and is ably administered by the Football Trust. In its brief life it has already donated nearly £5.5 million to 35 clubs, ensuring that millions of spectators at sports which have hitherto not had access to funding which league football has received through the Football Trust can watch their sport in comfort and safety.
And now we are told, after no consultation whatsoever, that there is to be a mid-week lottery to take place on a Wednesday, starting in February, which will provide intense competition to the pools just when their collectors are picking up the coupons each week. The benefits of their recent marketing efforts will be damaged and their finances would be in no condition to defend their much reduced market share.
The pools companies are subject to all manner of restrictions and commercial disadvantages which ensure that the national lottery always has the upper hand: the type and timing of events appearing on coupons; payment of winnings through shops; the ability to enhance the prize fund and rollovers, to name just a few. Some of these are now the subject of a government consultation on deregulation of the pools industry, and I welcome this. But even if the deregulation process

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goes through unscathed after the consultation process, it may be another year before the changes come into effect—another example of too little and much too late.
The dominance of the National Lottery is a matter of great public concern. It has acquired this position through a combination of factors: by the Government abandoning long-established national policy on the non-stimulation of gambling demand; by weak and ineffective regulation; and by stifling the ability of other companies to operate their legitimate business interests, thereby damaging their and their employees' livelihood and the grant-giving bodies which depend upon them.
We have to understand the environment in which we all now operate. The lottery has been given licence to break the long-standing and socially responsible conventions not to stimulate the demand for gambling. The pools companies always adhered to this and have been careful to promote their products in such a way as to conform to such ethics. The National Lottery has now changed the rules (and the stakes) in more ways than one. Never before has there been such strong endorsement of, or commitment to, a gambling product. The rules were turned on their head under the terms of the National Lottery Act 1993 but not for any other form of soft gambling.
The result is that businesses have been hit on a significant scale and the repercussions are still being felt. Employment in the pools industry has nearly halved and business has declined by a half. As a consequence the Foundation for Sport and the Arts has received notice from Vernons that it will end its 5p. contribution from 30th November and Zetters could well take a similar decision very soon. Only a significant reduction in the rate of pools betting duty in next week's Budget could bring about a change of heart. So the foundation's future is precarious. If we are to continue to fund good causes, the pools must be given the opportunity to regain some of their business and invest in new marketing initiatives. We need to level the playing field between the lottery and the pools companies; we must reduce pool betting duty significantly to 17.5 per cent. at most and we must support the Government's proposals to deregulate the pools industry. The foundation sinks before the pools do, so we have just cause for our fears and must rely upon obtaining equitable treatment. Indeed, I can see no justification in terms of taxation for the application of any different rate of taxation to one of these operations, so similar are they in form.
Noble Lords may ask why, with so much money now going to the good causes from the lottery, it is necessary for the foundation to survive at all. First, as I have briefly described, I believe we have a good track record in our grant giving. Secondly, I think it would be highly undesirable if the lottery gained a near monopoly in giving grants and we saw the disappearance of bodies such as the foundation, the Football Trust, to which my noble friend Lord Aberdare referred, and others like the Sports Aid Foundation, which has done such valuable work in funding our elite athletes. Curiously perhaps requests for our funds have not diminished since the lottery, and this is partly because of the demand for
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matching funding which the lottery requires. We are happy to provide that. Our only requirement is usually that we can have a piece of the project to call our own.
Like many others, I am deeply suspicious of Camelot's motives. It is asking for a second, mid-week game because it claims to be concerned that it will not be able to reach its £9 billion target for good causes. Is this not the company that has been reporting record takings? The average weekly sale of lottery tickets is approaching £70 million. For the year ended March 1996, Camelot retained a profit of £32.7 million after paying dividends of £18.4 million.
A recent report by the Public Accounts Committee in another place noted that:
"sales to the end of September 1995 were almost 70 per cent. higher than forecast in Camelot's application",
and more recently as the noble Lord, Lord Howell, said, there have been press reports that Camelot is retaining £6 million in interest on unclaimed prizes. Does this sound like a company that is failing to meet its targets—whether for the nation or for itself?
I fear this second mid-week game will benefit one cause above all others: Camelot's shareholders. The damage the lottery has inflicted on the foundation and other charitable organisations cannot be underestimated. Now the lottery is being given yet another opportunity to stimulate gambling to the detriment of other sectors in the industry. I totally condemn this move and the regulator's role in this.
6.30 p.m.
The Earl of Sandwich: My Lords, from the high quality of the debate and the strong feelings that are being expressed, it is clear that we owe a considerable debt to the noble Lord, Lord Howell, for initiating it. I am grateful to the noble Earl, Lord Effingham, for speaking on this subject in his excellent maiden speech. I intend to make a few more remarks.
I hesitated this morning before taking the plunge into this very deep and murky pool, the National Lottery debate, with all its turbulent currents of hot air and statistical jacuzzis. I accept that, as regards the charities, the evidence is conflicting. However, having heard the debate, I feel more confident that Camelot is making a mistake and that the public would be better off without a second lottery.
I shall confine my remarks, however, to the effects on certain charities and shall begin by saying that I acknowledge how much the voluntary sector has gained from the lottery. I have seen one figure indicating that two-thirds of all lottery benefits come to non-governmental organisations. That is only to be welcomed, as is the Government's general encouragement of the voluntary sector. I have a particular interest in the heritage and charities, including those giving help overseas, and, despite some reservations about additionality and the size of single prizes, I am pleased to see that so many smaller minority causes and organisations are now benefiting from the lottery because of the initiative of the individual boards.

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We all know from the press and ministerial statements that research into the effect on charities' income is ongoing and it is clear that we cannot depend on sample opinion polls. Nonetheless, as the noble Lord, Lord Howell, said, if there is preliminary evidence that some charity income has suffered we need to take the matter seriously, especially with regard to the smaller charities.
As has been pointed out, the National Council for Voluntary Organisations reported that there had been a 6.6 per cent. fall in charitable giving in 1993–95, while the Charities Aid Foundation claimed in May that the top 500 charities' income rose by 2 per cent. in 1994–95. The Institute of Charity Fund-raising Managers has confirmed the CAF's view that the overall impact of the lottery had been minimal, while it recognised that there was some effect on particular areas of fund-raising, such as street collections.
I have worked for many years with fund-raising charities for which street and door-to-door collections are a significant element in annual income. Like the noble Earl, Lord Effingham, I can say that there is considerable concern not only about the trend shown by this admittedly limited research but about the Government's apparent unwillingness to take seriously the importance of these collections and the value of "loose change" income. Christian Aid, the official agency of the British and Irish Churches, raises £9 million each year through its long-established and highly organised campaign known as Christian Aid Week, of which more than £5 million is derived from house-to-house collections. That is more than half. That campaign has seen a 5.5 per cent. fall during its latest year.
Christian Aid has written to the Secretary of State to express concern—a concern which she herself expressed—about Camelot's decision to go ahead with the second draw even before the results of the Government's own research were known. The concern of Christian Aid, and many smaller organisations which are reliant on voluntary income as well as planned giving, is that the midweek draw is bound to affect this well tried form of fund-raising, which is often at its most successful on Wednesday and Thursday evenings. We have heard about the British Legion, but the Alexandra Rose Day also suffered a recent drastic fall in income, and possibly for the same reason. The NCVO believes that since the lottery began charities' own lottery and raffle ticket sales are down by 16 per cent. and street collections by 8 per cent.
Whatever the truth of the preliminary findings, there can be no doubt that some traditional charities are extremely vulnerable to the second draw and many people have doubts about the wisdom of introducing it so soon. Peter Davis, the Director General of the National Lottery, admitted that his decision was based on what he called "new game developments"—I would call them "hype"—and could not take account of the effects on other competing bodies. In other words, the traditional charities are being bounced by the spirit of the game.
Not only the charities but some of the players may be under pressure from the midweek draw. Oflot's own figures admit that there are people spending more than
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£10 a week on the lottery even in households with annual incomes of less than £4,500. At that level of income it would be surprising if there were any loose change for telephone calls, let alone charities. And yet the charities' experience is that those who are in most difficulty themselves are often the most generous contributors. I am sorry that the right reverend Prelate and his colleagues are not in their places tonight, because there is a theological side to the argument which I am not qualified to put forward. It is the very spirit of generosity and personal involvement in the voluntary sector in all parts of the nation which should not be undermined by the urge to play the game again and again, with all the attendant false expectations which it inevitably brings.
I therefore hope that the Minister will look again at the particular case of personal giving through street and house-to-house collections. There is a distinction between the two. I also hope that he will bear in mind the suggestion of the NCVO that the Government should undertake a fundamental review of the allocation of funds to good causes. This would have the primary objective of increasing charitable funds and of making up for the overall fall in public donations as well as in areas of fund-raising which may be directly affected by the lottery. We have heard convincing cases from those involved in racing and football too. The churches and charities which have witnessed some of the less beneficial social effects of the lottery on local communities have been remarkably indulgent, even in Scotland where there has been a lot of opposition. I hope that the Government will listen to them too when they are monitoring the effects on charities of not one but two weekly draws.
6.37 p.m.
Lord Newall: My Lords, I too thank the noble Lord, Lord Howell, for introducing the debate. We have spoken many times on sporting matters. I wish to add my congratulations to the noble Earl, Lord Effingham, on his excellent maiden speech. We hope that we shall hear him on many more occasions. His predecessor did not speak a great deal but I am sure that the noble Earl can remedy that.
I do not know how many of your Lordships know someone who has gone to the dogs. I believe that many do. I wish to say a few words about the effects of the National Lottery on a sport which I and millions of others hold very dear; that is, greyhound racing. At the outset I must declare my interest, as I have done on many occasions in this House. I am chairman of the British Greyhound Racing Board and I also sit on several charities' and trusts' boards.
According to Home Office figures, as a spectator sport greyhound racing is a little more popular than horse-racing. I know only too well the tough time it has gone through during the past year or so. Already this year we have lost tracks at Cradley Heath, Ramsgate and Sittingbourne. Middlesbrough, too, is due to close this month and threat of imminent closure hangs over Bolton, Canterbury and Hackney. That will reduce the total number of tracks from 39 to just 32—that is a decline of 18 per cent.—and who knows how long it

