Lords Sitting of 2 December 1997

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

COT: Independence
Earl Baldwin of Bewdley Earl Baldwin of Bewdley asked Her Majesty's Government:
Whether they are satisfied with the independence of the Committee on Toxicity of Chemicals in Food, Consumer Products and the Environment in view of the extent of the links which its members have with the chemical industry.
The Minister of State, Department of Health (Baroness Jay of Paddington): My Lords, the Government have every confidence in the individual integrity of members of the Committee on Toxicity of Chemicals in Food, Consumer Products and the Environment, known as COT, and in the advice given by the committee. But the Government are concerned to ensure that other voices and opinions, such as those of consumer groups and other lay interests, are taken into account. We are looking at the best ways to achieve that.
Earl Baldwin of Bewdley: My Lords, I am very grateful to the noble Baroness for her reply, which perhaps goes a little distance towards dealing with the problem which I believe exists. Given that this committee has a brief, among other things, for looking at vitamin and mineral supplements and herbal remedies, which are often in direct commercial competition with pharmaceutical products, is she happy—it may be that, in view of her Answer, she is not altogether happy—with the situation where, at the latest listing, 15 out of the 19 members of this committee have declared a financial interest with chemical companies?
Baroness Jay of Paddington: My Lords, I believe that it is a question of getting the balance right on these committees. It is inevitable that many experts will have gained experience through their scientific knowledge and their toxicological skills in addressing issues which are funded through research supported by the pharmaceutical industry. I have looked in detail at the financial interests of the members of COT. Fewer in number than the noble Earl suggested have what is called a direct personal interest. Some have interests in terms of the funding of their research projects and the companies they are associated with. That is the reality of funding for most researchers working in universities and institutes. But as I said in my original Answer, we are concerned to see that other interests and other voices are represented in these considerations.
Earl Howe: My Lords, is not one of the difficulties with COT that it scrutinises all sorts of specialist issues in
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which the members do not necessarily have the appropriate expertise? Would it not be helpful to invite experts in the particular subject under discussion to add their own knowledge and experience to the committee's proceedings and thus make its pronouncements much more authoritative?
Baroness Jay of Paddington: My Lords, the noble Earl makes a very good point. In the discussions that are going on at the moment between various departments, such as the Department of Health, MAFF and the Medicines Control Agency, the point about taking individual evidence from experts who have a particular remit in areas which are under discussion is being considered. The noble Earl is right. There may be people who have a particular interest in subjects which are under discussion who need to be called in for those particular debates.
Lord Taylor of Blackburn: My Lords, can the Minister say how the members of the committee are appointed and what criteria do the department look for in appointing them?
Baroness Jay of Paddington: My Lords, members are appointed on the basis of their general expertise in particular areas, although as the noble Earl, Lord Howe, said, they may not have the specific interests which are necessary for some of the very detailed considerations. They are appointed on the basis of recommendations from the Public Appointments Committee, which is advised by the Chief Medical Officer.
Lord Rea: My Lords, does my noble friend agree that one of the reasons for the association of many medical scientists with the pharmaceutical industry is that funding for their research by independent bodies such as the universities or the Medical Research Council has been progressively cut over the past 18 years?
Baroness Jay of Paddington: My Lords, I would not necessarily want to comment on the assertion by my noble friend that research moneys have been cut in these areas. But as I said in my initial reply, it is a question of getting the balance right between those people who have a direct financial interest. However, those whose research may be funded means that they have a different financial relationship with the commercial companies involved.
The Countess of Mar: My Lords, does the noble Baroness accept that this Question has arisen out of what is rapidly becoming the Vitamin B6 fiasco? Does she recall that on 24th November, in reply to the noble Viscount, Lord Addison, the noble Lord, Lord Donoughue, said,
"Perhaps I may point out that one can get one's recommended daily dose of Vitamin B6 from the consumption of 12 pints of beer a day".—[Official Report, 24/11/97; col. 749.]
As it appears that he is promoting the nutritional benefits of beer, will the noble Baroness ask COT to review alcoholic drinks on the same basis as it reviewed

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Vitamin B6, with a view to limiting the retail sale to perhaps one glass a day over the counter and the rest to be prescribed by a doctor?
Baroness Jay of Paddington: My Lords, I am sure that my noble friend the Minister responsible for roads will find that a very attractive idea. When the noble Countess refers to the problems of the relative vitamin content of particular foodstuffs, I am reminded of the exchange that we had in your Lordships' House last week about the importance of folic acid. We discovered that 27 bananas a day had to be eaten to meet the sufficient nutrient requirement. I suspect that this is a question of where the interests of the food business and medical interests overlap. We have to be very clear in distinguishing what one looks at as regards food policy and what one looks at as regards clinical and medical therapy policy. I suspect that one of the things that my noble friend Lord Donoughue and other members of the Government representing MAFF and I would wish to look at is precisely where one draws the boundaries between those two.
Earl Baldwin of Bewdley: My Lords, will the noble Baroness recognise that it is not just the financial links that are a cause for concern, but that by their training, their experience, their peer group pressure and the culture that they work in, this tightly knit group of members of these expert committees are not always best equipped to give a balanced view? Will she accept that I am not impugning the integrity of individuals here, but rather the system that puts them in a false position?
Baroness Jay of Paddington: My Lords, I am sure that the noble Earl and I are at one in not wishing to impugn the integrity of anybody in this situation. The point that he has raised precisely refers back to that made by the noble Earl, Lord Howe, about the need to involve individual experts where there is a particular concern to address and where it is necessary to bring in people who may have a different background or specific expertise in a specific subject.

NHS Trusts: Executive Appointments
2.43 p.m.
Baroness Cumberlege Baroness Cumberlege asked Her Majesty's Government:
How many chairmen and non-executive directors of NHS trusts whose term of office expired on 31st October 1997 are still awaiting either valedictory letters or firm letters of reappointment.
Baroness Jay of Paddington: My Lords, the terms of office of 570 chairmen and non-executive directors of NHS trusts came to an end on 31st October. We have still to confirm 57—that is, 10 per cent.—of these appointments. We will be sending valedictory letters as soon as possible to all board members who have not been reappointed. We agree that there have been some unfortunate delays, but they have been caused by the
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Government's determination to open up the process of selecting people to serve on trust boards. That has led to 1,800 nominations from Members of Parliament and local authorities. I must point out that no trust board is, or has been, inquorate.
Baroness Cumberlege: My Lords, I thank the Minister for that Answer. I should like to make it clear that I appreciate the fact that any new Administration wishes to appoint people in whom they have confidence and who meet the Government's criteria. However, does the Minister recollect her reply to her noble friend Lord Taylor of Blackburn just six weeks ago when she said that she and her colleagues had been "a little dilatory" in making appointments? Does she not agree that it is not so much dilatory as deplorable that chairmen and non-executive directors have had to attend meetings not knowing whether that meeting is to be their last or whether they should continue to run their organisations, some of which have budgets in excess of £100 million? Does she agree that it is no wonder that waiting lists and waiting times have shot through the roof when there has been such uncertainty in the leadership of the NHS?
Baroness Jay of Paddington: My Lords, I am very surprised by the last point raised by the noble Baroness. We are trying to ensure that the organisation of trust boards more adequately represents the communities that they serve. Your Lordships may be interested to hear that at the moment approximately 70 per cent. of members of trust boards have what is loosely described as a "business background". That does not seem to have produced a very successful business outcome given the state of the NHS that we have inherited.
On the more general point about the criteria for assessing nominated candidates, perhaps I may advise the House that all candidates now have to meet a rather rigorous number of criteria in order to be considered; the appointments then have to be sifted; people have to he interviewed; regional chairmen have to make suggestions and recommendations at various levels and finally to the Secretary of State. It is a long process. As I said in my Answer, we realise that some of the delays have been unfortunate, but we think that the outcome is worth it.
Lord Taylor of Blackburn: My Lords, is my noble friend aware of the widespread congratulations that have been extended to the Government on the way in which they have appointed these new people and not merely followed political dogma? The Government have ensured that the best people are chosen to fill these positions.
Baroness Jay of Paddington: My Lords, I am grateful to my noble friend. As I said, there are now tight criteria, particularly relating to commitment to the NHS, involvement in the local community, and acceptance of a particular type of responsibility for the public ownership values and public sector ethos of the NHS. I believe that we have succeeded in meeting those criteria.
Earl Howe: My Lords, is the Minister aware that my noble friend Lady Cumberlege made an extremely

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pertinent point about waiting lists? It is precisely when leadership is absent that waiting lists and waiting times are all too easily prone to drift in the wrong direction. If there was a difficulty in making the appointments in a timely fashion, why did not the department simply extend the term of the incumbents by a month or two rather than leave the trusts without proper leadership?
Baroness Jay of Paddington: My Lords, we have done that. Some board members have been reappointed for a short period; for example, to take the board through a possible reconfiguration or through the winter. On the noble Earl's point about waiting lists, what is needed is leadership and that is precisely why on 18th November the Government announced a national strategy for dealing with waiting lists, which included setting up a national taskforce within the NHS with eight regional organisers deliberately tasked to look into waiting lists at their local level.
Lord Peyton of Yeovil: My Lords, is the Minister aware that a measure of courtesy shown by governments does them no harm?
Baroness Jay of Paddington: My Lords, I think that we have been extremely courteous. I apologise for the fact that the valedictory letters are still in the post. I have been directly involved in dealing with the individuals concerned with the appointments system and every exchange has been extremely courteous.
Baroness Robson of Kiddington: My Lords, having once upon a time been vaguely involved with the health service, may I ask the Minister why the appointments could not have been made more swiftly? I refer to the fact that it is now five months since the Government came to power. I know that five months is not very long, but the Department of Health has a department specifically to deal with reappointments and that work would not have stopped. I had hoped that the Government might have implemented their choices more speedily.
Baroness Jay of Paddington: My Lords, in view of the previous question, I hesitate to appear to be anything but extremely courteous to the noble Baroness whose extremely distinguished service to the NHS is well recorded. The point was precisely not to go solely through the Department of Health's appointments office but to cast the net much more widely. We asked individual Members of Parliament of all parties and all local authorities to make nominations. That resulted in 1,800 names coming forward—there were many others—all of which were worthy of consideration by local health authorities and regional chairmen.
Lord Hunt of Kings Heath: My Lords, is my noble friend aware that delay in making appointments to non-executive positions in the NHS has been a consistent feature over the past 10 to 15 years? Does my
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noble friend agree that the little extra care that is now being taken in making these appointments will pay dividends in the years ahead?
Baroness Jay of Paddington: My Lords, I am grateful to my noble friend Lord Hunt for his intervention given his considerable experience of looking at the health service on a national basis. That is precisely what we seek to achieve.
Baroness Seccombe: My Lords, is the Minister aware that some non-executive directors were telephoned from the region last Friday, which was at least four weeks after they had received the heartless letter? They were told that they would receive a letter. Believe it or not, 24 hours later they did receive a letter. It was identical to the one that they had received four weeks before, but this time it informed them that their contract would end on 30th November. Is the Minister aware of what is going on in Leeds? Does she have any confidence in the corporate affairs division that is based there?
Baroness Jay of Paddington: My Lords, I have a great deal of confidence in the corporate affairs division of the National Health Service Executive. I suspect that the noble Baroness is referring not to the national office but to the individual practices of regions. If she would care to write to me giving me specific examples of local regions I shall try to reply to her.
Lord Belstead: My Lords, can the Minister inform the House whether the appointments will be made by the end of this year?
Baroness Jay of Paddington: My Lords, as I said in my original Answer to the noble Baroness, there are two strands of appointment: those which formally came to an end at the end of October, of which there are only 57 outstanding appointments to be dealt with, and those which came to an end at the end of last week. Those are still being dealt with but we hope they will be completed by the end of the year.
Baroness Cumberlege: My Lords, the noble Baroness has referred to courtesy. Does she believe it is courteous that those who have spent a lifetime in the NHS, some chairing very complex organisations, should learn through their successors that they are not to be reappointed? I believe that that is the height of disregard for the tremendous commitment that people have made to the National Health Service, and it is disgraceful.
Baroness Jay of Paddington: My Lords, as I said in reply to a previous question, I suspect that the noble Baroness is referring to individual regional offices' practices of which I do not have detailed experience. If the noble Baroness will pass on that information to me I shall try to reply. As regards discourtesy, I am probably the wrong person at whom these accusations should be fired. I speak as someone who was appointed a health authority chairman five years ago but was politically vetoed by one of the predecessors of the noble Baroness.

Euro Currency and EMU
2.53 p.m.
Lord Randall of St. Budeaux Lord Randall of St. Budeaux asked Her Majesty's Government:
What constraints prevent British businesses from transacting business in euros prior to the United Kingdom's formal entry into European Monetary Union.
Lord Haskel: My Lords, there are very few constraints on UK firms transacting business in the euro. It is like any other foreign currency. Companies are able to use foreign currencies for a wide range of transactions in the United Kingdom.
Lord Randall of St. Budeaux: My Lords, I thank my noble friend for his most encouraging reply. Since there are few constraints on the early use of the euro, does my noble friend agree that it can bring enormous advantages not only to businesses but to the general public? Does he also agree that action needs to be taken to ensure that the country is prepared for its use?
Lord Haskel: My Lords, my noble friend is right to recognise that business was frustrated by lack of preparation. The Government have embarked on a number of initiatives. We have published two guides: one by my noble friend Lord Currie on the pros and cons of EMU and one on the practical implications for business. We have set up two groups: a business advisory group to provide a channel of communication between business and government and a standing committee to oversee the preparatory work in the private and public sectors. We have also set up a series of regional conferences for the New Year and carried out a number of other initiatives.
Lord Redesdale: My Lords, the noble Lord said that the euro is to be treated like any other foreign currency. In the opinion of the Government, is the euro a foreign currency?
Lord Haskel: My Lords, at present for the purposes of companies trading it will be dealt with on the same basis as a foreign currency until we decide whether to join the European Monetary Union.
Lord Beloff: My Lords, has the Minister read the article by Professor Martin Feldstein of Harvard in the current issues of Foreign Affairs in which he points out that the EMU is likely to prove a massive disaster? In the light of that, does the Minister agree that any businessman transacting business in that currency deserves to have his head examined?
Lord Haskel: My Lords, I am afraid that I have not read the article by Professor Feldstein but I shall certainly do so. Businessmen cannot take these decisions in isolation. They are dependent upon their customers,
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their suppliers, and what others in business do. If their customers or suppliers insist on using the euro those companies will have very little choice but to accept it.
Lord Barnett: My Lords, referring to the intervention of the noble Lord, Lord Beloff, does my noble friend agree that anyone foolish enough to disregard the euro would be equally mad?
Lord Haskel: My Lords, I agree entirely with my noble friend. Any company that disregarded the euro would put itself at a competitive disadvantage.
Lord Marsh: My Lords, does the noble Lord accept that a number of noble Lords are slightly puzzled by this exchange? All companies are used to dealing in different currencies, whether it be dollars or any other. For once I agree with the noble Lord, Lord Barnett. Whether or not the UK joins the European Monetary Union, what is so peculiar about companies using the euro if it is available?
Lord Haskel: My Lords, there are no difficulties at all in companies dealing with the euro, as they deal with dollars, francs or whatever.
Lord Bruce of Donington: My Lords, is my noble friend aware that the Question itself does not deal with transactions that are limited to the supply of and payment for services but refers to preventing,
"British business from transacting business"?
In view of the fact that some time may elapse before formal entry into economic and monetary union, is it not wise for Her Majesty's Government to give the usual warning that the value of the euro, like other currencies, can go down as well as up and that there are certain risks attached to the settlement of transactions in any currency, including the euro?
Lord Haskel: My Lords, my noble friend is absolutely right. The value of any currency can go up or down. The risk is the same for the euro as with any other currency.
Lord Mackay of Ardbrecknish: My Lords, is the noble Lord aware that I am as puzzled as the noble Lord, Lord Marsh, about this exchange? It appears to me that if the euro comes about the City and manufacturing industry will deal in it as they deal in the yen, the dollar or any other currency. I suspect that his noble friend was really asking whether the euro would be legal tender if this country did not join.
Lord Haskel: My Lords, it will be legal tender as any other foreign currency. Many British citizens will start to use the euro very soon. For example, if they use

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their credit cards on the Continent after the introduction of the euro it is likely that their accounts will be debited in euros.
Lord Swinfen: My Lords, does the Minister agree that all sound currencies are backed by a lender of last resort? Who will be the lender of last resort for the euro?
Lord Haskel: My Lords, I imagine that that will be a matter for the European bank.
Lord Stoddart of Swindon: My Lords, is my noble friend aware that what worries some of us about the Question is the assumption that we are going into the single currency?
Lord Plant of Highfield: No.
Lord Stoddart of Swindon: Yes indeed, my Lords, if one looks at the Question. There is an assumption there that we are going into Europe. Will my noble friend confirm that the government position is, first, that we shall not enter into the single currency until there is economic convergence; and, secondly, until after there has been a referendum of the British people?
Lord Haskel: My Lords, I can confirm that we need a period of stability and settled convergence before membership can be considered. There will be a referendum of the British people.
Lord Mackay of Ardbrecknish: My Lords, I return to my question about legal tender. I am aware that if I use my Visa card in Italy I can pay in lira, and I will then pay my bank in sterling. My question was: will the euro be legal tender in this country? Will I be able to go into a shop on my return and use euro notes rather than sterling? Those are my questions.
Lord Haskel: My Lords, not until we join the European single currency.

Business
3.1 p.m.
The Lord Privy Seal (Lord Richard): My Lords, at a convenient moment after 3.30 p.m., my noble friend Lady Farrington of Ribbleton will, with the leave of the House, repeat a Statement that is to be made in another place on local government revenue finance. That will be followed by my noble friend Lady Hollis of Heigham, who, again with the leave of the House, will repeat a Statement on social security uprating.

Crime and Disorder Bill [H.L.]
The Parliamentary Under-Secretary of State, Home Office (Lord Williams of Mostyn): My Lords, I beg to introduce a Bill to make provision for preventing crime and disorder; to create certain racially aggravated offences, and to abolish the rebuttable presumption that a
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child is doli incapax; to make changes to the criminal justice system; to make further provision for dealing with offenders; to make further provision with respect to remands and committals for trial and the release and recall of prisoners; to amend Chapter I of Part II of the Crime (Sentences) Act 1997 and to repeal Chapter I of Part III of the Crime and Punishment (Scotland) Act 1997; to make amendments, designed to facilitate, or otherwise desirable in connection with, the consolidation of certain enactments; and for connected purposes.
I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time.—(Lord Williams of Mostyn.)
On Question, Bill read a first time, and to be printed.

Committee of Selection
The Chairman of Committees (Lord Boston of Faversham): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the Lord Burnham be appointed a member of the Committee in the place of the Lord Chesham.—(The Chairman of Committees.)
On Question, Motion agreed to.

Procedure Committee: Select Committee
The Chairman of Committees: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Moved, on behalf of the Committee of Selection, That the Lord Burnham be appointed a member of the Select Committee in the place of the Lord Chesham.—(The Chairman of Committees.)
On Question, Motion agreed to.

Ceremony of Introduction: Select Committee
Lord Richard: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That it is desirable that a Select Committee be appointed to consider alterations in the ceremony of Introduction and to make recommendations.—(Lord Richard.)
On Question, Motion agreed to.

Special Immigration Appeals Commission Bill [H.L.]
3.4 p.m.
Lord Williams of Mostyn: My Lords, I beg to move that the Commons amendments be now considered.
Moved, That the Commons amendments be now considered.—(Lord Williams of Mostyn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
[The page and line refer to Bill (49) as first printed by the Commons.]

COMMONS AMENDMENT
1 After Clause 6, insert the following new clause—
APPEALS FROM THE COMMISSION
(".—(1) Where the Special Immigration Appeals Commission has made a final determination of an appeal, any party to the appeal may bring a further appeal to the appropriate appeal court on any question of law material to that determination.
(2) An appeal under this section may be brought only with the leave of the Commission or, if such leave is refused, with the leave of the appropriate appeal court.
(3) In this section "the appropriate appeal court" means—

(a) in relation to a determination made by the Commission in England and Wales, the Court of Appeal,

(b) in relation to a determination made by the Commission in Scotland, the Court of Session, and

(c) in relation to a determination made by the Commission in Northern Ireland, the Court of Appeal in Northern Ireland.

(4) In section 33(4) of the Immigration Act 1971, after "1993" there shall be inserted "or section (Appeals from the Commission) of the Special Immigration Appeals Commission Act 1997".")
Lord Williams of Mostyn: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 1. It may be helpful if I speak also to Amendments Nos. 2 and 4.
These amendments to the Bill will create a right of appeal from the Special Immigration Appeals Commission to the Court of Appeal on a point of law. The first new clause will provide an avenue of appeal from the Special Immigration Appeals Commission on a question of law where the commission has made a final determination of an appeal. The further appeal can be brought with the leave of either the commission or the Court of Appeal—and by either the appellant or the Secretary of State.
The appeal will be to the Court of Appeal if the commission makes its determination in England and Wales; to the Court of Session if it does so in Scotland; and to the Court of Appeal in Northern Ireland if it has been sitting in Northern Ireland. Experience of the cases considered by the three advisers suggests that most cases are likely to be heard in England.
This additional avenue of appeal on a point of law will mirror the existing arrangements for such a right of appeal in respect of decisions of the Immigration Appeal Tribunal which was introduced in the Asylum and Immigration Appeals Act 1993.
Having considered the point very carefully we have accepted that in the context of the new commission it would be more satisfactory for appellants to be able to have points of law dealt with on appeal to the Court of Appeal rather than dealt with by way of judicial review. The latter can, of course, involve consideration of points of law by both the High Court and the Court of Appeal. The fact that the commission itself will be chaired by a High Court judge adds weight to that argument.
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The second new clause and the other amendment made in the Commons are consequential. The second new clause simply ensures that the Lord Chancellor will be able to make rules which will govern the procedures to be followed when the commission receives applications for leave to appeal to the Court of Appeal.
The provision will be made in the same statutory instrument that will cover the other procedure rules provided for in Clause 5 of the Bill. The rules will be based very closely on existing provisions in the Asylum Appeals (Procedure) Rules 1996. As in those rules it will be made clear that the decision to grant leave will be able to be made by a single member of the commission. This would be the chairman or the other member specified in Schedule 1 to the Bill.
The amendment to Schedule 2 to the Bill is entirely technical. It will ensure that decisions taken by the Secretary of State will not be implemented while there is an appeal to the Court of Appeal pending.
I believe that these amendments represent an improvement to the Bill.
Moved, That the House do agree with the Commons in their Amendment No. 1.—(Lord Williams of Mostyn.)
Lord Henley: My Lords, I have just two brief points. First, I welcome the fact that the Government have come forward with these amendments. As the Minister will remember—I do not, because it was my noble friend Lady Blatch who was involved—these were suggestions pressed repeatedly by my noble friend when the Bill was originally in this House. As my noble friend made clear at the time, the paramount consideration must be the national security interest, to which all other matters should be subordinated.
As the Minister will remember—I think I can put it this way—he doggedly insisted that no appeal was necessary. He stated baldly that the decisions of the new independent tribunal would be binding on the Home Secretary. He said that it was the mark of a civilised society to give protection to suspected terrorists. Whether that was merely an excess of libertarian zeal or a refusal by a new government to accept arguments put forward by this unreformed Chamber is unclear.
We have had a remarkable and welcome U-turn. The Government have tabled their amendments to do what we in this place suggested—the very thing the Minister so firmly rejected. I welcome also the remarks of the Minister's colleague in another place, Mr. O'Brien. He specifically and graciously praised this House. He said that the amendments reflected to a considerable extent the detailed and worthwhile scrutiny that the Bill was given in the Lords and the concerns expressed by the Opposition about the importance of protecting national security.
Secondly, the Minister will remember that we are midway through our deliberations on the Human Rights Bill. One of the major concerns with which we dealt last week relating to Clauses 10, 11 and 12 was the fast-track process and the inability to amend orders coming from the Government after a declaration of

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incompatibility following a ruling by the European Court of Human Rights or one of our own courts where those rights have been domesticated.
This Bill, as we know, is the result of a decision by the European Court of Human Rights in the Chahal case. The Bill, as the Minister will appreciate, has had general support from all sides in this House and in another place, but, it needed amending, as the Minister admitted and the Government conceded by bringing forward these amendments in another place.
Will the Minister now accept that, had the procedures in the Human Rights Bill been in existence when the Government were trying to make an order to deal with this issue rather than using primary legislation, it would not have been possible to bring forward amendments of this kind and it would not have been possible to deal with this particular mischief? That is an issue to which we must return at the Report stage of the Human Rights Bill.
I ask the Minister and his noble and learned friend the Lord Chancellor—after his remarks yesterday, I am not sure whether he still is noble and learned or a right reverend Prelate—to consider seriously the points that I have made relating to Clauses 10, 11 and 12 and the fast-track process of the Human Rights Bill. As this Bill has shown, it will sometimes be necessary to make amendments in order to deal with problems of the kind that I have mentioned.
Lord Williams of Mostyn: My Lords, I am grateful for the welcome which the noble Lord, Lord Henley, has given to the amendments. Bearing in mind the context of our discussions at an earlier stage, it must be remembered that the amendments give a right of appeal on law and not on fact. That was the basis of the earlier discussion.
As regards the Human Rights Bill, the noble and learned Lord the Lord Chancellor made it plain that the fast-track procedure is an option. He also made it plain during the long hours we spent discussing these matters that the Government have an option of fast track or of introducing a Bill. Because the issues are delicate and difficult, we thought it right to listen to the argument put forward. We decided that an appeal on fact was not appropriate and that an appeal on law was appropriate. Having reached that decision, we brought forward the amendments in another place as soon as possible.
On Question, Motion agreed to.
COMMONS AMENDMENT
2 After Clause 6, insert the following new clause—
PROCEDURE ON APPEALS FROM THE COMMISSION
(".—(1) The Lord Chancellor may make rules regulating, and prescribing the procedure to be followed on, applications to the Special Immigration Appeals Commission for leave to appeal under section (Appeals from the Commission) above.
(2) Rules under this section may include provision enabling an application for leave to appeal to be heard by a single member of the Commission.
(3) The power to make rules under this section shall be exercisable by statutory instrument.
(4) No rules shall be made under this section unless a draft of them has been laid before and approved by resolution of each House of Parliament.")
Lord Williams of Mostyn: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 2.
Moved, That the House do agree with the Commons in their Amendment No. 2.—(Lord Williams of Mostyn.)
On Question, Motion agreed to.
COMMONS AMENDMENT
3 Clause 7, page 5, line 12, leave out subsection (5)
Lord Williams of Mostyn: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 3. This deletes the amendment inserted into the Bill by this House to avoid infringement of the privilege of the other place to control charges on public funds. As the House is aware, the Bill has some minor financial implications. Those implications are acceptable in another place. Therefore, it was proper for our amendment to be deleted.
Moved, That the House do agree with the Commons in their Amendment No. 3.—(Lord Williams of Mostyn.)
On Question, Motion agreed to.
COMMONS AMENDMENT
4 Schedule 2, page 7, line 38, at end insert—
("Construction of references to pending appeal
For the purposes of the Immigration Act 1971 as applied by paragraphs 1 to 3 above, an appeal under section 2 above shall be treated as pending during the period beginning when notice of appeal is duly given and ending when the appeal is finally determined or withdrawn; and an appeal shall not be treated as finally determined so long as a further appeal can be brought by virtue of section (Appeals from the Commission) above, nor, if such an appeal is duly brought, until it is determined or withdrawn.")
Lord Williams of Mostyn: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 4.
Moved, That the House do agree with the Commons in their Amendment No. 4.—(Lord Williams of Mostyn.)
On Question, Motion agreed to.

Education (Student Loans) Bill
3.12 p.m.
The Minister of State, Department for Education and Employment (Baroness Blackstone): My Lords, I beg to move that this Bill be now read a second time.
I would like right at the outset to make it clear to noble Lords that this Bill has nothing to do with the Dearing Report or the Government's response to it. Our proposals for the future of student funding have been brought before the House in the Teaching and Higher Education Bill which we will be debating soon.
The Bill before us today relates solely to the existing student loan regime and the debt we intend to sell to the private sector. That was the policy of the previous

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Administration. The debt sale process was already under way when we came to power. Our manifesto gave a clear commitment to staying within the spending plans of the previous government for two years. It is to ensure that we stay within those spending plans that we are continuing with this policy.
The Bill also serves to emphasise our commitment to the development of a wide range of public private partnerships. The Government currently bear the credit risk of the student loan book. The debt sale involves the transfer of that risk to private-sector financial institutions which are experienced both in dealing with such risk and the management of loans generally.
The debt sale will also make the concept of publicly funded student loans more readily understood by the financial markets. The previous Administration's attempt to involve the private sector in student loans through the ill-fated twin-track approach foundered because many of the financial institutions which might have participated did not fully comprehend the nature of student loans. It is our hope that this Bill and the debt sale it facilitates will lead to a greater understanding within the financial community of the nature of the student support system.
The Bill does not just smooth the path of the sale for the Government and the successful bidder, it also amplifies existing measures to protect borrowers. The Bill provides a range of protective measures. These include the freezing of loan conditions within the borrower's loan agreement; the power to set collection standards by which the debt purchaser must abide; and the appointment of an independent assessor to investigate and report on disputes between borrowers and lenders. I will return to these in a little more detail later.
The Bill will also serve to support our wider plans for education, based on raising standards, extending access, and ensuring high quality provision.
The Bill before us today provides in Clause 1 for the transfer of loans to the private sector. It deals with the assignment of loans and allows my right honourable friend the Secretary of State to make arrangements in connection with such assignments. These include payment of subsidy to debt purchasers, administrative provision in respect of assigned loans and the power to repurchase loans or to direct a further reassignment of them to a third party.
Clause 2 provides for the key terms of a loan agreement not to be changed by further regulations after the agreement has been made. It freezes the time and manner of repayment of the loan, the means of calculating the annual rate of interest payable on loans and the borrower's rights to deferment and cancellation.
Clause 3 puts the arrangements for the administration of loans on a contractual basis, like any other commercial loan, and not subject to the operation of public law functions.
Clauses 4 to 7 and the schedule provide for consequential amendments, commencement and territorial extent.
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The Bill has three main provisions. Clause 1 allows the Government to pay subsidies. These are necessary because student loans are in many respects unique. The loan scheme is only seven years old. Such a short track record makes the assessment of the risks involved difficult for the institutions bidding in the sale.
These loans bear no real interest rate. They are tied to the rate of inflation so that borrowers ultimately only repay in real terms the same amount as they took out in loans. What is more, borrowers earning less than 85 per cent. of average income can defer payments year on year and in some cases will have them cancelled if they reach specified age levels. These are not commercial loan terms, and they cannot therefore be sold on that basis.
Without a subsidy we would be able to sell loans for only a small percentage of their face value. We have decided to sell them at par—their full face value—and to subsidise the purchaser for some of the risk that is outside their control. The subsidy will also help offset some administrative costs. We are running a strong competition which will ensure that we obtain the lowest possible subsidy package. The four short-listed bidders will make their final bids in January indicating the level of subsidy that they would require. At the end of the competition we shall accept the best bid made.
Clause 1 of the Bill also allows the Government to buy back loans that we want to cancel for social policy reasons. These occur rarely and typically involve cases where severe disability makes the possibility of repayment unrealistic in practice. We believe that it would be unreasonable to put the burden of such loans on to the private sector. As a matter of public policy, it is right that that power should be held by my right honourable friend the Secretary of State.
Lastly, Clause 1 provides for an independent complaints procedure. Under the existing arrangements, borrowers have the right to take complaints about the administration of their loans to an independent assessor. The assessor's rulings are binding. We have ensured that borrowers whose loans are sold will continue to have the benefit of that right.
Clause 2 provides for the freezing of the terms of the loans when sold. Of those, the most important are the time and manner in which repayments are made; the method used in calculating the annual interest rate; and the borrowers' rights to deferment and cancellation. Significant variation of those terms—for example, if repayment terms were shortened or the interest rate payable on the loans changed—could have a major adverse financial impact on borrowers and debt purchasers. Those are risks outside the bidders' control. They would either seek to price that risk of change into their final bids or, alternatively, expect some other form of full compensation. Whichever was the case, the cost to the Government would be significant.
To avoid that position, Clause 2 provides for loan agreements to set out in detail the core terms on time and manner of repayments, the specific method used in setting the annual interest rate and deferment and cancellation. At present we discuss those matters when we debate the relevant regulations each year. As soon