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will be before developers target other tracks with lucrative schemes to turn them into shopping centres, housing estates, carparks or whatever?
The blame for that must be attributed, at least in part, to the National Lottery. The decision to hold a second weekly draw will only magnify the difficulties that sports such as greyhound racing currently face. According to the Henley Centre, which was mentioned by the noble Lord, Lord Wakeham, and is a world-renowned forecasting centre—if the Government were to take no action on the level of betting duty in the forthcoming Budget—and I hope that they will—attendances will fall from the pre-lottery figure of 4.1 million to 3 million. The Government revenue will fall from £13.3 million to £9 million and the industry profitability will fall from £6.3 million to £2.6 million. I make no apology for producing various figures, because we are talking about money and money always comes in figures.
Clearly, the impact of a second weekly lottery draw, with an increase in ticket sales of 20 per cent. will add further to the woes of the sport. In recent years punters have benefited from a wide-ranging deregulation of the betting industry, thanks to the Government, but the sports on which they rely have fared adversely. I should stress that greyhound racing is not asking for any special favours from the Government but simply a recognition of the plight that it faces and the opportunity to be treated equitably with other leisure interests.
Last year, the BGRB commissioned Gerald Eve, chartered surveyors, to estimate the costs which the sport faced to meet new safety requirements contained in the Taylor report, which has already been mentioned. It calculated that greyhound racing has already spent £6.6 million in safety improvements but is still faced with a bill of an additional £4.8 million plus an annual charge of £1.1 million to keep tracks up to standard.
Unlike other sports which are eligible for lottery money or for support from bodies such as the Football Trust or the Foundation for Sport and the Arts, greyhound racing has no opportunities to secure additional funding from outside bodies. The only way that it can meet those costs is for the Government to reduce general betting duty and insist that the moneys accruing are ploughed back into the sport.
Once again, the off-course betting industry is asking the Government that any reduction in betting duty should go directly to the punter. This is what happened last year when the Chancellor cut betting duty by 1 per cent. The saving was passed on in its entirety to the punter. As a consequence, according to the bookmakers own body, BOLA, betting shop profitability increased by £27 million last year.
Yet, despite this increase in retained profitability, the betting industry short-changes the British Greyhound Racing Fund to the tune of £2 million a year—money which the Government intended to benefit greyhound racing, not the bookmakers. Back in 1992, the then Chancellor, Norman Lamont, cut betting duty by 0.25 per cent. and directed that the money accruing should be passed straight back to greyhound racing. This
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has not happened, as only 65 per cent. of the possible tally is given over to the greyhound industry, and that is from about 200 bookmakers out of a possible 2,000.
The problem is that, unlike horseracing, which has a statutory levy, no such mechanism exists for greyhound racing. It has to make do with bookmakers giving voluntary contributions to the Greyhound Racing Fund and that is sometimes not easy to pursue. Greyhound racing now desperately needs government assistance to allow the industry to compete on a level playing field with other sports. This year, particularly in the light of the decision to introduce a second weekly National Lottery draw, it is imperative that any reduction in General Betting Duty should be specifically directed to the greyhound racing industry—and I hope that the Chancellor will make it clear that bookmakers have a duty to pay out. After all, it is not their money. This will be used to upgrade facilities and stadia, as well as improving the security and integrity of the sport, which is vital if it is to survive and prosper. It will benefit all those involved with greyhound racing from trainers to race-track owners, from kennel-hands to the race-going public, as well as bookmakers, who rely on a healthy and vigorous sport for the profitability of their industry.
This year the British Greyhound Racing Board has asked for a 1 per cent. reduction in General Betting Duty, coupled with a request for the Government to put in place a statutory or other mechanism to ensure that all the monies intended to benefit greyhound racing do so. These two measures would go a long way to offset some of the harm posed to the sport by a second weekly lottery draw, and put us on the same footing as horseracing. Henley estimates that this would increase attendances by nearly 13 per cent.; increase customer revenues by 15 per cent., increase employment by 10 per cent. and increase the Government's own revenue from greyhound racing by almost 25 per cent.
Last week I had the pleasure of leading a delegation to meet the Exchequer Secretary to explain our case in person, and I know that many others have done that. He listened very carefully to what we said and gave us a sympathetic hearing. I left feeling optimistic that the Government have taken on board our concerns, but we must now wait and see what happens in the Budget next week as regards what they do about betting duty. I stress that this is a very important issue for the greyhound racing industry and one that is particularly close to my heart and that of the millions who love the sport.
6.45 p.m.
Lord Donoughue: My Lords, I really must thank my noble friend Lord Howell for introducing this important debate and speaking with such authority. Also, I congratulate the noble Earl, Lord Effingham, on his impressive and enlightening speech.
I begin by assuring the noble Lord, Lord Newall, that some of us do indeed have experience of going to the dogs. For myself, I was briefly a bookie's assistant at Earls Barton in the mid-1940s and matters have been downhill ever since. I begin also with a conclusion from this debate: that nobody in this House today has supported the decision of the Government—in other

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words, the Prime Minister—to hold a second lottery draw. Nor, I hear, did the Secretary of State. There is no respectable justification for it.
Looking at this matter more generally, we are witnessing a boom in gambling in Britain. We are in danger of creating a bonanza society where citizens see that the purpose of life is to win the big one, have the six numbers come up rather than the rewards and satisfaction of work. Over the past 30 years, changes in the dominant political and social philosophies in our society have certainly encouraged that mentality. The loosening of life styles in the 1960s and 1970s, which I must say I both supported and enjoyed, prepared the ground for a more permissive approach to gambling. The Thatcherite emphasis on the priority of short-term financial gain over all other considerations has elevated materialism in general and gambling in particular.
The Tory commitment to deregulation in the past decade has also progressively weakened the previous prevailing principle of government that gambling should be controlled and never stimulated. But the lottery is the single biggest step in the expansion of gambling in Britain. With it, the Government and the regulator are there to encourage maximum gambling. Gambling is now a government-inspired, publicly-encouraged, economic good. For many people, the lottery has hijacked hope.
The lottery has also very particularly led to the expansion of other gambling because other forms of gambling demand and are given deregulation and expansion to compensate for the damage to them caused by the advantages given to the lottery. Therefore, we now have in this country a gambling spiral or an upward ratchet effect. The Government have now again moved up the ratchet or the spiral with the second draw and, having given the lottery that second weekly draw, they will again have to compensate the casinos with less regulation, the pools with numbers betting on other sports, the betting shops with betting on the lottery—I support that—and the Tote with betting, I imagine, on everything. And so it goes on.
The Labour Party and I in this House did not oppose setting up the lottery; nor do I now. There is not the least prospect that it would be ended. However, we have been concerned that it gives too much profit to the monopoly operator; it distributes too much good cause money to the already privileged; that it needs to be more accessible and accountable; and above all, that it is doing great damage to disadvantaged competitors—to the betting shops, the racing industry and its levy with hundreds of betting shops closing and millions of pounds lost to the great racing industry. In that context I support all that the noble Lord, Lord Wakeham, said. I believe that the Chancellor must cut betting duty in the Budget. The lottery is damaging charity revenues, especially those of small and local charities. I agree with all that the noble Earl, Lord Effingham, said in that regard. The NCVO estimates that it has lost £350 million since the start of the lottery.
Ironically, the lottery also damages the charity sources of matching funds to whom the beneficiaries of lottery grants apply for funds to match their lottery
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grants. There is a vicious circle here. The beneficiaries of lottery grants are required to provide matching funds, but the often charitable sources and foundations they approach for matching funds are seeing their funds reduced because of the lottery. The Football Trust and the Foundation for Sport and the Arts have suffered and that has damaged and reduced the fine work they have carried out. We have heard what the noble Lords, Lord Aberdare and Lord Brabazon of Tara, have said about that. The noble Lord, Lord Wakeham, my noble friend Lord Howell, the noble Lord, Lord Newall, and other noble Lords have presented an impressive array of facts and figures on the damage that is being done by the lottery. I do not propose to repeat those figures.
Perhaps here I should declare an interest as an unpaid director of a racecourse, as the co-owner of a jumping horse which has never jumped in public, and as the president of a charity concerned with gambling addiction and rehabilitation. At this point I wish to stress my concern—this was mentioned by my noble friend—as regards the dangers inherent in increased gambling addiction. I do not refer here to the small punter, as ate many noble Lords opposite and many other noble Lords including my noble friend and myself. I refer to problem gambling, which is growing and has terrible consequences for individuals and for families. All the evidence across the world shows that as gambling increases, so does the scale of gambling addiction. Gambling addiction evolves from soft to harder forms, from the lottery draw, to scratch cards, to slot machines, and, finally, to instant video gambling.
Gambling addiction particularly affects the young. There is evidence that one in five of children in the 12 to 15 age group participates illegally in the lottery. A second weekly draw would double the danger posed to children. We should note that gambling addicts are just as sick as alcoholics or heroin addicts. My main point is that all the anxieties that I and other noble Lords have mentioned would be magnified if there were a second weekly lottery draw. The damage done would be that much greater.
As I have said, initially we supported the lottery, while waiting to hear the results of monitoring and analysing of the risks. Now the Government are irresponsibly increasing gambling on the lottery and thereby increasing the damage that is done by it before they have acquired any real knowledge of the consequences of that. When the Bill was going through this House I persuaded the Government to agree to monitor the impact and damage in two areas: the racing industry and charities. I have seen little evidence of the results of that monitoring and research.
I have also called publicly for more research into the impact of gambling on individuals, families, social groups and social behaviour. As the noble Earl, Lord Sandwich, mentioned in his excellent speech, we should note that the cost of this mathematically bad bet on the lottery falls disproportionately on the poor. The poorest 30 per cent. spend roughly twice as large a proportion of their income on the lottery as do the richest. We need to conduct research into all these matters, but I see little evidence of that. The Home Office should be doing more in that regard. In my view Camelot, which