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as the Bill becomes law, and before the sale transaction is completed, we shall make new regulations which will freeze the core terms for all loans. Not only will this protect the position of the debt purchasers; it will also afford protection to borrowers. The terms will be frozen as they were at the time the loan was taken out. That is just one protection we are putting in place for existing borrowers.
Clause 3 puts loans on a purely contractual basis, like any other commercial loan would be. Buyers understand the working of contract law and relevant consumer legislation. The clause removes the operation of public law functions from both the Student Loans Company—the lender—and subsequently from the debt purchaser. Under the existing legislation these functions can neither be transferred from the SLC, nor can decisions be made by the loans buyer. That makes for complex, unwieldy and expensive administration which would be unattractive to prospective purchasers who would probably not contemplate taking on the loans on that basis.
The transfer of loans to the private sector means that the responsibility for loans administration will fall to the debt purchaser, as owner of the debt. But I can reassure noble Lords that the Bill does not reduce the rights of borrowers. On the contrary, borrowers' rights will be protected through the sale agreement which will require the purchaser to meet the same collection standards as the Student Loans Company, as a minimum. Failure to abide by them could lead to legal action against the purchaser. Variations to these standards by the purchaser will not be allowed without written approval from my right honourable friend the Secretary of State. Any proposed changes by the purchaser would have to comply with the safeguards contained elsewhere in this Bill, and in existing consumer protection legislation in the Consumer Credit, Data Protection and Malicious Communications Acts.
Borrowers have no cause to fear. The existing deferment terms and lender's ability to deal with borrowers in financial difficulty will remain in place. There should be no need for any borrowers to default on their loan, but if they do they should expect to have legal action taken against them under the new arrangements in the same way as it is taken now.
Noble Lords may be concerned that private sector debt purchasers might seek to use the database or loan borrowers for other purposes such as cross selling financial products. I can assure them that the Bill specifically prevents any such data being provided or used for such purposes. The sale of a borrower's loan will not result in a flood of junk mail.
In conclusion, this is a technical Bill designed purely to enable us to complete the planned sale of student loans over two years. These sales are necessary for us to meet the manifesto commitment of living within existing spending plans this year and next. It makes the loan book sufficiently attractive through a subsidy package to attract reputable financial institutions to buy the debt, whilst at the same time protecting the interests of borrowers. We have run a vigorous competition which is now reaching its closing stages. We will accept the most competitive bid.
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The Bill will help to support our plans for raising educational standards, extending access and high quality provision. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Baroness Blackstone.)
3.25 p.m.
Baroness Maddock: My Lords, like many who have gone before me in recent weeks I rise to address your Lordships for the first time and I do so with feelings which are a mixture of nervousness, excitement and awe.
In the short time that I have been here since I was introduced between my noble friends Lord Tope and Lady Hamwee, I have experienced nothing but kindness and warmth, not only from noble Lords but also from people who work in the House. I am glad to take the opportunity today to thank them all. In particular, I should like to thank those people who helped to make my introductory day here such a memorable and pleasant experience, not only for myself but also for my guests.
Before I took part in that ceremony I was asked by many people whether I was nervous. I said that, obviously, everybody wants things to go smoothly on such a day but unlike some of the other political arenas in which I have been, where I sometimes felt that people were just dying for me to make an escape, the impression I gained from the House of Lords was that everybody wanted things to go well. I have had no reason to change my views since then.
This is the third time I have risen to make a maiden contribution in a political debating chamber. It does not become any easier. Today I am only too aware of the awesome wealth of experience, knowledge and expertise that surrounds me here in the House of Lords.
I have chosen to make my maiden speech on the Education (Student Loans) Bill and so I must begin by declaring an interest. I have two daughters. One is in her second year at university and therefore has already taken out a loan. The other daughter is attempting to go back to university for a second time and I feel quite sure that she too will need to take out a loan.
I am aware also that maiden speeches are not expected to be overtly controversial but I have chosen to sit in the House of Lords as a Liberal Democrat and therefore I have a distinct viewpoint on the matter before us today. As has been said already, the Bill is primarily technical and seeks to facilitate the sale of the present student loans portfolio to the private sector. Strictly speaking, it has nothing to do with the Dearing proposals for higher education nor with the Government's intentions to require students to contribute to their tuition fees. However, I believe that there are consequences flowing from this Bill which arise in relation to those issues and I shall refer to them as I explain my reservations about the Bill.
First, I put on record that, like my Liberal Democrat colleagues in both Houses of Parliament, I have no philosophical objection to the principle of student loans or the involvement of the private sector in such a matter. I understand the need to control public borrowing and

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I recognise the valuable role which the private sector can play in that. That is a view shared by all major political parties now and, which is also important, it is a view shared by the Committee of Vice-Chancellors and Principals.
However, as I indicated, I have some concerns about the Bill and they fall into three main areas. First, the haste with which the Government have embarked upon the project; secondly, the detail of the Bill; and, thirdly, the fact that there appears to be little sign so far that any of the money from the sale of the loans portfolio will be used to alleviate some of the very severe funding problems that our institutes of higher education have at present.
I turn to my first point: haste. It is clear—it has been made even clearer today and it has been made clear in the past by Statements made by the Secretary of State for Education and Employment and by the Chancellor of the Exchequer—that going ahead with the sale of the student loan debt is absolutely critical for this Government if they are going to stick to the spending plans and limits of the previous government. Since that original pledge the Dearing Committee has reported and further proposals have been made for higher education. The Government are now going to remove any element of maintenance grants and many students will not receive help with their fees.
Therefore, in future years it is very obvious that students will need very much larger loans than they do currently. I know that this is a different matter from the present portfolio, but I believe that there would be some merit in not proceeding with the Bill, given those circumstances. It is clear that there will need to be further legislation in the area. In addition, I understand, like myself and my Liberal Democrat colleagues and, again, the Committee of Vice-Chancellors and Principals, that the Government do believe that the repayment of student loans should be income contingent. There is an opportunity here with the possibility of more generous loans to enable them to be repaid through a national insurance contribution scheme, or even a joint tax and national insurance scheme. That would also require further legislation.
There is also some doubt as to whether this is actually the best way of proceeding if the Government stick to the present repayment scheme as proposed with existing loans in the Bill.
I particularly draw noble Lords' attention to the views of Dr. Nicholas Barr, who is leader of the team from the London School of Economics which specialises in looking at student loans. He made it quite clear that in selling off the portfolio with the existing repayment scheme we were unlikely to get quite such a good deal as with a repayment scheme linked to national insurance. In fact, his opinion was that going ahead in a hasty way, while there are still such high levels of deferment, amounts to a waste of taxpayers' money. Although that view was put forward before Dearing reported, I believe that it still remains valid.
That brings me to my second area of concern; namely, the detail of the Bill or, on this particular point, perhaps I should say the lack of detail surrounding the conditions
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of sale. We have very little idea about what level of subsidy will be required for the private sector to take over the loans portfolio. I realise that there are competitive bids and therefore it is a far from simple matter.
When student loans were first introduced in 1990, the private sector was not really very interested in being involved. It was less than a year ago that the then Secretary of State for Education and Employment, the right honourable Member for Norfolk, South West, announced in a press release (after she had attempted, yet again, to tempt the private sector) that,
"in the event we have not been able to agree a deal which could meet their requirements"—
those of the private sector—
"at the right price for the taxpayer".
When in Opposition, the present Minister for schools standards said that any subsidy over 25 per cent. for the sale of the loans portfolio would be excessive.
I believe that we could see as much as a £1 billion in subsidy being paid to the private sector at a time when, as I said and others know, our higher education institutions are facing possibly some of the worst problems in funding that they have had in their history. What is more, there is every indication that £1 billion is far in excess of the amount of money that may be raised from the proposed tuition fees and any money that may go back into universities in the lifetime of this Parliament.
That brings me to my third concern. All the indications are that there is little prospect of what we hope will be £3 billion expected from the sale actually going back into the funding of higher education in this country. We need to look at that against the background of a 28 per cent. cut in student funding in the past six years and a cut in capital funding to universities last year of around 30 per cent. I should have welcomed the opportunity to talk now about the role of the public sector borrowing requirement. Those who know me will know that I have for long felt that we could deal with legislation and investment much more satisfactorily if we reformed the way that we deal with such matters. However, as this is my maiden speech perhaps I should leave that for another day.
I twice stood at the Bar of this Chamber to see your Lordships give consent to the Home Energy Conservation Act, which I sponsored as a Member of the other place. Little did I think that one day I would have the privilege of being a Member of this House. I look forward to working with all noble Lords and to being an active Member by taking part in the proceedings in your Lordships' House.
3.35 p.m.
Lord Baker of Dorking: My Lords, on behalf of all Members in the House, perhaps I may congratulate the noble Baroness on her admirable speech. Of course, I heard her speak many times in the other place. She was the Member for Christchurch and won a celebrated by-election there. She had the great misfortune, from her point of view, of her constituency being the only Conservative gain in the avalanche of 1st May.

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However, what is a loss to the House of Commons is certainly a gain for the House of Lords. I am sure that we shall hear the noble Baroness speak on education, with her immediacy and great knowledge, on many occasions.
I must apologise to the Minister. I missed the first three sentences of her opening remarks. I am sorry for that. However, I did hear the rest of her speech. I welcome the Bill and congratulate the Government on introducing it. That was not how my Bill to introduce student loans was greeted back in 1988: there was considerable doubt and hostility. I shall not embarrass the noble Baroness by quoting some of her eloquent words to describe the villainy of student loans in those days when she was the Master of Birkbeck College.
I am glad to see that the principle of student loans has been accepted; namely, that the cost of higher education should be shared in a tripartite way among the state, the family and the student. After all, the greatest beneficiary of higher education is the student and he or she should contribute in some way. The Government have built upon that in a Bill we shall be discussing later in this Session by extending the principle to fees. I shall not trespass into that area.
I congratulate the Minister because I was not able at the time to persuade the Treasury to do what she is now doing. I tried to persuade the clearing banks and the Governor of the Bank of England to run the loans scheme. I was sent off by the then Chancellor of the Exchequer, Nigel Lawson, with a much worse brief. I could not persuade the banks to do it; hence we had to set up the elaborate procedure that was eventually established.
The noble Baroness has succeeded in Clause 1. If I had been allowed to offer what is now in Clause 1 of this Bill. I could have done it from the beginning. This is a measure of privatisation where the person who buys cannot lose. I did not actually hear the word "privatisation" in the Minister's speech, although perhaps she used it in the three sentences that I missed. However, I suspect that she did not use it. This is the first measure of privatisation of this Government and is therefore to be warmly welcomed. It is not exactly selling the family silver, but it is quite good pewter. I hope that it will be followed by many other measures of privatisation.
I echo the words of the noble Baroness who has just made her maiden speech. I had hoped that there would be a statement from the Government that some of the proceeds of the sale of the loans portfolio would be ploughed back into higher education, as higher education certainly needs a considerable injection of funds. However, I am afraid that the Minister did not win that battle with the Treasury. The Treasury wants this for its public sector borrowing requirement, so I am afraid that there will be no money going back into higher education. That is a matter of very great regret. I believe that something should be put back into it. Moreover, when we come to debate the next Bill on the matter, I hope very much that the Government will be persuaded that this is a much better way to deal with loans, which will be much greater in the future because
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they will cover fees as well as loans taken out for living purposes, and that they should be collected in a different way.
Back in 1988 I was in favour of a graduate tax but I could not persuade the government of the day to go for that. I think that probably the best way of collecting these loans will be through a form of graduate tax. As I understand it, the Government will go some of the way on that measure as regards collecting some of the money through the Inland Revenue system. The noble Baroness nods. I congratulate her on that because I could not persuade the Inland Revenue to adopt that measure.
As far as I can see, this Government are a pushover as regards all kinds of measures which, in true Treasury orthodoxy, we were not able to secure. As she has gone half of the way on that, I hope that she will go the full way and espouse the idea of a graduate tax with suitable checks and balances. That would be the neatest way of dealing with this matter. With those reservations I welcome the Bill.
3.40 p.m.
Lord Montague of Oxford: My Lords, on this, the first occasion that I address this House I most sincerely thank noble Lords on both sides for the warmth of their individual welcomes. I wish also to thank the officials and staff of the House for their patience. Their guidance has been invaluable and I am most grateful for it.
In earlier capacities as chairman of the English Tourist Board and subsequently the National Consumer Council I had contact with many Members of this House. It is a pleasure to look forward to these cordial relationships being continued. Equally in my most recent post as Opposition representative on the Millennium Commission I had the good fortune to visit many applicants and to meet many noble Lords. Although some, I know, were rightly disappointed when a negative decision had to be taken, they still receive me with the same cordiality as those who were successful. That seems characteristic of the open-minded approach which I too hope to bring to the deliberations of this Chamber.
I am a businessman and a longstanding supporter of the Labour Party. Throughout my career I have felt it important to try to bring the business community and the Labour Party together. I started a manufacturing enterprise in the 1950s with a handful of employees in the East End of London which ultimately employed thousands of people in factories in most parts of the developed economies of the world.
It is because of the experience I gained during my 40 years of building this business that I was invited six years ago to be a governor of Oxford Brookes University where we have just under 12,000 students. Cited in the Times University Guide as top of the new universities, Oxford Brookes gained joint highest marks for research and the second highest for teaching due to the excellence of our staff. I chair the audit committee, perhaps because of my financial experience; hence my interest in the financial health of places of higher education.

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It is clearly welcome that the Government are continuing to think through sympathetically the wide issue of loans to students. However, that matter is not directly before us today. As we have heard, this Bill is to refinance to the private sector a major part of the existing student loans stock. Students will not be affected by these decisions. As we have heard, four banks have been shortlisted as potential buyers for the student loan book, all of them first-class banking houses.
What I wish to draw to your Lordships' attention today is an important financial facility which some of these same banks provide overseas, particularly in America, but not in the United Kingdom. I refer to private sector funding for the provision of buildings—universities' capital developments, particularly but not exclusively student residential accommodation. Until now some funds have been available from the Higher Education Funding Council for capital expenditure but this has been dramatically reduced from £350 million for the year 1995–96 to £181 million for the year 1998–99. That is a reduction over four years of some 50 per cent.
In the fairly recent past this has been supplemented by the eligibility of BES schemes for student residential accommodation. However, as we all know, there was some abuse of BES schemes which led to their being discontinued. At our university we had two of them. Nothing, however, has been created or, as far as I know, is even being considered to succeed them. The relevance of this to the student loans Bill is, as I said, that the banks which are offering to buy the loans have a speciality of making capital funds available. They do so with outstanding results. For example, the state of Rhode Island has never had a law school. The new Roger Williams School at Brown University was recently brought into being as a result of the funds it was able to obtain from a US Government sponsored, not owned, enterprise.
I am not for a moment suggesting that we should necessarily follow that model. I hope, however—I have informed the Minister about this—that the DfEE will study how the commercial sector, with the backing of the Government, might speed up initiatives to answer the capital expenditure needs of universities, particularly student residential accommodation requirements. There is, of course, an income flow from the rents which students pay which might be used for all or part of the necessary security.
I am aware of some of the private sector initiatives which the sector aspires to succeed. There are 12 which are the beneficiaries of HEFC feasibility funding, and that is welcome. However, I suspect that this is going to be difficult and slow for the immediate capital needs of universities. There is to be a half-day conference at the Café Royal on the morning of 12th December and I hope that it will help with some of the problems we face. Our university this year had initially insufficient beds for us totally to meet our policy of being able to provide on campus accommodation for all our first year students. We regard it as extremely important that all new students—most of whom are living away from home for the first time—should initially be housed on
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campus to ensure a partially supervised surrounding to ease their transition. Most universities have the same policy.
The number of full-time students in higher education is approximately 1 million and in further education 800,000. The Prime Minister recently announced that there will be 500,000 extra students in further and higher education by the year 2002. It is vital therefore that we continue capital investment as it takes so long to bring projects to fruition.
On Wednesday last I heard Sir Ron Dearing remind the Select Committee on Science and Technology that there is already a backlog of £450 million of university infrastructure expenditure that demands attention. Having identified a way of refinancing the student loan debt, I urge that we quickly apply our energy to finding answers to the capital expenditure needs of our universities.
3.48 p.m.
Lord Walton of Detchant: My Lords, it is my great pleasure and privilege to have the opportunity to congratulate the noble Lord, Lord Montague, on his persuasive, thoughtful and compelling maiden speech. The noble Lord has had a most distinguished career in business. Of course one must note with great interest that he became a commander of the most excellent Order of the British Empire at the unusually early age of 38. Many of his other contributions have been listed in the annals of your Lordships' House. As he said, he has been a representative on the Millennium Commission and, since 1990, president of the Economic and Industrial Relations Society. He is a vice-president of the Royal Albert Hall. I trust that he will have the opportunity of waving his baton and contributing to the debates in your Lordships' House on many future occasions.
As the noble Baroness has said, this Bill is essentially a technical measure. It relates to the transfer of responsibility, in a financial sense, for the student loans fund to the private sector. As the noble Lord, Lord Baker said, it is to be warmly welcomed. Like the noble Lord, Lord Montague, we all hope that the private finance initiative will be successful in undertaking the capital developments in the universities which we all wish to see and which are long awaited.
I have two principal queries to pose to the noble Baroness on the Bill. Under the present rules, the Government require that any loan should be set against the public sector borrowing requirement. As my friend, the Vice-Chancellor of my former university, the University of Newcastle-upon-Tyne, Mr James Wright, said in a letter to the Secretary of State at the beginning of October,
"This is a subject which experts in the universities have been raising with the government for several years now",
and in other countries, including at least one in the European Union—a different treatment is introduced without there being any apparent collapse in the system of public finance. It continues:
"The whole thrust of Government policy and the Dearing Report is to emphasise the importance of a large and effective system of higher education for the country's general well-being.

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It is … depressing to see the possibilities of investment in that system for the future benefit of the country frustrated by what at least some well-informed commentators see as an outdated financial theology".
I hope that the noble Baroness will be able to assure us that, under the present Government, the approach relating to the PSBR will be changed.
My second point of, I think, interest relates to the fact that I chaired the Hamlyn Foundation National Commission on Education which made a number of salient recommendations relating to the financing of the universities and higher education, and student loans. We were told repeatedly that the Government have always resisted the use of the tax or national insurance system to collect other funds. We were told that the Inland Revenue and the Treasury would never stand for it. In 1993, in our report, Learning to Succeed, we asked the justification for maintaining this position. The Government have the power to change those practices. Should they not do so in order to create a more acceptable and workable scheme? I refer to one that is far more acceptable to the students than the present system of having to write a cheque in repayment from time to time after they have graduated and are in employment. We did not propose a graduate tax along the Australian lines. That is a lifetime contribution to income tax. We proposed that a repayment of the loan should be made through the tax system once the individual had reached an acceptable level of income, with an arrangement to stop the clock if for any reason a woman may have a family, or someone may be temporarily unemployed—his income fell below a certain level. Our proposal was that the loan should be paid through the tax system until it had been totally paid off. Happily, that proposal was accepted by the Dearing Committee.
On 19th November at col. 566 of Hansard, I asked a question of the noble Lord, Lord Whitty. I was told, as the previous government had told us, that the income tax system was not there for debt collection. But, lo and behold, in the Teaching and Higher Education Bill, to be debated in your Lordships' House next week, under Clause 16 there is a provision that arrangements may be made for the collection and repayment of the loans with the assistance of the Inland Revenue. I warmly congratulate the Government on their change of heart and express the hope that that will be implemented.
In the light of that decision, perhaps I may ask the noble Baroness, Lady Blackstone, whether Clause 2 of the Bill will require an amendment to allow such a mechanism, or will regulations under Clause 2 suffice to allow that mechanism of repayment to be introduced?
With those few comments, I greatly welcome the Bill.
3.54 p.m.
Lord Davies of Oldham: My Lords, it is a pleasure to follow the contribution by the noble Lord, Lord Walton of Detchant. We all recognise the significance of the role the noble Lord played on the National Commission on Education, to which he made reference. Its work is bearing fruit in some developments of policy with regard to student support, which the Government will be putting forward in a Bill next week.
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I congratulate the maiden speakers on the strength and accuracy of their speeches and on the fact that they have chosen a debate on higher education to make their contributions. It signals how important the subject is to this House and to the welfare of the nation. I pay tribute to noble Lords for the large attendance in the House on a Bill which I regard as a somewhat sorry little measure.
The Bill is made necessary because the Government had a somewhat tawdry inheritance from the previous government. The reason for the Bill is straightforward. Inserted into the government spending plans and Budget projections in the last Conservative Budget was £1.5 billion for each of the next two years as the product of the sale of the student debt. Unless on coming into government we were to see a complete revolution in the national finances and a significant replacement of those figures there was no option but for the Government to pursue this measure. Arithmetic gives the same answer, whoever asks the question. The arithmetic stands up in terms of the Budget position.
Turning round state expenditure of this volume, and with the changes we wish to see during the progress of this Administration, will take a number of years. It is quite clear that in the short term certain paths are already well designated. The Government have clearly indicated—they will be made apparent in the presentation of the proposed Bill next week—the longer term post-Dearing arrangements for student finance. However, at present there needs to be an adjustment to take into account the necessity of raising the £1.5 billion in the next two Budgets from the sale of the immediate debt.
The problem is, as the last government found—the present Government inevitably inherited it—that there are certain difficulties with the product that is being sold. At the root of the problem has been the fact that criticisms of the student loans scheme related crucially to the organisation of the scheme and to the fact that students would have to repay over a short period of working life; namely, in their first five years of earning power once they had crossed the threshold. The result was that higher education teachers and students reacted with alarm to the Government's proposals. They were severely critical of them at that time. The scheme has not enjoyed even a two-thirds take-up by those students who were entitled to do so. Yet we reflect upon the fact that many students in higher education are in real need but are loath to participate in a scheme that until now has put a burden of debt round their necks which has to be repaid within the first five years of earning power.
The scheme got off to a somewhat rocky start. After a short time, the first chief executive left office after pressure when it was discovered that he was spending at least as much time running a private restaurant as attending to the needs of students in the student loans scheme; and at one period 7 per cent. of students failed to obtain their loans on time—that is, 35,000 students. That averaged 60 students for each Member of Parliament. I speak from bitter experience. In my constituency I think that all 60 students contacted me about their concerns. I am sure that that was the general experience in another place.

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The Government sought to sell this package in 1995 through the student loans legislation. They adopted the twin-track approach. We could never find in the City any real enthusiasm for their proposals at that time and we said so repeatedly at every stage of the Bill. The same criticisms were also voiced in this House when the Bill appeared before your Lordships, and of course they were proven right. In fact, the then government in 1995–96 were unable to sell that particular form of loan. Therefore, I have to say to the Minister that I recognise the constraints under which she works but I am not hugely optimistic about getting a good deal against such a flawed position.
I am reassured that the Bill contains important guarantees for students; namely, that the terms of their loans cannot be changed by the private lender and that the terms are guaranteed. This indicates that the Government, quite rightly, have a real interest in ensuring that students take out loans on proper terms which last throughout the period of the loan. I am also reassured that the independent assessor will remain in place to adjudicate if difficulties should arise. Indeed, some difficulties are bound to arise even if only in a small minority of cases.
On the whole, I regard this Bill as a somewhat mulish little measure, without pride of ancestry or any hope for posterity. It is only acceptable in as much as the Government have already guaranteed the future development of an entirely different scheme on different principles for students over a lifetime so that their loans will be repaid according to their ability to repay the considerable principal while the income continues.
I am also pleased that the loans will be collected through the Inland Revenue. Both proposals have been canvassed in significant circles within this nation for almost a decade and it is therefore with some delight that I congratulate the Government on having made rapid progress, the fruits of which we should see in a fairly short time. On that basis, though without enthusiasm, I accept the terms of this particular measure.
4.3 p.m.
Baroness Darcy de Knayth: My Lords, I should like to thank the Minister for her clear and comprehensive introduction to the Bill. I shall be quite brief because I just want to ask her a couple of questions about the special arrangements for students with disabilities; first, when calculating the income of disabled borrowers and, secondly, about exercising discretion over the terms of the repayment. I hope that the Minister will be able to give me some assurances that they will remain the same and we can thus avoid the need for a probing amendment being raised in Committee.
As things stand, special consideration is given to disabled borrowers. This was very much thanks to my noble friend Lord Henderson of Brompton who, during the passage of the 1990 Act, successfully divided the House at Third Reading, and to the other place, which gave the Bill a felicitous tweak and returned it to us in an improved condition. The amendments which followed included an arrangement that disability-related
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benefits would not be taken account of when calculating the income of the borrower to determine whether the level of income would bring the borrower over the repayment threshold of 85 per cent. of the average income. There is also Regulation 10, which allows the Student Loans Company to exercise discretion over the terms of repayment for disabled borrowers who make particular application to them.
At present the Student Loans Company states that all disabled people they are aware of are deferring payments because their income falls below the 85 per cent, but nobody that they know of is using the discretionary arrangements or indeed has asked for them under Regulation 10. It is not clear whether this is because they do not know about it because they do not need it, or whether it is because absolutely no disabled borrowers come over the threshold anyway; that is, the threshold that makes them eligible. Can the Minister give me an assurance that these arrangements will continue? This disability-related disregard is very important, bearing in mind the extra disabled living costs that people with disabilities face.
The discretionary arrangements under Regulation 10 may never have been used as yet, but they are nonetheless valuable and SKILL, which is the National Bureau for Students with Disabilities—and here I have to declare an interest as president of SKILL—states that it is most important that this arrangement should continue to be available. I hope that the Minister can respond positively and offer assurances that the terms for disabled borrowers will continue as before. I look forward to hearing her reply and, if we do need to explore the details, perhaps we could pursue the matter in Committee.
4.5 p.m.
Lord Desai: My Lords, this is a story of human imperfection. We must try our best to resolve the matter without too much trouble. As many noble Lords have already said, this is a modest Bill. If, as the noble Lord, Lord Baker, said, he had been luckier with the Treasury, and had the political situation been better, we would have started the student loan system on the basis that repayment of a contingent loan would have been collected by the Inland Revenue. That would have represented the best possible outcome, but that did not happen. That is yet to come in the future. In the meantime we have to look at the new Bill. It is like putting an unwanted child up for adoption: that is the best I can think of.
Again, in a better world, as the noble Baroness, Lady Maddock, said in her excellent maiden speech, would we need to do this yet? It seems to me that with a little bit more on the PSBR—with a billion here or a billion there—we could actually merge this into the new system and make the debts collectable by the Inland Revenue. That might mean a reduced amount of default and if subsidy were not necessary, we might manoeuvre the Student Loans Company into the next part of the loan enterprise and have an ideal solution.
However, the world is not made for ideal solutions: it is made for such solutions as we can find. So this modest Bill is with us now: it is the best we can do. As

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many other speakers have said, I hope that we can achieve three things. Obviously, we want to ensure that the current conditions of the loan are not altered, so that the borrowers may feel no anxiety. We hope that the lenders, the people who have bid for this loan company, are enterprising and good people and that they will offer a good price and require as little subsidy as possible. Lastly, we have to hope that, whatever happens, this sale gives the Government value for money. There is nothing more to say, because everything I was going to say has been said by other speakers.
4.8 p.m.
Baroness Carnegy of Lour: My Lords, unlike most previous speakers, I find it is not easy to form an opinion on this Bill. It is clearly right that the private sector, with its knowledge and expertise and available resources, should become involved to the greatest extent possible in the funding and organisation of student loans. At Second Reading in another place many of the nationalists disagreed with that principle and voted against, although I have to remind the noble Baroness, Lady Maddock, that by Third Reading the Liberal Democrats appeared to have changed their minds, and they, too, voted against.
This Bill continues, as my noble friend Lord Baker of Dorking reminded us—and he certainly should know—where the last Government left off, and I am sure that that is wise. But to judge, in the context of where we are now, whether the proposals are likely to work effectively and cost effectively for the student and the taxpayer, it seems to me that we need to know a good deal more than the text of the Bill tells us. From what the Minister told us this afternoon, final decisions are still some way off, but we need to know roughly, if not precisely, what order of subsidy private sector bodies will demand in order to enter the scheme. It seems that those private sector bodies are in a pretty strong position to make demands in their present negotiations since they know that the Chancellor requires, willy-nilly, £1.6 million from the deal this year and £1.5 million next year, perhaps partly for higher education but certainly for other purposes.
We need to know, if we are to judge the merits of the Bill, what order of subsidy will be necessary if the deals are to be made. But we need to know more than that, I suggest. As has been hinted at by other noble Lords, we need to know what the connection is between this Bill and the Teaching and Higher Education Bill which the House will debate next week. The Government have told us repeatedly—although the Minister did not say it today—that the two Bills are quite separate. I think I understood my noble friend Lord Baker to assume that to be the case, as did other noble Lords. But it is not stated in this Bill.
We need to know for certain whether the Bill is only concerned with loans to students already in the system and funded under the present regime, or whether the Bill is also establishing a framework for funding future loans to students who will enter higher education in the circumstances proposed by the Teaching and Higher Education Bill. If this Bill is intended in any way to establish a continuing framework then clearly future
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requirements for subsidy and thus for the cost-effectiveness to the taxpayer of the arrangements will be even harder to estimate than at present.
The added uncertainties for private sector lenders which the Teaching and Higher Education Bill funding proposals would bring are many and various. There are likely to be large unforeseeable changes in the demand for loans as a result of the ending of maintenance grants, if that comes about, and the introduction of means-tested tuition fees. If I read the Teaching and Higher Education Bill correctly, there will be considerable scope for political intervention in the arrangements, by government and by Parliament. A number of arrangements exist with the laudable aim of protecting students, but they make for great uncertainty for those who are granting the loans.
If the Bill's arrangements are set to continue into the future, those and other major uncertainties will mean risks for the private sector much greater than those which exist at present. So it seems to me that the subsidies required are likely to be very much greater. When the Minister replies, I wonder whether she could clarify that important point. Is it intended that this Bill and the regime it sets up will continue in force after the Teaching and Higher Education Bill comes into effect? We need to know the answer to that question.
The Government's own financial and manpower memoranda to the Bill show the main problems in assessing the merits and de-merits of the Bill. The second paragraph concerning the financial effects of the Bill admits openly that the increase in public expenditure will depend on the amount the Government receive for the sale of the loans and on the amount of subsidy required to achieve the sale. Over the page, on the effect on public service manpower, we read that the number of staff employed by the Student Loans Company "may increase a little". But any such increase would be more than offset, we are told, if the portfolio purchasers decided not to use the Student Loans Company to administer the loans. Those are considerable uncertainties and the financial and manpower memoranda are astonishingly vague.
Perhaps that is unavoidable, but the uncertainties are enormous. I presume that the House will give the Bill a Second Reading, and I shall certainly support it. But I hope that in addition to answering the questions that I and others have put to her today, the Minister will be able to provide us with more hard facts, at any rate before we come to Committee stage. Without them it will be difficult to assess the Bill.
4.16 p.m.
Lord Grantley: My Lords, I warmly congratulate the Government on introducing this very welcome privatisation Bill. On the surface it looks like a purely technical measure to facilitate the transfer of the funding of student loans from the Government to the private sector, to help the Government achieve their spending targets. But I do not believe that the Bill is either purely technical or just modest. On the contrary, I think it is revolutionary in its implications. Just as privatised industries have benefited from having their investment