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represents the largest "creaming off' organisation of our generation, should be required to spend a fixed percentage of its huge profits on research into the impact of gambling. The gambling industry should finance more research. However, that is not happening. It is irresponsible of the Government dramatically to increase the amount of gambling on the lottery when we do not know the personal and social consequences of that. Under a smokescreen of raising more money for good causes, the Government are encouraging gambling in our society, increasing Camelot's profits and increasing the Treasury's tax take. That is what it is all about.
Finally, there is the scandal of additionality, especially in the arts. The lottery is being used as a smokescreen to disguise serious cuts in grants to the arts. Lottery money is used to cover cuts in direct funding, but the lottery grants do not replace that funding. For example, 33 regional theatres have a deficit of £8 million. Further cuts in Arts Council funding that are expected in the coming Budget will result in several theatres closing down. We have our great museums such as the British Museum which, for the lack of £5 million a year, may be forced to charge customers. The lottery does not touch or rescue them but it is the Treasury's excuse for cutting their funding. A second weekly draw would allow the Government to make further excuses to cut more direct funding and thereby kill off more theatres.
As I said, we have supported the principle of the lottery so far. We are not killjoys. I am a paid up member of the Cavalier Tendency. We do not propose to abolish it although we may soon have serious news for the operator and the regulator when, shortly, we launch our policy document. Like my noble friend Lord Howell I question the wisdom of holding a second weekly draw, as has every speaker in this debate. It is wrong to stimulate gambling with no knowledge of, or without having done research on, the consequences for charities, the racing industry, betting, the pools, greyhound racing, and particularly the consequences for personal and social behaviour and especially gambling addiction.
I understand what is going on; it is a political matter. The Government, having no other policy successes, are desperate to trumpet the success of the lottery. According to the Government, the greater the amount of gambling, the greater is the success of the lottery. It is time we had a government who could do better for Britain than that. With the lottery, as with the Government, enough is enough.
7 p.m.
The Parliamentary Under-Secretary of State, Department of National Heritage (Lord Inglewood): My Lords, I am most grateful to the noble Lord, Lord Howell, as I am sure is the whole House, for initiating this debate so shortly after the National Lottery has celebrated its second birthday. The 104th draw was made last Saturday and the official anniversary took place on 14th November. Many points have been raised;
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I shall try to cover them all. I shall cover many, but as regards those that I do not, I hope that noble Lords will allow me to write to them.
I should like to thank all contributors to this evening's debate. I wish to pay particular tribute to the noble Earl, Lord Effingham, for such an excellent maiden speech. I am sure that we all much look forward to the contributions he will make to the future business of this House.
I should like to touch briefly on three aspects of the success of the lottery: first, its success in its own terms; secondly in terms of the funds it has raised for the good causes; and thirdly, the extraordinary way in which it has embedded itself in the psyche of the nation during its two year life.
No one can dispute that the lottery has been enormously successful in its own terms with sales far greater than anyone predicted when its licence was awarded and awards more widespread and larger than had been dreamt of. Total sales are fast approaching £10 billion and an independent study by Terri la Fleur, a leading world lottery expert, has shown the UK lottery to be the most successful and efficient in the world. The midweek draw which is due to be launched in the new year, and to which I shall return, will build on that success.
As I have already mentioned it has also been a huge success measured by the amount it has raised for good causes. To date, a total of £2.7 billion has been raised for sport, the arts, charities, heritage and the millennium with the distributing bodies making nearly 9,500 awards to nearly 11,000 projects. The availability of money of this kind for these sectors over such a short time is truly revolutionary.
Another remarkable development is the way in which the lottery has already become ingrained in our collective consciousness. Camelot estimates that 65 per cent. of the adult population regularly play the lottery and that around 90 per cent. have played at some time. There can hardly be a dinner party or pub the length or breadth of the land where it is not one of the main topics of conversation.
Much has been said, both before the introduction of the lottery and since, about the effects of the lottery on charities' incomes. Indeed, much has been said on the matter by noble Lords today. Concern was expressed when the 1993 Act was passing through Parliament that it would lead to a decline in their income. Because of that the Government undertook to monitor charities' incomes before and after the lottery began to analyse what changes, if any, took place in order to identify the reasons for them.
That research, involving the analysis of a large and representative sample of charities' accounts, is being carried out in conjunction with the National Council for Voluntary Organisations. It began earlier this year, and interim results are expected in the spring.
Nonetheless, there has been no shortage of claims that the lottery has caused a decline in personal charitable giving. Such claims are not, however, substantiated by the available evidence. The true picture is mixed, with some studies of public surveys indicating a fall in some

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types of donations—most notably via purchases from charity shops—and others showing an increase in other types of donations; for instance, unplanned giving. And in any event have any changes which may have occurred during the life of the lottery been caused by it, or have they merely occurred at the same time?
The only reliable conclusion which one can draw now is that it is impossible to draw reliable conclusions about individuals' giving to charities based on what people say they give. That point was made by the noble Earl, Lord Effingham, and the noble Earl, Lord Sandwich, albeit expressed in a slightly different way.
To put it briefly, there is no evidence that the lottery has led to a decline in giving to charity. What, however, is quite clear is that the lottery has generated a brand new source of money for good causes. That is the money distributed by the distribution bodies of which about 85 per cent., representing over £2 billion, has gone to charities in the first two years.
The National Lottery Charities Board alone has made more than 4,700 grants worth over £319 million to charities and voluntary organisations working primarily with young people and those facing disadvantage, and it will shortly be announcing further awards to organisations concerned with health, disability and care. In response to the point made by the noble Earl, Lord Sandwich, I can confirm that the allocation of lottery funds to good causes will be reviewed once in the lifetime of every Parliament.
In addition to the grants made by the board, well over half of the grants made by the other 10 lottery distributors across the United Kingdom have gone to charities and voluntary organisations. The National Council for Voluntary Organisations has estimated that from lottery ticket sales in 1995 alone, over £890 million will go to charities and voluntary organisations. Add to that the partnership funding which all the lottery distributors, except the National Lottery Charities Board, require and it is clear that, whatever else the lottery may or may not have done for charities, it has created a new, very rich, source of money which they can apply for in pursuance of their objects. In response to the point made by the noble Lord, Lord Donoughue, I wish to emphasise that the National Lottery Charities Board does not require matching funding; and that other distributors accept funding in kind, for example, voluntary effort in the building of a capital scheme. There is no evidence of problems with obtaining matching funding.
I should also like to put on record the achievement of Camelot, which has often been pilloried, quite unfairly, for its part in successfully setting up and running the lottery. It would be fair to criticise it had it made a mess of it; but to castigate it for doing the opposite is surely perverse. Noble Lords may be aware that the company has recently announced the setting up of the Camelot Foundation with an initial injection of £5 million. The foundation is expected to make Camelot one of the most generous corporate donors in the UK measuring its donations as a percentage of its profits, and is in addition to the support which it has already given to over 300 charitable groups for a total of over £1.5m.
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I am also aware of concerns over the effect of the coming into being of the lottery on the football pools industry and thus the Foundation for Sport and the Arts and the Football Trust. It is clearly a matter for each individual whether he or she wishes to spend money on the pools or on the lottery, or anything else, for that matter.
Since the advent of the lottery appears to have persuaded some of those who previously played the pools to abandon them in favour of the lottery, I am aware that the foundation and the trust will receive a pro rata reduced amount of money to distribute.
Against that background, a number of significant concessions have already been made to the pools industry, in response to its concerns about the impact of the lottery on them. Not least of those is the reduction in pool betting duty by 11 per cent. The ban on broadcast advertising by pools companies has also been lifted. The Government look forward to evidence that the pools companies will make use of these changes to regulations.
In the case of the Foundation for Sport and the Arts—I am most grateful to my noble friend Lord Brabazon for his explanation of the foundation's work—of course, its beneficiaries' loss is far outweighed by the gain represented by the sums which the lottery is raising for sport and the arts. Hence these activities are not collectively themselves disadvantaged per se by the decreased turnover of the pools. The Government are not aware of any serious threat to the long term future of the foundation which should still serve to distribute albeit reduced sums to sport and the arts.
In the case of the Football Trust—1 have listened carefully to the remarks of the noble Lord, Lord Howell, and my noble friend Lord Aberdare—the Government remain committed to ensuring the Taylor Report work is completed by the end of the 1999–2000 season on schedule. In May of this year the Football Trust benefited from a further 0.5 per cent. reduction in pool betting duty which should be worth up to £3 million a year. The reduction in pool betting duty concession for the implementation of Taylor will cease in March 2000. The future of the trust after this date is a matter for the trustees and the football industry. The Government also look to the football authorities to ensure that the vastly increased revenue that the game is now receiving from television and other commercial sources is distributed to enable clubs in all divisions to meet Taylor on schedule. I am sure that your Lordships will support this, and I know that the Premier League is considering help. Any further reduction in pool betting duty is a matter for the Chancellor of the Exchequer to whom many of the messages have been addressed this evening. Indeed, I feel that I stand here as a surrogate for him—except as regards the noble Lord, Lord Donoughue, who seems to know more about the plans of the Chancellor of the Exchequer than possibly even he himself knows.
Concerns have also been voiced by my noble friends Lord Wakeham and Lord Newall about the effect which the lottery has had on betting and consequently on horse-racing and greyhound racing. There have been calls for the Government to allow sidebetting on the