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programmes freed from the constraints of the public sector borrowing requirement, so the privatisation of funding student loans could, over time, lead to a significant increase in the resources available to higher education, particularly when future generations of students come to realise what very good value the loans represent.
However, as a banker, I wish to focus this afternoon on the technical aspects, particularly with a view to protecting the interests of the taxpayer in relation to the amounts of subsidy the Government will have to pay after privatisation. As unfortunately I expect to be unable to participate in the remaining stages of the Bill, I hope I may be forgiven for raising a number of technical points today—dull points of detail. I shall not be in the least offended if there is a mass exodus of your Lordships towards the Tea Room.
I have reviewed the standard loan agreement which students currently enter into with the Student Loans Company. From a banking standpoint, it is a very curious document. The main oddity is that students pay interest by monthly capitalisation of principal at,
"such rates as appear to the Secretary of State to be requisite for maintaining the value [of the loan) in real terms".
The loan agreement says nothing about when or how often the Secretary of State will determine the interest rate or whether students have a right to notification every time it changes or what prices index will be used. I understand that in practice the Secretary of State expects to determine the interest rate once a year, using the Retail Prices Index, and to use the historic annual rate for the purpose of calculating interest to be capitalised in the year ahead. That is welcome clarification, but really those matters need to be set out in the loan agreements.
On a related matter, the monthly repayment of principal is to be calculated as a proportion of,
"the amount of the loan outstanding on the calculation date plus interest which will accrue during the period of repayment then remaining".
The oddity in this case is that interest "which will accrue" can only be estimated, since no one knows what will happen to the relevant prices index over the remaining period of the loan. On what basis will the Secretary of State perform that estimate and what will happen later on when actual inflation turns out, as it certainly will, to be different from estimated inflation?
Another curiosity—at least to my mind—is the independent complaints procedure outlined in Clause 1(5) of the Bill, whereby students will be able to make complaints to an independent assessor about the administration of their loans. That seems to me to be an unnecessary piece of window dressing. I have not come across a feature of that type in other loan agreements. It is generally accepted that, provided loan agreements are sufficiently clear, normal remedies are adequate. I should be interested to know why that may not be the case for student loans. I should also like to know what sort of complaints the Government have in mind and how many civil servants they expect the independent assessor to need in order to deal with them.
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I understand that a revised form of loan agreement will be forthcoming in the new year. I hope that the Government will pay careful attention to the views of competing financial institutions and their legal advisers on the documentation as a whole. In connection with the PFI programme, there were occasions when the last government failed to attach sufficient weight to those views, with the result that the PFI programme was delayed. I hope that this Government will avoid that mistake.
I notice that the Minister in another place said that the standard sale agreement with the purchaser will be placed in the Library in due course. I should be grateful if the noble Baroness could indicate when she expects that to happen.
The main factors which will influence the price that financial institutions are willing to pay for the loan portfolios are their assessment of the credit risk and, as important, the cost of administration. On the first point, the Bill's Explanatory and Financial Memorandum states that the amount of subsidy will be dependent inter alia on,
"the extent to which borrowers default on their loans".
The Notes on Clauses give some small clarification of that in stating that the subsidy payments which the Secretary of State is authorised to make under Clause 1(3),
"may take the form of … compensation for default to a particular level".
However, when introducing the Bill the noble Baroness said that the selling of loans will transfer to private sector financial institutions the credit risk currently borne by government. I had understood that that was one of the main objectives of the Bill and I should be grateful if the Minister could explain the apparent inconsistency between what she said and those other two statements.
My main concern is with the second point—the cost of administration. It must be borne in mind that the loan portfolios comprise a large number of relatively small value loans. The costs of administration could potentially be horrendous and it is crucial that the Government make every effort to make the system as simple as possible to administer. I am concerned that the previous government chose to use a floating rate of interest; namely, inflation. It would be much simpler to have a single fixed rate of interest applicable to all loans commencing in any one financial year and remaining unchanged over the life of the loan.
For example, if it is important to the Government that the interest rate should be based on average inflation, they could project the average inflation rate to the end of the loan period—let us say 3 per cent. a year—and then stipulate 3 per cent. as a fixed rate for all the loans commencing in that year. Besides the savings in administration, there would be other advantages. Students would be able to predict with certainty their future liabilities and the Government would be able, if they wished, to crystallise up front their liability to pay subsidy over time by the use of the interest rate SWAP

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market which they cannot do in the case of loans indexed to inflation as there is no market for SWAPs between inflation and market interest rates.
The interest equalisation system associated with fixed rate lending has long been deployed in the export finance market, in which I was active for some years. It was well understood by financial institutions and cheap to administer. I am sorry to see that Clause 2(4) of the Bill, which was introduced at the Report stage in another place without any debate, perpetuates the inflation linked system. I urge the Government to reconsider that matter on future loans.
The other point to be made on administration is that it will be cheaper for repayments to be made, where possible. through the payroll or through the Inland Revenue. I am delighted to hear that the Government have decided to accept the recommendation of the Dearing Report to use the Inland Revenue.
Student loans, like mortgage loans and credit card receivables, would seem to be a natural candidate for the securitisation market. In that market the normal procedure is to establish a vehicle company which issues debt securities to the public secured on receivables under the loan and, in this case, under the sale and subsidy agreement. The cost of such debt is often cheaper than in the banking markets as the securities are tradable and there is no need to pay the cost of using banks' balance sheets.
Another advantage of securitisation, where the securities are publicly listed, is that all the parties, including the Government, have a clear and objective bench mark for the pricing of future debt sales. I understand that there is a substantial track record of securitising student loans in the United States. I hope that the Government will avail themselves of the lessons of that experience.
My final point is that no student in his right mind will prepay the loan ahead of schedule as the interest rate is so attractive, being well below the rate at which the funds could be reinvested. In fact, it looks as though students will have a strong incentive to default as the loans are unsecured and there is no default interest rate. At present the only remedy that lenders have is acceleration, which may not be useful in the absence of enforceable security. Even richer ex-students may be unable to pay accelerated amounts.
What do the Government intend should happen if students who are able to repay choose not to do so? Will financial institutions be able to invoke cross-default clauses under other loans the students may have to those same institutions and to exercise any security thereunder? I suggest that in respect of future loans the best solution would be for the Government to insert a default interest rate into the loan agreement.
I shall be fascinated to see how the scheme works in practice and I wish the Government every success in the first round of sales.
4.26 p.m.
Lord Tope: My Lords, I must begin by declaring an interest which I fear may turn into a pecuniary interest in that both my sons have student loans.
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This has been an interesting debate, although somewhat briefer and more one-sided than I expected. However, it was characterised by two particularly good maiden speeches. I am sure that the noble Lord, Lord Montague, will forgive me if I concentrate mainly on the speech of my noble friend Lady Maddock. I do that not only because she is my noble friend, but because she is also my friend in the full meaning of that word: and not only because I agreed (not surprisingly) with every word she had to say, but perhaps for an even more personal reason of which even she may not be aware.
Twenty-five years ago this week I too was an unexpected by-election winner—one of those famous Liberal by-election victories of yesteryear, which was at that time a record swing against a Conservative government. My colleagues sitting alongside me may not be too pleased to hear that, but that was a record which lasted unbroken until the Christchurch by-election. Others have said that records are made to be broken and I can think of no better person to have broken that record than my noble friend.
I suspect that both of us, when we became by-election candidates, were not too certain of our arrival in the other place. At that time if anyone had suggested that either of us would be arriving in this place we would both have felt that the world had gone mad. However, we are both here. I am delighted that my noble friend is here. She made an excellent maiden speech which set out my party's position on this Bill, but not in a controversial way.
There have been times during the debate when I felt rather like an unwelcome guest at a cosy family party. Many speakers have welcomed the Bill. Indeed, I thought at times the noble Lord would tell us that he regretted being in the wrong government because this Government seem to have been managing better than that of which he had been a Member.
I do not welcome this Bill. I agree with the noble Lord, Lord Davies: it is a mulish Bill. For reasons which I understand, we have the Bill because the Government have put themselves in a straitjacket. It is an education Bill that does nothing for education. It is an education Bill that does nothing for students. The sole reason for the Bill, as indeed the Minister has explained, is to enable the Government to meet their own self-imposed expenditure restrictions. I understand that the Government have bound themselves to those expenditure restrictions. But others of us are not so bound, and we do not therefore need to welcome the Bill.
My noble friend Lady Maddock explained—and I shall echo—that the Liberal Democrats have no philosophical difficulty with the principle of student loans. Our concern today is that the loans which the Government are likely to offer students are not large enough to cover their real expenses and that they will still have to go cap in hand to commercial banks. Not only that, but there are students who are left outside the student loans system altogether as it is presently conceived. My party would want loans to be available to support part-time courses. We also think it is high

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time that consideration be given to offering them to those in further education who get no help at all at present.
We have no difficulty with the principle of student loans; nor is there necessarily anything wrong with involving the private sector, as the Bill proposes. However, I am concerned that the bargain basement sale that the Government are organising is selling the public short. Noble Lords will be familiar with the doctrine of caveat etnptor—let the buyer beware. I am bound to say that what we have here is more a case of caveat venditor—let the seller beware. I fear that we are about to throw away valuable assets. Indeed, if I recall correctly, the noble Lord, Lord Baker, said that it was a privatisation in which the buyer could not lose.
Under the proposals of the Bill the Secretary of State can pay any subsidy he likes to City buyers. He can guarantee any losses incurred through default. Our complaint this afternoon is that, despite our earlier protestations, the Bill still contains no measures to limit the extent of those subsidies. We are told by the Minister that we have a strong competition in relation to the student loans book. I seem to recall in an earlier debate on student loans hearing exactly the same from the government then sitting on those Benches. It is to be hoped that this time it is the case. In view of that, why are Ministers so cagey about the extent of the subsidies? We seem to be in the situation of having a product which is worth selling and yet we are cheerfully continuing to shower the customers with free offers. The Government have said that they will, at the proper time, publish the list of the bidding companies. I wonder whether the Minister is able to tell us when publication is likely to take place.
This might be acceptable were not the Government's spending plans so tight. But the student loan portfolio that is to be knocked down to the City at unrepeatable sale prices is a national asset worth £3.1 billion. I seem to recall howls of protests from the Labour Party in opposition when the National Grid and Railtrack were sold off at knock-down prices to the so-called "fat cats" of the City. Noble Lords may well wish to ask themselves what is the difference here.
We have asked that the subsidy should be kept down below one-quarter of the amount originally advanced. That is not an unreasonable or extreme request. It is in fact precisely the request that the Labour Party made when it was in opposition and it made its amendment to the 1995 Bill. It was reasonable then; and in view of the increased interest in the sale, it is even more reasonable now. If the subsidy is allowed by default, or by weak negotiation, to rise above that figure, we are talking of a loss to the taxpayer of perhaps £1 billion of the £3.1 billion involved. If this money is given away by the Minister, he is giving away money that could stave off for the lifetime of this Parliament the need to introduce tuition fees at all.
Other speakers have regretted the fact that none of the proceeds of the sale is going to benefit higher education. When that was first said, I noted that the Minister looked with either surprise or disagreement. I hope she is able to assure us that the proceeds of the sale, or at
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least some of the proceeds of the sale, will go to the benefit of higher education. However, I suspect that it is the other way around. Were it not for the proceeds of the sale, there would be even less money for higher education, or for education generally, as her department would be in deficit and cuts would have to be made elsewhere. That is not extra money for higher education. It is saving higher education from more cuts. That is a very important difference.
I want to repeat our plea that the Treasury takes seriously the proposal to alter its accounting procedures so that student loans are not counted as public spending. If that principle could be applied to the existing portfolio, we could perhaps reconsider whether to proceed at all with the second tranche of the £1.5 billion sale next year.
Finally, I want to refer to some of the questions asked by the noble Baroness, Lady Carnegy, with regard to the Bill to which we shall be giving a Second Reading next week—the Teaching and Higher Education Bill. Like, I am sure, other noble Lords, I have spent the past few days looking at the Bill and, as is sometimes my practice with the detective stories I read, I started at the back of the Bill. The last words of the Teaching and Higher Education Bill come in Schedule 3—the list of legislation to be repealed. The last words say that to be repealed is the Education (Student Loans) Act 1997—the whole Act. If next week we are to start the process of repealing what will be an Act to which today we are giving a Second Reading, I have to ask why we are here this afternoon. All I can say is that it is probable that the Bill before us today will last on the statute book for one of the shortest periods ever; and that, at least, is something we can welcome.
4.36 p.m.
Baroness Blatch: My Lords, I begin by joining other noble Lords in congratulating the noble Lord, Lord Montague of Oxford, and the noble Baroness, Lady Maddock, on their excellent maiden speeches. I know that the House will be anxious to hear them participate in our debates in future.
We generally welcome the Bill. As the noble Baroness, Lady Blackstone, said in setting out the terms of the Bill, it follows on from where the previous government left off; so much so that I suspect much of the Bill before the House today was in preparation when the noble Baroness took office, although, as a number of noble Lords have said, some interesting pieces have been added. It is entirely appropriate that the private sector should be given a role in managing the student loans system.
The noble Baroness used the strictures of the previous government's spending limits. That was offered as the only reason for the Bill. Like the noble Lord, Lord Tope, I want to continue to remind the Government that those limits were self-imposed. They are causing enormous tensions—and just a ripple of tension on the Back Benches opposite. But I have to say that, in another place, that self-imposition is certainly causing great tensions.

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I join my noble friend Lord Baker of Dorking in welcoming the Bill and would pose the question that the generous terms obviously agreed with the Treasury put the prospective purchasers in a "cannot lose" situation. It is not possible, as my noble friend Lady Carnegy pointed out, to tell from what the Minister said about the Bill whether the predicted income from the sale in each of the first two years can be realised. Are the Government on target for realising £1.6 billion, not next year—I say that to the noble Lord, Lord Davies of Oldham—but this year? Only 16 weeks are left of this financial year, yet the Government are committed to finding £1.6 billion in this financial year and £1.5 billion in the financial year 1998–99. I agree with my noble friend Lady Carnegy. We could do with more details in order to make a judgment as to where we are at this time.
The noble Baroness, Lady Blackstone, also referred to the twin-track approach—the public-private arrangements—considered by the previous government and provided for in the 1996 Act. However, it is a matter of record that, following negotiations, the twin-track model did not proceed; and—I might say to my noble friend Lord Baker—for the very reason that we were not able to be as generous. We were not able to convince the Treasury in the way that the noble Baroness and her colleagues have.
The noble Lord, Lord Davies of Oldham, used a rather unfortunate expression. I use it back at him. He said that the Government had a "tawdry inheritance" from the previous government. This Government inherited an extremely healthy economy which even the Chancellor of the Exchequer has now had to recognise.
The noble Lord, Lord Davies of Oldham, also referred to the repayment arrangements of the present system of student loans. He was quite wrong in what he said. Students are not required to repay their loans in the first five years of earning. No student is required to pay one penny of the loan until he or she is earning at or above 85 per cent. of the national average wage, which is between £16,500 and £17,000. There are not too many people who walk straight out of university into a job and earn that kind of money. If there are, then the terms of the loan are affordable. There are many students, even those who took out a loan in the first year of it coming into force, who have not yet paid. There may be some who will never pay because, from choice, they are operating in the low-income sector or because, unfortunately, they remain in that sector. So it is not right to say that in the first five years of earning, students are required to repay the loan.
The noble Baroness, Lady Blackstone, made clear that today is not the occasion to debate the Dearing Report and its consequences for future policy. I agree. Therefore, I shall resist what is a very great temptation. The debate will come next week.
There are a number of questions. First, when will the last loan payments under the existing system be paid to students? Secondly, what will be the future of the private sector company—a question posed in a slightly different form by my noble friend Lady Carnegywhich purchases the debt and which will be set up as a
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result of this Bill? Will it wither on the vine as and when the loans made to students under the present system are repaid'? The noble Lord, Lord Tope, had rather more of an eagle eye than I when poring over the Bill. He picked up that the measure will be repealed as a result of the Bill to be introduced into the House next week. It may be that that answers my question. This company will be set up in business but there will be repeal almost before the ink is dry on the contract. That cannot be the case because the students who are the subject of loans under the present system will go on paying back, not through the Inland Revenue System but through the present arrangements. It would be very interesting to discover how that is going to be managed. Does it mean that the purchasing companies, the banks, who will be picking up this business, will be buying a diminishing return?
Are we to assume, subject to parliamentary approval of this Bill and the subsequent secondary legislation, that the Inland Revenue will be solely responsible for the recovery of debt for loans under the new arrangements and that therefore no role whatever is envisaged for the private sector in the new arrangements? What progress has been made on pursuing the interest shown by the private sector? Can we have an update on the present position as regards the level of interest shown and the state reached in the negotiations? What will be the impact on the PSBR of the measures in this Bill? I have to ask, as a prerequisite for next week's debate, what is the expected impact on the PSBR of the new arrangements for student loans?
It depresses me to have to ask the question across the Dispatch Box but can we have copies of the letter sent by Mr. Blunkett, the Secretary of State, with the intention of calming the nerves of the student population, their parents and schools? I understand that a round robin letter has gone out. It has always been customary that copies of such correspondence are given to shadow Ministers. I, and I am sure, all noble Lords in the House would be grateful to have a copy of the letter.
I must use this opportunity to record very considerable disquiet about the lack of real information as regards loans, especially to those potential students applying now for places at university for the coming academic year, even given the letter that they have apparently received from the Secretary of State. They still do not know the detail of what they can expect when they take up their places in 1998-99. It is not good enough that they glean it from newspapers, perhaps as a result of a Question in this House or another place. It is important that they understand the details.
If I understand the position correctly, the Bill to be introduced next week will have to go through this House, followed by its passage in another place, with possible to-ing and fro-ing between the two Houses while the Bill is put into a form for Royal Assent. After that there will be secondary legislation which has to go before both Houses. That is going to take a very long time and will proceed well beyond the date when young people are making their choices and taking up places at university. I find that situation pretty unacceptable.
It is unlikely that on these Benches I shall be seeking to amend this Bill. I say that it is unlikely because I have learnt the hard way never to say never in politics.

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As a final point, we shall reserve our energies for the Teaching and Higher Education Bill, which is to be introduced next week, because, as the noble Lord, Lord Tope, said, this matter has a very short life indeed.
4.46 p.m.
Baroness Blackstone: My Lords, perhaps I may begin by congratulating the noble Baroness, Lady Maddock, and my noble friend Lord Montague of Oxford for their really excellent maiden speeches. I am sure that I speak for all Members of your Lordships' House when I say how much we enjoyed them and how much we look forward to hearing from them again in future debates.
A great many questions have been put to me in the course of this debate. Some of them have been of an extremely technical nature. I believe that the noble Lord, Lord Grantley, admitted that some of the points that he was raising were more appropriate as amendments for Committee stage. I endorse what he admitted. They were not really suitable points for a Second Reading debate. I hope that he will forgive me if I do not address some of the very technical issues that he raised. However, I shall of course write to him. He will be free to raise any of the questions at Committee stage if he is able to be present.
We have had a very interesting and useful debate, which has raised many broad and generous questions as is appropriate at a Second Reading of this kind. I am very grateful to the noble Baroness, Lady Blatch, and to the noble Lords, Lord Baker, Lord Walton of Detchant, and Lord Grantley, and also to my noble friends for welcoming this Bill with, in one or two cases, a little bit of hesitation. I am only sorry that the noble Lord, Lord Tope, was unable to welcome it. I believe that he was the exception in this debate.
Perhaps I may clear up something with the noble Baroness, Lady Carnegy of Lour. She questioned whether I had made it clear that this Bill was completely separate from the legislation that we shall be bringing in relating to the recommendations of the Dearing Report. I made it absolutely clear. I shall quote what I said so that we are all clear. I said,
"I would like right at the outset to make it clear … that this Bill has nothing to do with the Dearing Report or the Government's response to it. Our proposals for the future of student funding have been brought before the House in the Teaching and Higher Education Bill,"
which we are going to debate next week, as Members of your Lordships' House present today are aware. I want to make that absolutely clear. I also made it absolutely clear that the Bill before us today relates solely to the existing student loan regime and the debt that we intend to sell to the private sector. It does not in any way relate to the new regime. It is perhaps helpful that I make that clarification right at the very beginning.
Perhaps I may advise the noble Lord, Lord Baker, that he was wrong to suggest that I opposed the introduction of student loans in 1990 when he and his right honourable friend John MacGregor (who, I think, succeeded him) introduced the Education (Student Loans) Bill. I always said that I had nothing against the loans in principle, but I opposed the scheme that his
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government introduced because, among other reasons, the methods of collection seemed likely to be administratively difficult, top-heavy and would probably lead to substantial levels of default. It is important to distinguish between issues of principle and matters of detail.
I want to re-emphasise the fact that this is a straightforward Bill. We have made it clear that the receipts from the sale of student loans are crucial to enable us to meet inherited spending plans for the next two years. The Bill also emphasises our commitment to the development of public/private partnerships. I am glad that there has been so much support around the House for new and imaginative forms of public/private partnership.
As I mentioned earlier, the Bill provides safeguards for borrowers. It freezes the significant terms of their loan agreements, preventing purchasers from varying these key terms when the loans are sold. The Bill protects borrowers and ensures that the key terms of their loan agreements remain unchanged. I am grateful to my noble friend Lord Davies of Oldham for recognising that those safeguards are built into the Bill. The purchaser is also protected from costs arising from such changes to the key terms of loan agreements. Purchasers will price their bids effectively without having to take account of possible future changes to the terms of the loans.
My noble friend Lord Montague of Oxford raised the issue of the capital expenditure needs of our higher education institutions. He spoke persuasively about the issue of private sector involvement in the provision of new higher education facilities, particularly residential accommodation for students. As he will be aware, higher education institutions already lever in private funds to a considerable extent. I can say this as a former head of a higher education institution who raised a great deal of private money for that institution.
It is estimated that commercial borrowing by the higher education sector is around £1.6 billion. The noble Lord also referred to the private finance initiative. Three of the PFI "pathfinder" projects being supported by the Higher Education Funding Council for England include new student accommodation. The Government are also keen to encourage other forms of public/private partnerships. Officials from my department meet representatives of private sector companies, including those from the financial sector, on a regular basis. We want that to continue. If such companies have specific ideas about measures which could be taken to encourage further private sector investment in higher education, we would welcome them.
My noble friend Lord Montague also drew attention to the strains on the university research infrastructure. These are, of course, just one aspect of the overall higher education funding difficulties inherited by the Government, which the Dearing Report highlighted.
We have, however, moved swiftly to show that we are ready to tackle the general higher education funding problem to which several noble Lords referred. We have made clear that the savings from the introduction of tuition fees through the other Bill for students from

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better-off families would be used to improve quality, standards and opportunity for all in further and higher education. But it will, of course, take time for our proposals to begin to generate additional money, because there will be an initial increase in costs to public funds, as loans replace maintenance grants. This extra outlay will at first offset the yield from the introduction of tuition fees for students from better-off families. We shall debate that matter next week and there will be an opportunity to say more about it then.
In the meantime, the higher education funding councils have mounted a joint research equipment initiative, run with the help of the research councils, which has been successful in attracting matching private funding. For our part, we have already announced a package of measures which, taking account of the income from tuition fees, will allow an extra £165 million to be spent on higher education in 1998–99. This includes an additional £125 million for universities and colleges in England to maintain quality and to tackle the backlog of maintenance and equipment replacement. I hope that that reassures my noble friend Lord Montague. It will also allow a further £4 million for some limited expansion.
Since 1995 the HEFCE has received a single grant for recurrent and capital purposes. Universities and colleges have full flexibility to manage their recurrent and capital allocations from within their total grant. We have asked the funding council to encourage institutions to make appropriate provision to maintain and update their equipment and estates. I hope that that reassures my noble friend.
The noble Baroness, Lady Darcy de Knayth, referred to disabled borrowers. Our objective is to ensure under the new contractual arrangements that they should receive no less favourable treatment than at present. We are still looking at the details. We would be happy to consider any representations that she or any other Member of your Lordships' House may want to make on the issue. We shall make the precise details of the arrangements clear when the regulations for this Bill are published in the New Year. However, I hope that the noble Baroness will accept my assurance that the position of disabled borrowers will be fully protected. They will retain the right to favourable treatment just as now. As the noble Baroness mentioned, the existing special provisions have never been applied in the seven years of the scheme's existence. That is because disabled borrowers can usually defer on income grounds, so the special provisions have never been required. However, those provisions are, and will continue to be, in place.
A number of speakers, including the noble Lords, Lord Tope and Lord Grantley, and the noble Baroness, Lady Carnegy of Lour, will understand me when I say that at the moment we cannot reveal anything about the extent of the subsidy. After all, a commercial transaction is taking place and it would be quite wrong to reveal what the subsidy might be until those negotiations have been completed and the winner of the bidding process has been announced.
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Several noble Lords from all sides of the House asked about whether the proceeds of the sale can be used for higher education purposes. Again, as I made clear in my opening speech, the proceeds of the sale will be used to fill a hole in the PSBR which was left by the previous government. We shall however continue to work to make available additional funding for higher education based on our new proposals that we shall discuss next week. I hope that I shall be able to say a little more about it at that time.
The noble Lord, Lord Walton of Detchant, and the noble Baroness, Lady Maddock, asked about the treatment of student loans in the national accounts. The noble Lord, Lord Walton, was right to stress that the Dearing Committee recommended that the Government should examine alternative approaches to national accounting which did not treat loans in the same way as grants to students. We are actively exploring the issue of the treatment of student loans in the public accounts with the Treasury whose responsibility it is. However, any changes to existing accounting treatment would be required to be considered in the broader economic context.
The noble Lords, Lord Walton and Lord Baker, together with other noble Lords, referred to the collection of loans through the Inland Revenue. I am grateful for their support for our decision to collect the loans by this means. This Bill is not relevant to the collection of loans under the new scheme, but that can be discussed further next week. We believe that it is absolutely right and that it is the most efficient and effective way of collecting these loans. Pre-Dearing loans will continue to be collected on the existing mortgage-style basis, not through the Inland Revenue. I believe that that clarifies the relationship between this Bill and later legislation. I believe that it would be wrong to do anything other than this. Students understood the basis on which their existing mortgage-style loans would be repaid and it would not be right to change those arrangements retrospectively. All existing students will continue with their pre-Dearing mortgage-style loans. To allow existing students to have a mix of mortgage-style and new income-contingent loans would be extremely complex, cumbersome and difficult to administer.
The noble Lord, Lord Grantley, asked a number of questions about the interest rate. The interest rate is tied to inflation to ensure that the value of the loan is maintained in line with the provision laid down in the Education (Student Loans) Act 1990. It would not be possible to make such a change under this Bill. Loans were taken out by students on the basis that interest rates would be linked to inflation. One cannot change that retrospectively. In future, key terms will be set out in the loan agreement rather than in regulations. The independent assessor will continue to administer complaints as now. His terms of reference and the conditions under which he operates—for example, his conditions of appointment—are available in the Library of the House of Lords if the noble Lord, Lord Grantley, wishes to pursue the matter. I assure him that no civil servants are involved in the administration of these complaints.

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The noble Baroness, Lady Carnegy, asked about the use of the Student Loans Company as collector. If the debt purchaser is to take on the risk of the loans defaulting it must be free to choose the body that collects the loans. The debt purchaser is likely to choose the Student Loans Company because of its experience, but it will take its decision on the basis of its view of the cost of using the Student Loans Company and its efficiency.
I say to the noble Lord, Lord Tope, that the Government's adviser, Rothschilds bank, announced in the middle of last month the four short-listed bidders for the purchase of the student loan debt. That is already available.
The noble Baroness, Lady Blatch, asked several questions. At the beginning she said that she would resist the temptation to speak on next week's Bill. I am afraid that once or twice the temptation proved a little too much for her. I hope that she will forgive me if I do not go into details about next week, other than to say that I shall make available to her a copy of the letter which the Secretary of State has sent to all prospective students. I shall also make available to her the leaflets produced by the Department for Education and Employment to provide potential students who are interested in applying for places at university next year with details of the new scheme. I shall ensure that copies of both documents are placed in the Library and that the noble Baroness and the noble Lord, Lord Tope, who speaks for the Liberal Democrats in this matter, have copies of them.
The noble Baroness also asked whether, following the comments made by the noble Lord, Lord Tope, this Bill would be repealed. Yes, it will. This Bill relates to the existing student loan debt, not to a totally new system that will come into force when the Bill to be debated next week is enacted. The noble Baroness also asked when the last loan payment under the existing system would be made to students. The new scheme will be introduced for new students in October but all existing students will continue to have their loans paid under the present system.
Baroness Blatch: My Lords, I am grateful to the Minister for giving way. A question arises from what the noble Baroness said. What is the legal authority for the purchasing company to continue its work to recover the debt some years into the future of those who take out loans under the present system if that legal authority is removed by the repeal of this Bill in the next few weeks?
Baroness Blackstone: My Lords, this Bill will not repeal the role of the Student Loans Company in continuing to collect debt under the existing scheme. However, perhaps I may seek to clarify it further in writing for the noble Baroness.
I have tried to answer as many questions as I have been able in the time available to me. I have gone beyond my time. This Bill is a straightforward measure. It is about carrying forward the previous Government's
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policy to meet our key manifesto commitment to stick to the already announced spending plans. The receipts from the debt sale will ensure that we achieve this. Education is our key priority. The Bill will extend opportunities and ensure that we continue to make high quality provision, as was the policy of the previous Government. I look forward to the Opposition's support of the Bill at this and further debates in the House. I commend the Bill to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Local Government Financial Settlement
5.8 p.m.
Baroness Farrington of Ribbleton: My Lords, with the leave of the House, I should now like to repeat a Statement which my right honourable friend the Deputy Prime Minister has made in another place about the local authority revenue finance settlement for England for 1998/99. The Statement is as follows:
"As you know, Madam Speaker. the Secretary of State comes before the House at about this time each year to make a statement about local authority finance for the following financial year. There will follow a period of consultation with local authorities and others and I will then bring a report to the House which, when approved, will finalise the arrangements.
"My Statement today is important to local authorities since it gives them firm information on which to make progress in setting their budgets.
"This Statement concerns England. My right honourable friend the Secretary of State for Wales will be making an announcement today and my right honourable friend the Secretary of State for Scotland will make an announcement very shortly.
"As this is the first such Statement of the new Parliament, I hope that it will be helpful if I put today's Statement into a wider context. We were elected on a manifesto which pledged us to a renewal of local government. We aim to achieve: re-invigoration of local democracy; a commitment to best value; a prospect of greater fairness and; increased local discretion allied to greater local accountability. We have made good progress so far, though we have still some way to go.
"We have set up a new central local partnership to help local and central government work in harmony. We have signed the Charter of Local Self Government which the previous Administration refused to sign. We have taken legislation to provide for the release of some £800 million in additional capital expenditure in England under our capital receipts initiative. This money will help the unemployed; build and refurbish homes for those in need; and support our wider New Deal objectives. We have put local authority public private partnerships on a clearer footing. We are supporting the Bill of the noble Lord, Lord Hunt, on local authority innovation.

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"We are discussing with the Local Government Association ways of renewing local democracy. We are decentralising decision making to the local level. We have introduced a Bill to give London a voice once again. Tomorrow we will publish our White Paper on regional development agencies, setting out how we will work with local government and others to revive the regions of England. And we will very shortly announce the pilot local authorities for our "best value programme". Finally we have started, in co-operation with the Local Government Association, a review of the system of local government finance.
"Each of those items is important in its own right. Taken together, they demonstrate that we really mean it when we talk about a new relationship and partnership with local government. All this in just seven months of government. But our full progress will be judged not in seven months but over a full five years of a Labour government.
"We will be issuing consultation papers starting later this year and, following consultation, a White Paper in the late spring. This new relationship follows many years when the previous government did not listen to local authorities and squeezed their expenditure year after year after year. Despite all this, local government has survived that period, I am glad to say. My aim is to build a strong partnership between central and local government to the advantage of our citizens and our communities.
"The first important element of the local authority settlement is my proposals for the Government's provision for spending by local authorities. In forming my proposals, I have of course considered the pressures which local authorities will face in the coming year—which are considerable—and I have listened carefully to the views of the Local Government Association. In line with these views, we have chosen in this settlement to concentrate on the policy priorities, which we set out in our manifesto and which were endorsed by the electorate—above all, education.
"We were elected on a pledge to stick to the previous government's public expenditure totals for 1998/99. Nevertheless, my right honourable friend the Chancellor of the Exchequer announced in his Budget on 2nd July that by careful consideration of the priorities for public expenditure we had been able to make available an extra £835 million for revenue expenditure in English schools in 1998/99. I can confirm today that we will provide an extra £835 million of revenue support grant for our schools. This means that none of the cost of this extra schools spending will fall on the council tax payer.
"We are also providing £662 million for local authorities for the education of four year-olds, following the abolition of nursery vouchers. I also propose to provide up to £130 million for the transitional costs of local government reorganisation, such as for the unitary authorities. We have also taken into account smaller changes which will take place in local government functions. Taken together, these factors mean that the Government's view is that the
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appropriate level of total standard spending (TSS) for local authorities in England in 1998/99 will be £48.2 billion.
"My right honourable friend the Secretary of State for Health will today be making a separate announcement on resources for community care. My right honourable friend the Home Secretary will today be making a separate announcement on resources for the police. Both are included in the figure 1 have just quoted. This £48.2 billion provides for an increase of £1.78 billion (or 3.8 per cent.) in local authority spending year on year. That is expected to he 1 per cent. above inflation, therefore allowing an increase in real terms, to reflect our key policy priorities.
"Education is the top priority for this Government and the nation. Raising standards in schools is not only a benefit to children. It is an investment in our country's future. Altogether we have made extra provision of £1.06 billion, or 5.7 per cent., to go into English schools in 1998/99. It can and should be spent in the classroom, reversing the years of neglect. This meets the pressures identified by the Local Government Association and enables a start to be made on raising educational standards, which we all are determined to see. That is a big step.
"Community care is another important area in which local authorities are facing up to the difficulties involved. Local authorities provide a vital service by looking after elderly and disabled citizens. We have maintained previous plans to make resources available in this area. We expect to see a reduction in the net costs of financing outstanding debt. So we have been able to make a larger than average increase in provision for some services, including a further £70 million for children's social services—the first substantial increase for three years. Fire services provide an essential and much appreciated service to the community. So I am pleased to announce that we have increased provision for the fire service by 4.8 per cent., within an overall increase for other services of 1.4 per cent. These other services include highways, libraries and the Probation Service.
"Now I want to turn to how much assistance local authorities will get from the business rates and the national tax payer which together give a total of £37.51 billion. That includes the £835 million extra to ensure that the cost of our extra provision for schools does not fall on council tax payers. It also includes £20 million extra to make possible the development of £200 million worth of local authority private finance projects. The business rate will be increased to 47.4 pence in the pound, as provided by the legislation, following the 3.6 per cent. increase in the September retail prices index. This means that we can distribute £12.52 billion of business rates to local authorities in 1998/99. I am today publishing the detailed basis for that distribution to local authorities.
"I propose that the revenue support grant should be £19.5 billion. In addition, some £5.49 billion of specific and special grants will be available. The total of revenue support grant for England on which I am consulting may need to be altered slightly as a result