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lottery to help alleviate those effects. The Government are firmly against sidebetting on the lottery which destroyed the last national lottery we had in this country, because it will reduce the turnover of the lottery and thus the amount raised for the good causes. Evidence from Ireland supports this argument. If such a reduction occurred Camelot would, no doubt, seek to introduce new games. This is likely to precipitate a ratchet effect with both bookmakers and Camelot seeking to outdo each other. In turn this is likely to encourage people to gamble who would not otherwise do so. Allowing sidebetting would blur the distinction between the lottery and other harder forms of gambling. Bringing them closer together is also likely to encourage people to gamble who would not otherwise do so.
I am anxious to be quite clear that while the lottery may have reduced the betting industry's turnover to some extent, proper quantification is unclear and is the subject of debate among economists. Moreover, we must not overlook the changes that have been taking place in the industry, for reasons entirely unconnected with the lottery.
The nature of the lottery is that it is gambling based on the selection of seven randomly selected numbers. This is in contrast to the backing of horses and greyhounds, which, if successful, is usually based on a careful appraisal of factors such as form and breeding. What is interesting about the preliminary analysis of changes in punters' behaviour in betting on horses is that the kind of ill-informed flutter characteristic of, for instance, the Grand National is apparently unaffected.
The betting industry therefore appears to be facing problems in an area of its activities which would seem least susceptible to competition from the lottery. Moreover, in any event, surely it is a matter for the punter to bet on what he wants.
Of course, one of the characteristics of betting on horses and greyhounds in this country is that a proportion of the stake placed is handed over to the Horserace Betting Levy Board and the British Greyhound Racing Board respectively for the benefit of the sports concerned. Clearly, therefore, a decline in this kind of betting has a direct and damaging impact on these industries.
When faced with such a problem, surely the right approach is to identify the specifics of the difficulty, as noble Lords have done this evening, rather than indiscriminately cross-subsidise horse-racing and greyhound racing from other forms of betting if the public changes its betting habits.
I now turn to the question of the lottery regulator and the mid-week draw. Under the terms of the National Lottery etc. Act 1993, the licensing of a mid-week draw is a matter for the director-general of the National Lottery, not the Government. The Secretary of State did, however, emphasise, from the moment she was aware of the possibility of Camelot seeking a mid-week draw each week that the director-general must ensure that his decision was entirely compatible and could be seen to be compatible with the provisions set out in Section 4 of the National Lottery etc. Act. These require him to
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exercise his functions in the manner he considers most likely to secure that the National Lottery is run with all due propriety, that the interests of participants in the lottery are protected and, subject to these overriding considerations, maximise the revenue to the good causes.
The director-general, in exercising the power vested in him by Parliament, judged that the introduction of a mid-week draw was consistent with these duties and allowed the licence to be changed accordingly.
I must emphasise that the protection of players is the requirement that is uppermost in the Secretary of State's mind and both my department and the director-general will monitor carefully the effect of the mid-week lottery to ensure that the interests of the participants are not being undermined and that the players continue to receive the level of protection which they are accorded by the Act.
Of course, the Government recognise that some gambling causes problems of addiction for some people, just as, sadly, problems of addiction exist in a number of other lawful areas of human activity. Lottery draw games of this kind (long odds and long periods of time between the purchase of a ticket, the determination of the winning and the receipt of any prize money) are very unlikely to cause problems for anyone and present a very low risk in this regard. Many countries around the world have had draw games of this kind for many years and in those countries—this is a most important point—there is no evidence that people have developed addiction to games of this kind. This is as true of a weekly draw as it is of a twice-weekly one.
Perhaps the most important aspect of the new mid-week game, and one which has not been mentioned sufficiently, is the effect that it will have on the amount raised for the good causes. Noble Lords may be aware that sales of lottery tickets have been decreasing slightly in recent months. Experience in other countries suggests that the introduction of a mid-week draw is likely to increase the turnover of draw games by about 20 to 30 per cent. (from £70 million to £85 to £90 million a week); and likely therefore to push the turnover of the lottery back to its peak level of about £5.5 billion a year. This important step will therefore help the National Lottery to raise money for good causes.
The Government are committed to maintaining full public confidence in the operation and regulation of the lottery and are aware that there are concerns over the system of regulation. Parliament decided after considerable debate that the best way to build public confidence in the lottery was to give the director-general of the National Lottery the power to license the operator of the lottery and to regulate the operation under the terms of the licences granted. He is not alone in combining roles of this type. He operates similarly to the Independent Television Commission and the Radio Authority in this respect.
Nevertheless, the Government will be reviewing the operation of the lottery before the current Section 5 licence is due to expire in 2001 and will consider the role of the regulator at that stage.

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In response to criticisms of the director-general himself and the way that he has overseen the lottery, the Secretary of State has made it clear that she has confidence in him. That confidence has certainly not been diminished by his decision to allow a mid-week draw.
I am aware that Camelot recently published figures which suggested that those with less money spent more on the lottery. The Government consider that the figures produced by the Family Expenditure Survey are statistically better founded and hence are more reliable. They have consistently shown that those with the lowest incomes spend least on the lottery and those with the highest the most.
Lord Donoughue: My Lords, will the Minister allow that that is a very particular interpretation of the Family Expenditure Survey figures? What he is describing is the absolute amount spent, which is not meaningful. If he would quote to the House the percentages of income spent, as I quoted, from exactly that survey, he would see that poor families spend nearly twice as much in percentage terms. Of course they spend less in absolute terms, but that is not meaningful.
Lord Inglewood: My Lords, the point raised by the noble Lord is important; however, it was not clear from the contribution that he made. It is estimated that the average household, according to the Family Expenditure Survey figures, spends something like £2.30, £2.40 or £2.50 a week on the lottery. That must be set against, for example, an average expenditure of £5 a week on cigarettes or £12 on alcohol. The important consideration is whether it is the Government's business to tell people how to spend their money? We do not believe that it is the Government's business. The amount of money spent on the lottery by people in exercising their choice is as I have described it. Indeed, I go further. Even if it were thought that the Government should tell people how to spend their money, given the figures I have described, would the lottery be the right place to start? It would not be.
I emphasise again some of the beneficial effects which we believe the lottery is having in this country. The lottery is helping urban regeneration and providing employment. These things matter, not only to local and central government but perhaps most of all to the people who will gain work and benefit. It is bringing benefits to rural communities. In addition to the flagship projects about which one can read frequently in the national newspapers, a trawl through any of the local newspapers in this country shows how much of an impact some of the smaller projects, with which one is possibly not so familiar, are having throughout the country. These things are important and must not be overlooked in the context of the impact of this very recent development in our country.
The noble Lord, Lord Howell, made a short point about what is apparently a better manner of distributing lottery funds in Wales as opposed to distribution in England. As the noble Lord knows, the structure of sport in Wales is somewhat different from that in England. The reason why the procedures are slightly different,
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I understand, goes back to that. However, I assure the noble Lord that, so far as the Sports Council is concerned, it consults local authorities in order to receive a view from the people on the ground.
Lord Howell: No, it does not.
Lord Inglewood: My Lords, I will willingly take the point up with the noble Lord outside the Chamber if that is helpful.
The lottery is encouraging people to take part. It is creating facilities for people to take part in sport, for example, or providing musical instruments. In turn, that helps the cohesion of local communities. It is improving access to information. It is helping developments in the countryside, in tourism and in the leisure industry. Many of the lottery projects that are going forward are positively and deliberately environmentally beneficial—for example, the millennium forest in Scotland or the Sustrans national cycleway.
The department is continuously reviewing the way in which the lottery works in order that we can achieve the best results. It is still young. The Government recognise that it must evolve if it is to be effective in the public interest in the areas where it is needed most.
We shall continue to assess the impact that the lottery is having, both on the sectors representing the good causes and more widely, including the charitable and voluntary sectors. It is still a little too early to identify exactly what its overall impact might be, although that will clearly affect our thoughts on what might be done to make lottery funding even more accessible and more beneficial.
In conclusion, I hope that I may have allayed your Lordships' fears over some of the consequences and perceived consequences which the introduction of a second weekly draw might have. I should like to remind your Lordships of the great things that have already been achieved with lottery funds and the even greater things that I am confident will be achieved in the months and years ahead.
7.19 p.m.
Lord Howell: My Lords, I am most grateful to all Members of the House who have taken part in this debate. It is certainly important to those of us who have spoken. I am glad to congratulate the noble Earl, Lord Effingham, on a striking maiden speech, particularly as he was able to bring experience of an organisation like the British Legion. As we have seen, it relies enormously on people collecting on street corners, in factories and in shops for the legion's wonderful appeal.
I share the view of my noble friend Lord Donoughue that we have heard tonight from every speaker except the Minister a catalogue of potential disaster. That was underlined by the many diverse interests whose representatives spoke in the debate. It would he wrong and invidious to attempt to mention them all. Noble Lords will forgive me if I do not go down the road of talking about football clubs, the sport and arts foundation, as well as racing. That is horse racing and