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of consultation. The total may be increased, if it appears that less provision is needed for the transitional costs of local government reorganisation.
"I turn now, to the means of distributing revenue support grant. At its heart is the standard spending assessment for each authority. An authority's SSA is its share of the total provision for all authorities, taking account of its local circumstances. It is not a spending target.
"We were elected on a pledge to remove the unfairnesses which have dogged standard spending assessments since they were first introduced. We have discussed with local government during the summer a wide range of ideas for improving fairness. I am today announcing changes which are well founded in research evidence which respond to long-standing concerns of many local authorities and which remove the more blatant cases of unfairness.
"I first propose a new basis for assessing spending needs for the education of under-fives. The nursery voucher scheme was a wasteful and bureaucratic paper chase. The money released by its abolition will assist in our programme to make universal provision for 4 to 5 year-olds. The new distribution will recognise the number of pupils for whom local authorities currently provide. Authorities which need to expand their nursery education, and put forward sound plans for doing so, will be able to get an additional grant from the Department for Education and Employment. This is just one element of the national childcare strategy, of which after school clubs form another part.
"Secondly, I propose to tackle a piece of nonsense in the present formula. Currently some authorities have an incredible ranking on the measures of neediness. It is hard to believe that leafy Kingston upon Thames is as needy as beleaguered Barnsley. We have carried out with the Local Government Association a very thorough re-examination. We have at last applied explicit principles to these calculations. I believe the new measures of neediness which we are proposing are a clear improvement on what went before.
"Thirdly, I propose a new basis for the allocations for elderly residential social services. The formula has had a thorough overhaul using research commissioned by the Department of Health from the University of Kent. For the first time, it takes proper account of the changes in social services in the past five years following the introduction of community care.
"Fourthly, I propose a new treatment of debt incurred by local authorities before the current system was established in 1990. During the 1980s local authorities had a choice. They could either use capital receipts to pay off debt or they could use them to finance new capital expenditure. But in 1990 the previous government decided to penalise those who had chosen new capital expenditure during the previous decade. They treated everyone as if they had chosen to repay debt, whether they had done so or
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not. I am proposing to put right that wrong. I propose that we should reflect in the standard spending assessment each authority's actual debt as at 1990, if that improves its position.
"Finally, I have given priority to tackling the great unfairness whereby visitors and commuters were assumed to have the same economic and social characteristics as the residents of the authority they were visiting. This was an anomaly exposed time after time in this House. The previous government's formula treated people staying in the Ritz in London as if they were as deprived as the average local resident. Even the research on this commissioned by the central London authorities themselves, which were the greatest beneficiaries, did not recommend keeping the existing approach. So from next year we will get rid of this glaring injustice. We shall take account of visitors and commuters; but only fair account.
"I will mention only one of the many other proposals for changes which were pressed on me but which I have not taken up. It concerns the area cost adjustment. That is the means by which higher employment costs, particularly in London and the south east, are recognised in standard spending assessments. I do not believe the evidence is yet sufficiently clear enough to warrant a change this year. However, I am commissioning further research to see whether there is a sound basis upon which to consider changes for this time next year.
"The changes which I have outlined, with some smaller technical changes, are a big step towards making the grant system fairer, as we promised. These changes would have a large impact on council tax levels in some authorities, if the authorities do not adjust their spending accordingly. I accept that authorities and their council tax payers may need a period in which to adjust to these changes. So I propose to phase in changes in the way that standard spending assessments are calculated.
"I propose that "damping" or "phasing-in" of the larger corrections we have introduced should be limited to the equivalent of half the SSA reduction. This strikes a reasonable balance between the need for time to adjust and the need to get more fairness into the system. There will again be separate "phasing-in" schemes for police and non-police authorities.
"I also propose to repeat this year's scheme to phase in those council tax increases which are directly due to reorganisation. The scheme would "damp" such council tax increases which are above a threshold of £52 a year at band D, for authorities which are subject to reorganisation from April 1998. It would also provide continued damping for authorities reorganised in earlier years where they exceed a threshold of £104 a year at band D.
"Let me now turn to council taxes. We are examining in the local government finance review ways in which the fairness of the council tax might be improved. I do not propose to make any changes ahead of the results of that review. I expect that for

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the foreseeable future the council tax will remain the prime means by which local residents contribute to the cost of local services.
"Each year the Government identify a notional tax level for each valuation band. This is known as the council tax for standard spending. We do this to calculate a distribution of grants which would enable all authorities to provide a standard level of service for a similar council tax level, for a similarly valued property, whatever the differences in needs and resources. My proposals set this figure at £635 for a band D property. That reflects the previous government's plans to increase council tax by 7 per cent. This increase was built into the previous Administration's spending plans. That is not a prediction of the average level of council tax nor of the band D bills for individual authorities.
"The actual council taxes in individual authorities will vary considerably depending on their own spending decisions; their financing decisions; their collection performance; and their efficiency. No Secretary of State could predict those factors with a high degree of accuracy for individual authorities.
"This pressure on council tax is inherent in the public expenditure totals set by the previous government. We have sought to relieve pressures by a number of means, in particular by fully funding the £835 million extra for education. This extra funding for schools is worth £50 a year to the typical tax payer. But, as I made clear earlier, local authorities must give full weight to the burden on their tax payers when they come to set their budgets.
"We remain committed to the ending of crude and universal capping. But in the light of our public expenditure plans, as both the Chancellor and I made clear to the Local Government Association conference in July, capping will remain in place for 1998/99. We have provided extra money for schools. We cannot risk that being undermined by unplanned increases in spending.
"I am today announcing my provisional capping principles for 1998/99. I am also issuing proposals for the calculation of notional amounts for those authorities whose boundaries or functions will change from 1st April 1998. These include reorganised authorities and local education authorities affected by the abolition of the nursery voucher scheme. The notional amount is the base level from which I will measure the increase in budget in determining whether that increase is excessive. My provisional capping principles themselves make allowance for expenditure on community care which is being met in 1997/98 by the special transitional grant; and changing funding arrangements for the National Criminal Intelligence Service. Those adjustments are necessary to make a fair year-on-year comparison of budgets.
"I am making a number of changes to provisional capping principles this year. These will give local authorities more room to exercise local discretion and will help them to direct the additional provision for education to the schools for which it is intended.
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"Subject to the allowances I have already mentioned and other technical adjustments affecting individual authorities my proposals for capping are as follows. As in previous years, authorities whose base budgets are more than 12½ per cent. above their standard spending assessment will not be permitted any increase over their 1997/98 base budget. Nor will any other authority be allowed an increase which would take it beyond 12½ per cent. above its SSA. However, I propose to allow each class of authority to increase its base budget more than in recent years. That will be helped by changes to so-called "passporting" about which I shall tell the House. Let me just explain this term "passporting". In the past, the Government recognised increased spending needs on a particular service, but prevented councils from spending that money—through the capping system. That was a ridiculous situation. "Passporting" is designed to deal with that problem.
"Where an authority's standard spending assessment increases, that will follow through into its capping limit so the money can really be spent. The permitted increases I propose for classes of authority are as follows: for inner London boroughs, the City of London and shire districts, I propose that the year-on-year increase should be limited to 1½ per cent.; for outer London boroughs, metropolitan districts, county councils, unitary authorities and the Isles of Scilly, I propose that the increase should be limited to 3 per cent.; for police authorities outside London, I propose that the increase should be limited to 3.2 per cent.; for the London and metropolitan fire and civil defence authorities, I propose that the increase should be limited to 4½ per cent. For all classes of authority other than police, these year-on-year permitted increases are substantially greater than last year, particularly reflecting the extra provision we have made for schools.
"Shire districts have been treated especially harshly in recent years. So for shire districts I am permitting an increase in 1998/99 which will be three times more than in previous years. But I am going further than that.
"I can announce today that for all authorities (other than police authorities) budgeting up to 12½ per cent. above their standard spending assessment, I intend to "passport" the increases for all service blocks within the spending assessments. This will extend the benefits of passporting to shire districts for the first time. It will also be the first time that increases in highway maintenance, other services and capital financing blocks have been passported.
"These are important changes in the capping regime. They give greater discretion to local authorities. I do, however, expect local authorities to look carefully at their permitted increases, including passporting, and make a careful judgement about whether they need to make those increases in budget and whether their council tax payers can afford them. Many authorities have budgeted below their capping limit in the past. I have given local authorities extra room within which to exercise their discretion. I expect them to do just that.

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"These principles are necessarily provisional. I cannot take my firm decision on capping until authorities have set their budgets for 1998/99. When I come to take those decisions, I shall of course, take into account all relevant considerations.
"My department is today writing with the details of the settlement to every local authority in England. That package includes a consultation paper setting out how we propose to distribute central government support between authorities, including my proposals on standard spending assessments and damping. It sets out my provisional capping criteria, and includes my proposals for notional amounts. Copies of this package have been placed in the Vote Office and the Library.
"The package is large and some elements are very complex and precise. That is possibly unavoidable for a system which distributes huge sums of money among more than 400 local authorities with different needs and resources. The basis of the calculations has to be set out in detail to assure the House and local authorities that each authority is being treated in exactly the same way as others. We are reviewing how we might simplify the process in the longer term, while retaining that reassurance. I know that if we can make this whole exercise simpler, it will be much appreciated by Members of the House, local authorities and the general public. For the immediate future I plan to provide for the House before the Revenue Support Grant Report is debated in the New Year, a plain English guide to these aspects of local government finance.
"The proposals I have outlined today represent a substantial improvement on the settlement that local government could have expected, following the Budget of the last administration a year ago: there is £835 million extra provision for education; standard spending assessments will be made fairer; and local authorities will have more scope to exercise their discretion on budgets. This is a better and a fairer settlement than in previous years.
"Too often in the past two decades, central Government in Whitehall seemed to be waging war on local government in the town halls. When Labour was elected on 1st May, we declared it was time to bury the hatchet. Whatever the considerable difficulties we found—financial, social, or environmental—we would face them together, with local government, regardless of the party in charge in any particular town hall. In just seven months, we have taken the first steps in developing this new partnership. We will be judged on our full five-year programme; but the direction is right—the priorities are different.
"The Government believe in local democracy. This year and next will he tough financially. But we are firmly on the road to reinvigorate local democracy and restore a new and more positive relationship between central and local government".
My Lords, that concludes the Statement.
Lord Bowness: My Lords, first, I thank the noble Baroness, Lady Farrington of Ribbleton, for repeating the Statement made in another place earlier this afternoon. I should declare an interest as a member of a local authority. There is one aspect of this Statement which I support unequivocally and which cannot come too soon for me; that is the promised plain English guide to the system.
I believe that this is a Statement which will be greeted on reflection with some dismay by both council tax payers and local authorities. What we have heard this afternoon is a formula for reduced services at increased cost, particularly in view of the more relaxed approach to capping which is envisaged in this Statement and because of the extra costs which must be met by local government.
For Band D taxpayers, who are always taken as a guide, it is a Statement which envisages increases in some local authorities of up to 10 per cent. of council tax or £60 at Band D. I do not believe that Her Majesty's Government can seek to avoid taking responsibility for that by claiming that they are adhering to the expenditure plans of the previous administration. First, they are not; and secondly, it is indeed their responsibility.
What have this Government done for local government since May? They have imposed an additional burden on local government which is estimated at some £1 billion. How is that made up? Principally, price levels are higher. They will have risen by nearly 1.5 per cent. over this year and as estimated over next year, costing local government as a whole £0.5 billion. There have been five interest rate rises since May. Rates are up from 6 per cent. to 7.25 per cent. And the changes in the treatment of advanced corporation tax for pension funds is costing local government an extra £300 million per year. That is not my figure but a figure provided by the Local Government Association, which has a very firm and solid Labour majority. It is no good members of the Government saying that this provision will not take effect until 1999. Councils will want to take action now to deal with the deficit with which many are faced. To leave matters until 1999 will only make the situation worse.
The consequences are that council tax will rise as I have suggested. The claim that the Government have increased funds for education by £835 million is not precisely as it seems. It is money taken from reserves left by the previous government, which would have been applied to education as part of the annual spending round. The effect of higher inflation rates has reduced this to a worth of only £480 million.
I believe that a number of questions arise out of the Statement. For example, how are the Government going to ensure that the money is applied to education? Will the Minister call on her colleagues in Labour-controlled councils to ensure that the money is indeed spent on that? Last year it did not. Is it not the case that the Secretary of State has no existing powers to ensure that

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that happens? Is there not a risk that councils put under severe pressure by the settlement may spend the money elsewhere, especially as the Local Government Association has predicted that there will be a significant shortfall in the total standard spending for non-education services?
The £662 million for educating four year-olds is not new money for education; it is merely recycling money from the nursery vouchers scheme. I ask the Minister what information she can give the House regarding the changes to the methods of distribution. We need to know what the effect of those changes will be. Where will the gains and losses be felt? Is there a shift from the south and the south-east to the north? Is there a shift from rural areas to urban areas? I believe that the House will want to know the answers to those questions. Changes of this nature in the formulae never affect only one authority, were that ever to be the intention of governments. The system is not that sophisticated or sensitive.
The changes in the treatment of debt will, I believe, be a matter of rewarding councils which have run up debts and penalising those which have paid them off. That is on top of the local authorities' supplementary credit Act which has already given a new capacity to borrow rather than releasing the actual moneys, as stated yet again in the Statement this afternoon. The encouragement to increase debt can only be to the detriment of council tax payers in future years. Will not the changes in the "damping" mechanisms, which have been changed themselves, not lead to unacceptably high levels of council tax in many local authorities?
In opposition, the Government made much play of how they would encourage and support local authorities and local services. By this settlement, and in particular their own actions, they have put at risk social services and other local authority services, reduced the value of the benefits claimed to have been given to education and placed another burden on council tax payers, many of whom are just coming to terms with the succession of interest rate rises that they have suffered on their mortgages. It is extra taxation—I know that it is because this time last year the then Shadow Chancellor of the Exchequer described his estimate of council tax rises as "locally-driven tax rises", as did the then Leader of the Opposition. But in the "People's Britain" there were supposed to be no plans to increase tax at all. I say to the Minister that the council tax payers who will pay for the settlement will see it as another tax on the people.
Baroness Hamwee: My Lords, I, too, thank the Minister for repeating the Statement. She must feel something of a poacher turned gamekeeper, or perhaps I have that the wrong way round. Like the noble Lord, Lord Bowness, I must declare an interest as a serving member of a London borough. I have never seen the play "The Mousetrap", but I believe that it must be a little like the Statement—the script remains much the same year after year, despite the new cast. Therefore, it is inevitable that the response from these Benches will not be very different from that given to previous Tory
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settlements; namely, disappointment, verging on despair, combined with anger borne of frustration and pain at what is happening to local services.
The new Government have undoubtedly written a better prologue to the play, but they have stitched it on to rather the same substance. Indeed, the noble Baroness referred quite directly to the previous government's plans which, it appears, this Government may be applying even more toughly. Reference was made to the European Charter for Local Self-Government, but the combination of the grant system and capping envisaged in the Statement does not seem to me to amount to the autonomy envisaged by the charter. I take the opportunity to ask, as I have done previously in this House, when the Government intend to ratify the charter? I am sure that that is very close to the noble Baroness's heart.
The noble Baroness referred to capital receipts and used the word "release". I cannot help but respond that it is not a release; indeed, it is a new borrowing arrangement and local authorities understand that fact. Reference was also made to the recently ratified concordat, the framework for partnership between local and central government. I hope that the consultation referred to in the Statement will mean that, in the future, if real consensus is not reached between the two sides—because that may not be possible—then very constructive dialogue will be organised with both sides listening extremely carefully.
In the run-up to today's announcement, the Government will have been told of local authority concern for education. We have been told about the funding for education. I have to say that I contest the view that it is good news. The Local Government Association estimated in June that LEA spending next year needs to rise by £529 million to meet inevitable costs and to restore pupil-teacher ratios only to 1995 levels.
Pupil numbers are rising and we now have just under 500,000 five to seven year-olds in classes of over 30. If one adds to that approximately £515 million for inflation and the teachers' pay award, education spending needs to rise by £1,044 million just to maintain current standards, the allocation for which we have heard is £835 million from reserves. Local education authorities will be more than £200 million short of what they need to meet basic educational needs in 1998-99. I hope that the Minister will accept that a shortfall of that order means that local government aspirations for education cannot be met.
With regard to the under-fives, the proposals are not entirely easy to follow. My own authority has already declared an interest and I know that it is seriously concerned. It believes that it would lose over £1 million of under-five SSA with a change in the basis for distributing the majority of funding—that is, 30 per cent. of this sub-block. That seems an impossible shift of resources in a single year. It also seems to indicate that the cardinal rule of the SSA system—namely, that an authority's own policies should not influence the SSA—is one which may be on the way to being breached. In other words, it seems not to be the unalloyed joy and benefit suggested by the noble Baroness.