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dog racing, and I share the view of the noble Lord, Lord Newall, that dog racing ought to be on equal terms with horse racing or any other interest.
I thank the Minister for giving us such a courteous, well thought out and reasoned speech, as he always does, even if we do not entirely agree with his remarks. On this occasion, I thought he put up a noble effort in defending the impossible. When the whole House is united in its indignation and concern, it takes great courage for the Minister to speak.
However, in his speech I detected some strands of hope. Even at this late hour, with the Budget only days away, I hope that he will draw attention to the remarks of noble Lords because he has an opportunity to act in some areas, and that is important. It is odd that the Minister should tell us that there were reasons for believing that we had the most successful lottery in the world; but he then went on to say that as yet it was impossible to draw conclusions about charity giving. I agree that we cannot draw conclusions yet. But what on earth is he doing, in advance of those conclusions being drawn, authorising a second weekly lottery? It seems to me to undermine the Government's case.
He said, "We can't interfere with people's right to choose how they spend their money". Of course; it is not the Government's duty. But the Government's duty is to hold the balance and ensure justice and fairness between one activity and other activities which might be affected by it. Although he said that it had nothing to do with the Government, he sought to defend their actions by saying that the Secretary of State had relied on Section 4 of the Act to draw the attention of the regulator to how he should conduct his business. If it is not the Government's duty to tell people how to spend their money, I am glad it is the Government's duty to tell the regulator how he should behave in connection with spending the money.
In thanking everyone, I wish to make one last point. Before he sat down, the Minister told us that all these matters would be reviewed in the year 2001. That is far too late to review some of the difficulties that have been outlined in the House. I ask the Government to think again about it. That leads me to express the hope that if they do not do so, then long before 2001 another set of Ministers will carry out their duty to the nation and to the industries concerned.
I thank noble Lords for the pleasant way in which they have received the debate and beg leave to withdraw the Motion for Papers.
Motion for Papers, by leave, withdrawn.

Welfare of Broiler Chickens Bill [H.L.]
7.25 p.m.
Lord Beaumont of Whitley: My Lords, I beg to move that this Bill be now read a second time.
This is the third Bill which I have had the privilege of introducing into your Lordships' House. The first was a Bill for the protection of wild plants. Your Lordships gave it a second reading and it was subsequently
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incorporated into a much larger Bill which reached the statute book. The second was on returnable bottles. It ran into considerable opposition from the industries concerned, and while I cannot pretend that the situation in that field is now satisfactory, I can, I think, justifiably claim that the much more enlightened attitude of the same industries today owes something to the pressure which those of your Lordships who supported me then brought to bear on them.
This, my third Bill, is, as your Lordships will observe, in the same green field. But it concerns me far more deeply, as it bears on our treatment of sentient animals. It was introduced into another place by Mr. Alan Meales as a ten-minute rule Bill. Mr. Alan Meales will be known to a number of your Lordships as the president of the Westminster Beer Club, of which I am proud to wear the tie tonight while giving this speech. It was drafted by Compassion in World Farming, an admirable charity.
Its aims have attracted considerable cross-party support in successive early-day Motions in another place. I sincerely hope that your Lordships will feel that it should either become law as soon as possible or, at the very least, that it should be discussed fully and sufficiently amended, if necessary, so that it can be re-introduced into Parliament, preferably by Government in a Session longer than we shall be able to enjoy this year.
The Bill clears up a serious gap in the law in that it introduces for the first time provisions designed to protect the health and welfare of broiler chickens kept in indoor husbandry systems.
I should stress that the UK chicken flock comprises two totally separate flocks. One is kept to lay eggs. Most of these birds are kept in battery cages and their welfare problems are relatively well known. In the other, much larger flock, chickens—called broilers—are reared for their meat.
We rear over 700 million broilers in the UK each year. Yet broiler chickens are the only one of the UK's major factory farmed animals to have no specific laws to protect them. The Welfare of Livestock Regulations 1994 contain detailed provisions on pigs, calves and battery hens. On broiler chickens, however, the law is largely silent, despite the severity of the health and welfare problems encountered by these birds.
The vast majority of broilers are reared intensively indoors. They are kept in huge windowless sheds, often holding around 30,000 birds. These sheds are so overcrowded that as the birds grow bigger one can barely see the floor, so thickly is it carpeted with chickens. There are fears that the maximum stocking density recommended by the Ministry of Agriculture in its welfare code is frequently exceeded. To solve this problem, in its 1992 report on broilers the Farm Animal Welfare Council recommended that the maximum stocking density should be laid down in legally binding regulations rather than, as at present, being left to an unenforceable welfare code. To date, the Ministry of Agriculture has failed to act on the Farm Animal Welfare Council's recommendation. No maximum stocking density is laid down by law; my Bill remedies that omission.

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The worst welfare problems, however, stem from the broiler industry's use of selective breeding methods and rich diets to get chickens to reach their slaughter weight in literally double quick time. Today's broilers have been bred to reach their slaughter weight in just six weeks. That is twice as fast as 30 years ago. What grows quickly is the muscle, which is eaten as the meat. The legs, however, fail to keep pace and cannot properly support the overgrown body. As a result, each year millions of chickens suffer from painful, sometimes crippling, leg disorders. Indeed, the Farm Animal Welfare Council's working group found leg problems of varying degrees of severity on nearly every farm that they visited.
Academic research which assessed the walking ability of broilers has suggested that as many as 180 million chickens a year could be suffering from those painful problems. There has of late perhaps been some improvement in the position because the industry, to do it justice, has been to a certain extent putting its house in order. But I fear that every year tens of millions of birds continue to be afflicted by painful leg disorders.
In the worst cases, chickens are incapable of sustained walking and can only move with the help of their wings or by crawling on their shanks. Professor John Webster, head of the Veterinary School at the University of Bristol, describes broilers as suffering from a long and painful list of bone and joint disorders. Broilers are growing too fast, not only for their legs but also for their heart and lungs. Many birds develop congestive heart failure which causes ascites. Those noble Lords with a classical education will know that that means a wine skin and it describes a situation in which the abdomen fills with body fluids. Around 7 million broilers die of ascites each year before reaching their slaughter age of six weeks. Professor Webster has said:
"It is absolutely not right that animals in the first weeks of their life should be experiencing heart disease; it is absolutely not right that animals in the first weeks of their life should be crippled".
I am sure your Lordships will all agree with that.
A significant number of broilers also suffer from painful breast blisters, ulcerated feet and hock burns. Such injuries arise because, owing to leg weakness, many birds spend long periods squatting on the litter. Wood shavings is the material most commonly used for litter in broiler sheds and in most cases the litter is never cleaned or changed throughout the birds' life. As the weeks go by, it can become increasingly contaminated with poultry manure. Prolonged contact with such litter can lead to breast blisters, ulcerated feet and hock burns. Improved litter management is a key factor in reducing the incidence of these painful injuries. My Bill includes a requirement that litter is kept clean and dry.
I should add that keeping broilers in poor condition not only inflicts suffering on the birds but also poses serious threats to human health. Earlier this year a report by the Advisory Committee on the Microbiological Safety of Food found that one in three broilers are infected with salmonella and even more—44 per cent.—are contaminated with campylobacter. Salmonella and campylobacter are the main sources of food poisoning in humans. Last month (October 1996), Which? magazine examined a number of whole chickens and chicken
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portions bought from a range of supermarkets. It found 32 out of 90 to be unfit for human consumption. In a second sample of fresh and frozen broilers, 50 per cent. were found to be infected with salmonella or campylobacter.
Regular inspections are essential if acceptable standards of broiler health and welfare are to be achieved. Indeed the Farm Animal Welfare Council recommended that a law should be brought in requiring all flocks to be inspected twice a day. My Bill includes such a requirement. I fear that at present the absence of adequate inspections means that many diseased, injured or dying birds are not being identified as such and as a result are given no appropriate attention or treatment. So extreme are the health problems of today's broilers that if, instead of being slaughtered at six weeks they were allowed to live on, 80 per cent. of them would die before reaching the age of puberty at 18 weeks.
That, indeed, presents a massive problem to one particular sector of the broiler industry. We have already differentiated between the battery hens and the broiler flock. Now, within the broiler flock there is a sub-division, between broilers who will end up on our tables and the broiler birds who lay the eggs which produce the next generation of broiler birds—the breeders. If they were fed as the others are fed, many would die before reaching puberty. Those that survive would suffer reduced fertility.
To address those problems, the parent stock—the breeders—are fed on restricted rations to slow down their growth. One study found that broiler breeders ate only a quarter to half of what they would have eaten if given free access to food, remembering that they are bred to eat large quantities of food. The researchers concluded that restricted fed broiler breeders are "chronically hungry, frustrated and stressed". I believe that there can be no proper justification for keeping birds in a state of constant hunger. My Bill requires broilers to be given sufficient food to prevent hunger.
Further problems arise during what the industry calls "harvesting", which is when the birds are removed from the sheds and packed into crates ready for the journey to the slaughterhouse. Teams of catchers empty the sheds at great speed, carrying four or even more chickens in each hand. The birds are held by just one leg, with rough handling being commonplace. The extent of the brutality involved in the catching process was highlighted by a Bristol University study which examined the cause of death in broilers that were dead on arrival at the slaughterhouse. Just over half had died from heart failure, to which, as I said, their overfeeding makes them prone. The researchers presumed that for those birds the stress of catching, loading and transporting had been simply too much for them to cope with.
Thirty-five per cent. had died from traumatic injuries, with a dislocated hip being the most common injury. That was associated with profuse haemorrhaging, and in around one third of the cases the femur, a major bone, had been forced into the chicken's abdominal cavity. The researchers suggested that catching and carrying large birds by one leg is conducive to dislocation of the

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hip. Clearly, the catching process is not just stressful and frightening for the chickens, but in many cases leads to injury and even death. My Bill requires catching to be carried out in such a manner as to avoid injury to the birds.
I believe that if people knew of the suffering experienced by broiler chickens there would be a public outcry no less strong and even more justified than that occasioned by the live export trade, of which other noble Lords who will speak this evening have some experience. Urgent reforms are needed to address the very serious health and welfare problems experienced by broilers. My Bill will require the broiler industry to take a much more responsible approach in the rearing of its chickens.
I do not pretend that the Bill is in a perfect state and I am more than ready to listen to your Lordships' ideas for amendment at Committee stage if noble Lords consent to give it a Second Reading today. In particular, I should be happy to entertain a longer period for the industry to adapt to the Bill, if that were thought right.
Like many of your Lordships, I was brought up on a farm. We treated our animals with decency, and although there has always been a certain amount of callousness in agriculture, the infliction of downright cruelty has always been anathema to the overwhelming majority of British farmers. There are laws against it in every other branch of the industry. Let us put our house in order here too.
I live in Clapham. When William Wilberforce had succeeded in abolishing the slave trade through these two Houses, he held a party. At the party was Henry Thornton, who lived at the bottom of my road. As they were congratulating themselves, William Wilberforce said to Henry Thornton, "Henry, what shall we abolish next?" and Henry said, "The national lottery". They did abolish the national lottery then. Much to my dismay, we cannot abolish the National Lottery today. But we can abolish or at least regulate the appalling cruelty which has gone on in this industry despite the efforts of some people. I commend the Bill to the House.
Moved, That the Bill be now read a second time.— (Lord Beaumont of Whitley.)
7.40 p.m.
Lord Swansea: My Lords, I am happy to support the noble Lord, Lord Beaumont. This is a much needed Bill. It is unacceptable to me and I am sure to most other noble Lords that we in this country, which has traditionally had a national concern for the welfare of animals—look how we cherish our dogs, cats and horses—should pay little or no attention to farm animals. Broiler chickens are one glaring example of that neglect.
Broiler chickens are raised in this country annually to the tune of 700 million and yet they are the only creatures among the UK's major factory-farmed farm animals which have no specific law to protect them. Pigs, cows and battery hens are all taken care of by the
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Welfare of Livestock Regulations 1994. But on broilers the law is silent, despite the severity of the health and welfare problems suffered by those birds.
The main problems are overcrowding—highly common in broiler sheds—and a high incidence of painful leg disorders. This Bill aims to establish improved health and welfare standards for broilers reared indoors. In particular, if it becomes law, it will end the factory farming of broilers and restrict selective breeding for rapid growth, which leads to serious health problems for millions of broilers.
The majority of the chickens are kept in huge, windowless sheds in which the birds are so overcrowded that it is hard to see the floor. Under those conditions it is difficult for the stockman to inspect the birds properly and the result is that each year millions of broilers become diseased, injured or die from untreated diseases.
The worst welfare problems arise from the use in the broiler industry of selective breeding to bring the birds to their slaughter weight as quickly as possible. Modern broilers are bred to reach their slaughter weight in only six weeks; 30 years ago that period was 12 weeks, twice as long—all in the interests of profit.
The muscle is the part that grows most quickly and is the part that we eat. However, the leg cannot keep pace and cannot properly support the body and therefore millions of broilers suffer from painful and crippling leg disorders, sometimes to the extent that they cannot walk and move by crawling on their shanks. Rapid body growth also puts heavy strain on the heart and lungs, resulting in several million chicks dying each year of heart disease before they reach their slaughter weight at six weeks. Many broilers also suffer from painful breast blisters, ulcerated feet and hock burns. Owing to leg weakness, many of them spend long periods squatting in the litter, generally wood shavings, that covers the floors of broiler sheds. The litter is rarely changed throughout the lives of the birds and becomes increasingly fouled by poultry manure.
Keeping broilers under such conditions cannot fail to produce a serious threat to human health. Only this year a report by the Advisory Committee on the Microbiological Safety of Food found that one in three broilers is infected with salmonella and 44 per cent. are contaminated with campylobacter. Those are the main causes of food poisoning in humans. In October of this year, Which? magazine did a survey of whole chickens and chicken portions bought from supermarkets. It found 32 out of 90 to be unfit for human consumption. In a second sample of fresh and frozen chickens, 50 per cent. were found to be contaminated with salmonella and campylobacter. That situation cannot be allowed to continue.
I congratulate the noble Lord, Lord Beaumont, on bringing this Bill forward. I look forward to hearing what my noble friend on the Front Bench has to say. I hope that the Government will take careful note of what has been said this evening and give the Bill a fair wind.
7.45 p.m.
Baroness Nicol: My Lords, I am happy to support the noble Lord, Lord Beaumont, in his Bill and hope that the House will continue to give him support. He gave us a great number of details about the injuries suffered by broiler chickens under factory farm conditions and I shall therefore not cover that ground again. The noble Lord, Lord Swansea, also added to the list. I should like to concentrate on the possible dangers to human health.
The noble Lord, Lord Beaumont, mentioned the presence of salmonella and campylobacter. But there is a more serious side to this situation. Antibiotics are routinely fed to the majority of broilers to fight the diseases which are inevitable in intensive farming. That does not encourage one to the view that such products are healthy or wise. The practice encourages the production of bacteria which are resistant not only to the antibiotics used in animal feed but also to some of those used to treat serious bacterial infections in humans.
We heard recently of the worries expressed by the medical profession in relation to the increasing incidence of bacterial resistance to antibiotics used in medicine, both in general practice and in hospitals. The routine use of antibiotics in broiler houses must be a contributing factor.
I do not support the proposition that animals have rights on a par with humans. I am probably inviting trouble by saying that, but that is my view. But we have assumed control of the production of animals for our own uses and with that power comes responsibility. We have a duty of care to the creatures in our control. Respect for life in all its forms is embodied in many cultures, including our own, and the noble Lord, Lord Swansea, referred to the fact that many farmers have a care for their animals. I believe they always have had and to this day many farmers still have that care. But factory farming, especially of chickens, has left that care behind.
The other kinds of factory farming, as we heard, are protected by rules and regulations. This specific branch has none. If we abandon the respect we should have for living creatures we diminish ourselves. For those who do not find that philosophy appealing, I offer the economic argument. Good animal husbandry always has been and still is good business, even more so these days as the consumer begins to pay more attention to the means by which food arrives in the supermarket. If any good can be said to have come from the BSE fiasco, it may be found in the increasing public awareness of the peculiar practices which have crept into food production.
There is evidence among consumers of a desire for food to be produced by more environmentally friendly means. That public demand will grow. I understand that there is already a demand for organic produce which cannot be met by British farmers and a demand for free range hens which cannot be met. In supermarkets I notice as I watch carefully that they sell out quickly. I also notice, on a more serious note, that, if one looks along the racks of broiler chickens for sale in
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supermarkets, one often sees deformed bodies. That is extremely unattractive. I certainly would not buy them and I am sure that many other consumers feel the same.
I believe the public demand for better quality food will grow. Sooner or later it will conflict with the accountant-led factory farming ethic. I believe that this small Bill is a step in the right direction and that the industry and the Government will do well to support it.
7.50 p.m.
The Earl of Clanwilliam: My Lords, I rise to make a short intervention in this debate on a matter of good farming practice. Common humanity alone seems to be the principle at stake here, which has been clearly demonstrated by the noble Lord, Lord Beaumont of Whitley, who introduced the Bill so excellently and clearly and with such force, demonstrating the clear inhumanity demonstrated by human beings towards these poor, unfortunate creatures.
This Bill will not affect the traditional farmer-stockman who tends his flock with the best standards of animal husbandry. He is being replaced in this sector of the market by the agri-economist whose methods are derived entirely from that usually most proper perspective, the profit margin. That profit can only be obtained through the supermarket chains. They are interested only in cheap food, which means low quality. As the noble Baroness, Lady Nicol, pointed out, the demand for organic chickens, eggs and farm products generally is increasing incrementally.
The supermarkets themselves are involved in bitter price wars. On that basis alone, the inhumanity of the broilerhouse is inevitable and, unfortunately, a natural reaction to untethered market forces. This might come strangely from someone speaking from this side of the House, but I have to admit it. There are limits to the call of market forces where our duties and responsibilities to the animal kingdom come into conflict not only with the profit margin, but also with the health of the nation. This is where we have reached that limit. The overwhelming desire to create a profit margin drives the need to farm intensively. We have experience only too close to home to warn us of the dangers in the direction of intensive farming. I shall say no more.
That brings me to the point that the vast output of this industry provides a stable diet in every household in the land. The broiler chicken goes into the cheapest pies that one can find. They are just as dangerous as the other pies which we have been warned quite recently not to eat. Thereby, being part of the staple diet in every household in the land, it directly affects the health of the nation. It has been shown that nearly 80 per cent. of the protein value of a chicken is generated in the fat of the bird. If your Lordships will forgive the pun, that gets gravely reduced in the cooking process so that the energy delivered in eating the bird is minimal.
It will not surprise your Lordships that I hold the view, supported by laboratory evidence, that the free-range bird offers the opposite protein benefit to the broilerhouse bird. At least it can walk on its own two feet, unlike its broilerhouse cousin, which has been deliberately bred with weak legs. It has been

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deliberately bred. Can noble Lords believe that? The more that can be done to improve the lot of that badly misused hen will have my full support. This is intensive farming par excellence. It is factory farming carried to the extreme limit of common sense and has no place in our modern society.
I hope that this Bill, so ably presented by the noble Lord, Lord Beaumont, and which has the benefit of brevity, will be accepted by my noble friend on the Front Bench and given a rapid and fair wind through Parliament.
7.54 p.m.
Lord Gallacher: My Lords, we are grateful to the noble Lord, Lord Beaumont of Whitley, for the clear manner in which he described his Bill and acknowledged its importance both from the point of view of parliamentary procedure and the substance matter that it contains. He reminded us that a Bill in similar terms was given a First Reading in another place on 12th March 1996 under the 10 Minute Rule. That Bill did not make progress in the last Session. Doubtless the noble Lord, Lord Lucas, who is to reply for the Government this evening, will tell us the reason for that and, in particular, the response of the Government to the Bill.
We believe that this is a complex area of undoubted importance to United Kingdom consumers and producers. Our first query is whether a measure of this importance should be dealt with by a Private Member's Bill and whether there has been much consultation, with producers in particular, about its terms. In particular, is the Bill's proposed stocking density, which makes it an offence to exceed seven birds per square metre, based on scientific analysis? A similar query arises on the Bill's permitted flock size, which has a limitation of 3,000 broiler chickens. How will these provisions affect our current producers?
I am informed that broiler chicken production is controlled by legislation and a code of practice and that these are reviewed and updated by government. The code of practice is currently being reviewed. Can the noble Lord, Lord Lucas, say a word about this? The Farm Animal Welfare Council, already referred to this evening and whose distinguished chairman is Professor Sir Colin Spedding, also reports to MAFF on areas of farm animal welfare. The council reported in 1992 on the welfare of broiler chickens. It suggested areas of improvement which, we are told, have been addressed by breeders, researchers and flock owners. Can the noble Lord, Lord Lucas, who is to speak for the Ministry tonight, say what is the current welfare position of broilers and whether the Farm Animal Welfare Council has any current or prospective remit in this manner?
The European Union has an interest in these questions, having already addressed the question of egg-laying chicks. It is thus appropriate to ask if Community harmonisation measures are likely or will follow if tonight's Bill as it stands becomes law? While one would not expect critics of the broiler industry to be satisfied with its current state in the United Kingdom,
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we are told that progress has been made in areas such as the condition of broilers' legs, particularly as regards leg strength. I understand that this progress has lately been acknowledged by Professor Webster of Bristol University, an authority on animal welfare to whom reference has already been made.
We are in sympathy with what the Bill seeks to do, even if we believe that both the nature and terms of the Bill may not be the most appropriate way of dealing with the matter. Household consumption of uncooked poultry is now 16 per cent. higher in Great Britain than it was 10 years ago. Advice on safe handling and preparing poultry is readily available. No doubt the Minister will have something to say about the suggestion that poultry is in some respects not safe at the present time.
By comparison with the figures that I have given for poultry, the household consumption of carcase meat—that is to say, beef, veal, mutton, lamb and pork—fell by nearly one-third between 1985 and 1994, with further decreases being recorded in 1995. These figures, taken from the National Food Survey, are indicative of the importance of poultry to both the budget and the diet of consumers. Bad welfare conditions will not produce good chickens, as my noble friend Lady Nicol said, but consultation with all interested parties is an essential ingredient for improvement. The Farm Animal Welfare Council is very much a consultation-minded body and we believe that its good offices should be used again on this important matter.
We are, however, not opposed to the Bill being given a Second Reading and the noble Lord, Lord Beaumont, has already expressed his willingness to consider amendments. However, whether the timescale which is available to us between now and the Committee and Report stages of the Bill will allow for the degree of consultation that we believe is necessary for a Bill so sweeping as this one, is another matter. Nevertheless, as I have said, we hope that the Bill will be given a Second Reading because it will at least allow the House to further discuss the underlying principles which the Bill contains.
7.59 p.m.
Lord Lucas: My Lords, this has been a useful and informative debate. I am pleased—but not at all surprised—to find a large measure of agreement in the House on the need to ensure the proper welfare of broiler chickens. I agree entirely with the comment made by the noble Baroness, Lady Nicol, that we have a duty of care.
I am delighted to join the noble Lord, Lord Beaumont of Whitley, in praising Compassion in World Farming, which is an excellent organisation. Even if we do not agree with it all the time, I thoroughly approve of the stand that it takes from its own point of view. We would all be the poorer without it. Over time it has achieved a great deal. I also approve of the taste in ties of the noble Lord, Lord Beaumont, and I would be happy to join him in a glass afterwards.
I hope that in the course of the next 10 minutes or so I shall be able to convince your Lordships that the changes proposed in the Bill are largely unnecessary and

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to some extent undesirable. Given the questions that he raised, I believe that those suspicions are shared by the noble Lord, Lord Gallacher.
The noble Lord, Lord Beaumont, gave us a fine exposition of his case, but it was a case made out very much from the chickens' point of view rather than the human. As a nation we have benefited greatly from the advances that have been made and from the enormous reduction in the price of chickens. I noted that the election slogan of the noble Lord, Lord Gallacher, still seemed to be, "A chicken in every pot"; the Liberal Party might want to have, "Another £ 1 billion" in its election manifesto, because that is what this Bill to benefit chickens might cost. We need a sense of proportion in these matters.
The noble Baroness, Lady Nicol, referred to consumer pressure. That point was echoed by my noble friend Lord Clanwilliam, who said that free-range and organic chickens were enjoying increasing popularity in the shops. That is a common experience and is entirely the right way for pressure for change to be focused. People may want to pay more—as I have indicated, some of these measures are extremely expensive—and people who do want to pay more will be able to give a happier and longer life to the chickens they eat if that is what they wish to do. For most of us, however, our concern is that broiler chickens live in proper and reasonable conditions and that we are not subjecting them to cruelty.
Broiler chickens have already benefited from the development of the high welfare standards of which we are justifiably proud. The Agriculture (Miscellaneous Provisions) Act 1968 makes it an offence to cause or allow livestock on agricultural land to suffer unnecessary pain or unnecessary distress. This, of course, includes broilers. The Act provides for detailed secondary legislation, some of which, as I shall explain later, already applies to the rearing of broiler chickens.
In addition, the Act allows the publication of codes of welfare recommendations. The codes—and there is of course one covering broilers—provide authoritative guidance to farmers to help them to comply with statutory requirements. Furthermore, failure to comply with a code provision may be relied on by the prosecution as tending to establish guilt in proceedings for an alleged offence of causing or allowing unnecessary pain or unnecessary distress. This legislation is enforced by the State Veterinary Service. All complaints, allegations or other evidence of problems are investigated.
We are committed to taking forward the recommendations in the report on the welfare of broilers made by the Farm Animal Welfare Council in 1992. We have already taken account of these in the development of our research and advisory programmes and we will be producing a new updated welfare code for broilers.
Of course, we have to have proper welfare standards for broiler chickens—and we do. Of course, we should seek to keep improving those standards—and we are. But if we are to introduce new standards, as this Bill suggests we should, we must be careful not to put our own producers at a disadvantage. The broiler chicken
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business is international and intensely competitive. We need to work with the realities of the industry and not against them.
As far as legislative changes are concerned, our policy therefore is to seek to improve farm animal welfare on a Europe-wide basis. We have worked for the new Council of Europe recommendation, providing a basis for us to work for higher EU standards in due course—as has already been achieved for other farm animals.
I turn now to the Bill and its proposals. The Bill proposes halving current stocking densities. That is the way I would read the provision on seven chickens per square metre. House temperatures would fall, increasing feed intake and requiring additional heat. We would need to double the amount of accommodation for rearing chickens. That would present significant problems in terms of obtaining planning permission, to say the least. Other costs such as labour, repairs, maintenance and the like would rise due to reduced economies of scale. As the noble Lord, Lord Gallacher, understands, there is no science to suggest that current stocking densities are in any way a welfare problem.
The Earl of Clanwilliam: My Lords, surely it is not a matter of a welfare problem; it is a matter of sheer inhumanity.
Lord Lucas: My Lords, I disagree. I do not think that there is any indication that chickens raised in such conditions are unhappy or are cruelly treated. I was brought up on a farm and have raised chickens myself. They ran around the garden. That is how I like to see chickens. But that does not exactly produce cheap meat for the people of this country. Enormous additional expenditure would be required if chickens were to run around our gardens. We must strike a reasonable balance. We must not treat chickens cruelly—nor must we impose enormous costs on people merely from sentiment unless, as the noble Baroness, Lady Nicol, suggested, people wish to pay that price, in which case it should be made possible for them to do so. If people can afford the price, chickens can then be raised in the conditions that people would wish.
The second suggestion in the Bill relates to flock size. The reasons for that proposal entirely escape me. It seems merely a pointless inconvenience. Again, I am not aware of any science which suggests that current flock sizes are a problem. Looking at the first two proposals together, we reckon that the cost to the industry—obviously one expects further mark-ups down the line—might be of the order of £150 million per year.
The next matter raised in the Bill is the hunger of broiler breeders. I believe that the situation here is analogous to that of a pet dog. If one allowed one's pet dog to eat everything that it wanted, it would become fat. That would be cruel. Indeed, it causes me great pain to see such dogs. Broiler breeders, like dogs, are animals which do not limit their appetite to what they need to be healthy and fit. Broiler breeders are kept in such a condition that they are, by definition, in peak breeding condition. Anyone who has kept wild animals knows that if an animal is in breeding condition, it is in good

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condition. Therefore, it seems a denial of good sense that an animal which is in good breeding condition can in any way be subject to cruelty in the matter of hunger. If the animal was under-fed, or even over-fed, it would not be in good breeding condition.
I turn now to the area of leg problems, about which concerns have been long acknowledged. I should emphasise that they are being addressed by both Government and industry. The Ministry's research programme in this area stands at nearly £ million in the current financial year. Results have led to changes in feeding and lighting programmes used by the industry which are already improving welfare. The broiler bloodstock industry is doing excellent work in improving the genetic basis for leg strength. All this is hardly surprising: a chicken with leg problems is not only a miserable bird but a serious financial loss in a low margin industry. All this has happened without the need for more legislation. The same applies to other problems such as ascites. If a bird dies, particularly after one has fed it a good quantity of feed and looked after it for a long while, that causes a financial loss. Such things are not tolerated for long in an industry which is largely highly professional and well organised.
I turn now to the veterinary proposals. We find them unreal. A quick costing of them suggests that the industry would face £400 million per year in increased veterinary fees. The noble Lord grew up on a farm and he knows as well as I do what he would have done with a sick chicken: he would have put it out of its misery quickly. That is what is done in the industry. That is the right way to deal with chickens. There is no way in which one can afford vet's fees of £45 per hour in any sensible economy. I do not suppose that even my noble friend Lord Clanwilliam would wish to pay vet's fees on his free-range birds—
The Earl of Clanwilliam: My Lords, my noble friend is mistaken.
Lord Lucas: My Lords, I am delighted to learn that I am mistaken; but what the noble Lord said has surprised me. It is right that the flock should be inspected and that appropriate action should be taken to deal with those birds who are injured and diseased. On a well-run farm this will be done several times a day. To do less is to invite the spread of disease. Legislation already requires that livestock kept in intensive systems must be inspected at least once each day and appropriate action must be taken if they are found not to be in a state of well-being.
I turn to the proposals on litter. If one does not look after one's litter properly one gets hockburn, as the noble Lord, Lord Beaumont, has said. The birds are downgraded and the farm loses money. The Welfare of Livestock Regulations 1994 require that poultry kept indoors should have well maintained litter or a well drained area for resting. We do not feel that further legislation is required. This is already a matter on which the industry is focused and conditions are greatly improved—and not surprisingly.
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I turn to transport. The catching and handling of broilers is covered by the existing welfare code. Failure to do this properly could give rise to a prosecution for causing unnecessary pain or distress. Problems identified at the slaughterhouse are picked up by the State Veterinary Service and taken back to the farm. They will also be the subject of prosecution. In addition, they give rise to financial loss, because birds that are dead or severely damaged on arrival at the slaughterhouse will not provide the producer with any revenue.
Two other questions were raised. The noble Baroness, Lady Nicol, referred to antibiotics and growth promoters. This is a well-known subject but it is rather outside the scope of this particular Bill. Clearly, there are a number of controls and a good deal of research in this area. We are satisfied that the current use of these substances is properly controlled, and that they are no danger to humans. However, given the potential for the development of resistant strains, we keep our eyes well open. But these substances have beneficial effects. To forbid their use unilaterally will place our producers at a very severe disadvantage. It is not a matter that we wish to see incorporated in a Bill of this kind.
So far as concerns the Which? report on salmonella and campylobacter, I confess that I first saw it five minutes ago. I do not feel that it is a matter to which I should give an off-the-cuff reply, but I shall write to all noble Lords who have spoken this evening with a considered answer.
In conclusion, while the aspirations expressed by the noble Lord, Lord Beaumont of Whitley, and others enjoy a great measure of Government support, this Bill does not.
Baroness Nicol: My Lords, before the noble Lord sits down, on a quick calculation the additional cost to the industry that he outlines amounts to about 50p per bird. Even if the entire cost is passed on to the consumer, does he believe that that is a price worth paying?
Lord Lucas: My Lords, for the improvements proposed in this Bill, no.
8.12 p.m.
Lord Beaumont of Whitley: My Lords, I thank noble Lords who have taken part in this debate, particularly all those who, with the exception of the Government spokesman, have supported it in one way or another. However, I note the reservations of the noble Lord, Lord Gallacher.
The Minister accused me of taking the point of view of the chicken rather than the human. What I believe we should do, what I hope your Lordships want to do, what the noble Baroness suggested we should do and what I hope the Minister will, on consideration, feel should be done, is to take both points of view, balance them and take note of the responsibility that we have for the animals that we use for our own purposes.
We are told that there are sufficient regulations to ensure that cruelty does not occur, but in this field cruelty is well documented. There are good practitioners

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and rearers who do not practise cruelty and look after their flocks with care, but there are plenty of others who do not. When we get to Committee stage—I hope that your Lordships will ensure that we do—I shall ask the Minister how many prosecutions have been brought in the field of broilers under the laws that he says are sufficient. I am delighted to hear that there are new and updated codes. The suggested changes in this Bill are not out of context. I refer to the suggestion that there should be seven hens per square metre. One can see what a square metre is. It is approximately the distance between the end of this Bench and the Woolsack or between the Judges' Bench and the Table. I would have thought it perfectly reasonable that farmers and breeders of these animals should provide that amount of space. I would have thought that any greater concentration would cause cruelty.
It is said that the people of this country want cheap meat. I believe that they rely on the law of the land to ensure that in the production of their food there is no cruelty. If they were aware that cruelty occurred, I do not believe that they would hesitate to pay more for their food. Unlike, apparently, the noble Lord, I believe that the people of this country do not approve of cruelty to animals. The noble Lord does not believe that there is any cruelty, but if it did occur the people of this country would not want it. I am sure they would be prepared to pay more for the absence of cruelty.
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Broiler breeders do not limit their appetites. The noble Lord said that if they went on eating they would be treated rather like fat labradors. If they continued to eat one would just put them on a diet. These birds are bred specifically not to temper their appetites. They are bred in order that they shall eat as much as possible. Equally, it has been said that breeding animals are healthy animals. I do not believe that that is necessarily so. Your Lordships will recall the debates that have been held on the topic of battery hens. It is accepted by everyone that the battery hen system at its worst produces a lot of eggs with a lot of cruelty. An animal can breed and be cruelly treated. A lot of animals breed when they are being cruelly treated.
I do not believe that the Minister has made a case against the Bill. I believe that the noble Lord who spoke from the Labour Front Bench put a very reasonable case, which I totally accept, that time should be taken over this Bill, that consultations with the industry should go further than they have so far and that a situation should be arrived at in which agreed regulations are produced. Whatever the Minister may say, at the moment enforceable regulations do not exist. It is time that they did.
I ask that noble Lords give this Bill a Second Reading tonight so that the case can be examined rather more deeply. I beg to move.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
House adjourned at eighteen minutes past eight o'clock.