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Reference has also been made to community care. I am sure that the noble Baroness will accept that the previous government underfunded community care. That led to local authorities considering rationing, grasping the nettle and being open about it in a way we have not yet seen in the health service, although I believe the issues are rather similar. It appears that in this area six out of 10 authorities will have to increase their charges at a rate above inflation; four out of 10 will have to introduce charges for services which were previously free, which means restriction on access; and seven out of 10 will have to tighten eligibility criteria. That, too, means restriction of access. The police and fire services and those who provide a whole raft of environmental and protective services still believe that there are considerable shortfalls.
Many noble Lords will have received representations from local residents as well as from local authorities as to the effect on their services. Only last weekend I received a letter from a resident of Oxfordshire, an authority which has suffered substantially under the capping regime. The letter referred to library closures. I am sure that your Lordships, with your respect for language, the written word and information, will understand the impact these proposals will have on a lower order service such as libraries not falling within the "headline" topics of education and social services. Only today a report was published by the Rural Development Commission on the loss of services in rural communities. When I read about the loss of bus services, I could not help thinking that this is just the kind of service which local government, in partnership with other providers, would want to ensure is available for their communities. It seems to me that that kind of partnership is now even further restricted.
It is entirely right to refer to local taxation in the context of taxation overall. One has to mention council tax along with other taxes, especially income tax. In many ways council tax is less fair and less transparent than income tax. That makes it all the more important to admit that this settlement means that people will pay more for less and that, because of the capping and the decision to stick with Tory spending plans, the responsibility for cuts and for council tax rises rests squarely with central government and Whitehall and not with town halls.
Your Lordships will have detected a reaction from these Benches when leafy Kingston was mentioned. The noble Lord, Lord Tope, and I are its neighbours on either side. We have noticed that other boroughs, including, for instance, Wandsworth, have leafy bits too. I am not surprised by this reference. Perhaps Barnsley is to become the new Westminster! If I have understood correctly, I think I welcome the announcement about the change in the approach to debt. The noble Lord, Lord Bowness, took a rather more moralistic view on that than I might have done. In the light of the financial constraints of the past few years, one cannot look at the question of debt entirely as a moral issue aside from an economic one. I am not entirely surprised that the area
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cost adjustment has been postponed. I am beginning to think that that needs a mediator rather than a researcher to settle it.
I note, too, the references to damping. I think that that gives something away. Of course there will be losers through the settlement and that is admitted by the Government. They are leaving in place capping for the next year. I have some difficulty in understanding the passporting rules but they seem to indicate that there may be more ring fencing and more central control. If that is the case, I cannot welcome them.
In the Government's review of all this, and their proposal to issue a plain English guide, might now not be the time also to consider whether this Statement is an appropriate presentation? I believe that the Statement comprises 54 pages, although some of the pages contain only a few sentences. No one would deny that the procedure provides a superb platform for the Government. However, some noble Lords will have collected the Statement only minutes before it was made. It is an enormous package. The noble Baroness referred to the precision and complexity of the settlement. There is, of course, obscurity too in some of its elements, if I may dare to say so. Real consultation in the future might be better served through a different form of announcement.
Lord Hardy of Wath: My Lords—
Baroness Farrington of Ribbleton: My Lords, I hope that my noble friend will understand that the procedure is that I reply to the two Front Bench speakers and that there is then an opportunity for questions from other noble Lords. Certainly, the noble Baroness, Lady Hamwee, would find it not at all difficult to convince me, while I am at the Dispatch Box, that there is a better way to proceed. I am sure that, during the course of the review of local government finance, questions of presentation and the manner in which decisions are announced will form part of the discussion.
I begin with the points made by the noble Lord, Lord Bowness. I find it strange that he feels able to express dismay at an average increase which was definitely built into the published expenditure plans of the previous government as part of their commitment that a greater share of the cost of local services ought to be borne by the council tax payer rather than through central taxation which is then re-distributed through grant. He expressed concern about council tax payers having to pay even more because of extra spending. I remind the noble Lord that the Government are backing pound for pound the £835 million increase in education expenditure with extra grants.
The noble Lord asked how we would ensure that the additional money intended for education was spent on education. That is one of those catch-22 questions. If we were to say that it was being rigidly controlled from the centre, that would provide grist to the mill of the noble Baroness, Lady Hamwee, who sees even passporting as a dangerous extension of central control. Budget decisions are for local authorities, and that is as it should be. Both I and my right honourable friend the Secretary of State will want to draw the attention of local

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authorities to education and to the priority that it will be given by parents. I declare a former interest as one-time chair of an education authority in Lancashire. In my experience the first people to be aware of the additional money for education will be the many parents and parent governors who are not prepared quietly to sit back.
The noble Baroness, Lady Hamwee, referred to the increased money for education. I believe that she failed to note that the total year on year increase in the education budget is £1.06 billion, and that the £835 million was additional expenditure within that amount and therefore should be adequate to meet the needs she identified. The noble Lord, Lord Bowness, claimed that the nursery money was merely a question of recycling. What we are doing is returning money—so that it can be spent directly, without incurring unnecessary bureaucratic hoops and costs—to the people who ought to provide the service for all four year-olds whose parents wish them to have that education. Therefore it is not recycling money.
The noble Baroness, Lady Hamwee, asked whether the distribution of money would be in a manner that was fair to individual local authorities. I am sure that individual local authorities will check that aspect during the consultation period. The noble Baroness expressed concern, if I understood her correctly, about the degree to which there would be central control over bids for additional money to spend on the education service. We do not intend to allow local authorities, as they did under old local government finance systems, to claim money within their expenditure totals and central government grant for the provision of pre-school nursery education, and not use the money for that.
The noble Lord, Lord Bowness, asked about distribution. I refer him to the detail of the Statement. I believe that it clearly answers his question.
The noble Baroness, Lady Hamwee, referred to the issue of grants, capping and ratification of the charter. The Government will ratify the charter for local government when it is appropriate to do so. In their new partnership deal with local government the Government recognise that there need to be radical changes as the result of a thorough investigation of local government finance. It is because we intend to do that that the capping regime stays in place at present. But we shall give priority to ensuring that there is a proper, thorough review. We seek to achieve agreement between ourselves and local government in order to improve matters.
As regards the education budget, there is a 5.7 per cent. increase year on year. The noble Baroness, Lady Hamwee, sought to reintroduce a proposal which I understand was put to the electorate in the general election by her party: that the public should pay higher rates and that the money should be spent on education. This RSG settlement provides nearly £2 billion in total including the additional money for school buildings over and above the expenditure totals which we inherited. In that sense we have met an objective but have done so with the backing of the electorate who voted not to have such an increase in income tax.
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We do not deny that this is a difficult budget. That is inevitable. The Government wish to see firm and solid management of the economy at this stage so that at the end of five years we are able to consider the funding of local government services and the new relationship in the context of a sound economy.
From my experience, Barnsley, being the other side of the Pennines, would be happy to have the visitors and commuters who are present in some of the authorities in the south. My experience of people in Yorkshire is that they would happily say, "Yes, and we do not expect unfair additional treatment if we are doing so well."
6.5 p.m.
Lord Hardy of Wath: My Lords, does my noble friend accept that it is cause for considerable pleasure to hear that the Government seek to develop a new, fresh and much needed relationship with local government and that the blatant unfairnesses are being tackled? In that regard, and as a Yorkshireman from the best side of the Pennines, I wish to ask my noble friend whether Barnsley and the other Webber-Craig authorities—the smaller metropolitan areas of the north of England—have cause for a little relief after more than a decade of the unfairness and hardship they have experienced? That hardship and unfairness did not extend to the City of Westminster. Is there some satisfaction for those and other authorities which have experienced that unfairness? Has the difference between the City of Westminster authority and the remaining authorities substantially narrowed?
Baroness Farrington of Ribbleton: My Lords, I agree with my noble friend. It is a good position to be in. As an initial step in reviewing the way in which local authority SSAs and funding are calculated, we are looking at some of the more blatant examples of the system used by the previous government which was unfair to some authorities and excessively unfair to others.
Baroness Gardner of Parkes: My Lords, I believe it appropriate to ask my question in view of the previous Statement with which I cannot agree. Is the noble Baroness aware of the lengthy debate in this House when the national non-domestic rate was introduced? It now seems to be called the business rate. On that occasion it was pointed out that the City of London, the City of Westminster, Camden, and Kensington and Chelsea, each made a huge contribution because the total business rate which they had collected in the past had gone in its entirety directly to the Treasury. That was the reason for a degree of compensation to those inner London boroughs. The City of London was excluded and treated differently. The other boroughs received differential treatment to compensate them to some minor degree for the great amount that they had lost. I do not know whether the noble Baroness is aware of that debate. I participated in it at the time.
Is the noble Baroness aware that since 1991–92 the SSA per head in the City of Westminster has increased by less than the average for inner London boroughs? Is she also aware that within the City of Westminster there are significant areas of deprivation, and a much higher

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proportion of elderly aged over 85 and elderly living alone than in Hackney, Islington, Lambeth or Southwark? Can the noble Baroness confirm that some element of the SSA will continue to cover tourism? The noble Baroness mentioned areas fortunate enough to have tourists. Does she agree that there are costs in terms of additional street cleaning and provision of amenities associated with tourism? Tourists are not entirely a source of joy either to the local residents or to the council tax payers.
I have one further question which applies to any borough—in London or outside. Will the Government consider the need to recognise that special expenditure for refugees falls unfairly on certain areas and should be treated as a national expense? Can some help be given, either retrospectively or in advance, to those boroughs and areas involved in the high costs which apply to refugees?
Baroness Farrington of Ribbleton: My Lords, on asylum seekers, the Government recognise the difficulties of local authorities. In the short term the asylum seekers will be eligible for non-contributory social security benefits, where they have applied on arrival at the port of entry for asylum, and for assistance under the homelessness legislation. In the longer term, the Government are conducting a wide ranging review of asylum policy considering all aspects of the asylum process including the provision of accommodation and support. The aim is to identify need.
Behind the point raised by the noble Baroness is the question of whether SSA should apply in full to the cost of asylum seekers. It is not possible to reflect specifically asylum seekers in the framework of broad indicators used for SSAs, but numbers of asylum seekers are included in SSAs to the extent that they are reflected in the population estimate used in their calculation. In deriving the estimates for 1998–99 SSAs, the Registrar General changed the method of calculation to reflect more accurately the numbers of asylum seekers in the London area.
As to the range of questions put by the noble Baroness, I do not recollect the particular debate to which she refers with regard to national non-domestic rate, but I can reassure her that the levels of real deprivation among the population in authorities such as the City of Westminster will continue to be given fair treatment. What has changed as a result of the more blatant flaws in the previous system is the assumption not that there should not be account taken of those coming into such authorities in terms of commuters and tourists—those needs are taken into account—but to ensure that no assumption is made that if, for example (I use a figure for illustration) 20 per cent. of the City of Westminster's permanent population were deprived,
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that would be no reason for assuming that 20 per cent. of the commuting or tourist population were deprived. That is the adjustment that has been made.
Lord Evans of Parkside Lord Evans of Parkside rose—
Baroness Gardner of Parkes: My Lords, I am sorry but I should like to come back and ask a supplementary question?
Lord Evans of Parkside: A long time has been spent on this question.
Baroness Gardner of Parkes: We do have 20 minutes and I would like to ask a supplementary. Is the noble Baroness saying that no consideration is being given to the fact that this huge business rate, non-domestic rate, is going entirely to the Treasury? Is the City of Westminster to get no benefit for its council tax payers from that?
Baroness Farrington of Ribbleton: My Lords, all local authorities get benefit from the Treasury because the previous government nationalised the business rate. They nationalised it and ensured that it was then distributed by central government. We have said that we want to look at the situation and the circumstances in which it would be possible to consider returning that to local authorities and to local discretion. I have given an indication of the sorts of things that would have to be in place as part of that total change. I feel it is a little unfair to hold me to account for all the actions of the noble Baroness's party in government.
Lord Evans of Parkside: My Lords, will my noble friend accept my sincere congratulations on the way she presented the Statement to the House and answered questions? Local government finance is notoriously an appallingly difficult subject, surrounded by its own jargon. Frankly, the overwhelming majority of the population can make neither head nor tail of it. Is my noble friend aware that over the last five or six of my 23 years' representing St. Helens in the other place,I always spent a full day with the borough treasurer after he had devoted a whole weekend to going through masses of documents like those confronting us today to arrive at what the final settlement would mean to the borough of St. Helens? Is my noble friend aware that I am astonished when I still hear representatives of the Conservative Party get up and proclaim the unfair treatment that Westminster has received over the years?
Is my noble friend aware that if the borough of St. Helens had received precisely the same standard spending assessment and support grant as Westminster, not only would we have been able to provide the services entirely free of any charge but we would also have been able to send every single council tax payer a cheque for £750? That is a measure of the appalling unfairness in the circumstances. Is my noble friend also aware that much of the non-domestic rate of the borough of St. Helens was wiped out by successive Tory governments closing factories, collieries and other places that once employed thousands of people?

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Finally, can I say to my noble friend that I think that the Government have done a magnificent job in a short space of time in a notoriously difficult area. But will she ask her right honourable friend the Deputy Prime Minister to ensure that when the rate support grant settlement comes to us next year the Government will then have 12 months behind them and there will have been much more consultation with local authorities, so that next time round we will get a fair settlement which means that impoverished boroughs like St. Helens and others in the north of England will finally start to get a fair and honest deal from central government?
Baroness Farrington of Ribbleton: My Lords, as the noble Baroness, Lady Hamwee, referred to me as a poacher turned gamekeeper, my long experience in local government makes me hesitate to give a definite and categoric assurance of a particular date for ending a process of consultation between central and local government on the basis of future financial arrangements. We are fully committed to ensuring that a proper, fair and mutually respectful system is brought in as quickly as possible, in line with its being effective.
I understand the emotions. As I said earlier, I declare an interest, as a former Lancashire county councillor. None of us can doubt that there are high needs in areas in parts of local authorities such as the City of Westminster. We walk home at night past some of those needs. All that this settlement seeks to do is to ensure that those needs are recognised and met on a fair and equal footing, matching the percentage of needs existing in leafy Kingston with the percentage of needs in St. Helens. Fairness and equity is the hallmark of what we seek to do.
Lord Bridges: My Lords, may I, from these Benches, support the suggestion made by the noble Baroness, Lady Hamwee, that the extremely complicated nature of these statements makes their content rather difficult to digest, particularly if one does not have the benefit of a text. It seems to me, given the very complex gobbledegook language used, that it is difficult for those of us who are not versed in local government finance to understand fully. There might be some advantage in considering a different way of dealing with important Statements like this, for example, by the circulation of a printed text a day or so in advance so that we might have a rather more considered debate. I am aware that in this House a number of Members have expert knowledge of local government finance but I think we would be able to make a more considered and valuable contribution if we were given the opportunity to consider the matter shortly before speaking about it.
Baroness Farrington of Ribbleton: My Lords, I do take the point. Certainly, as I said in reply to an earlier question. I personally, at this moment, would like to see a different system in place. I am sure that particularly those Members of your Lordships' House who are still actively and individually involved in local government will ensure that the system of announcement and debate of the announcement will be considered. I understand
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that, apart from one year, this the first time for several years that the RSG settlement statement has actually been given in your Lordships' House.

Social Security Uprating
6.19 p.m.
The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, with the leave of the House, I shall now repeat a Statement on the uprating of social security benefits and re-rating of national insurance contributions which has been made in another place by Mr. Keith Bradley, the Parliamentary Under-Secretary of State for Social Security. The Statement is as follows:
"With permission, I should like to make a Statement on the uprating of social security benefits and the re-rating of national insurance contributions for 1998–99. I should also like to report to the House on our objectives for reforming social security.
"This is the first benefits uprating announced by this Administration and unlike those of previous years it will not be marked by a long list of cuts to the welfare programme. Not that we are content with the size of the Budget. We cannot be complacent when despite growing prosperity, spending on social security has continued to grow. It now consumes one-third of government expenditure and is set to break through the £100 billion barrier before the end of the century. That is more than is collected in income tax, twice what is spent on the NHS and nearly three times what is spent on education.
"As importantly, we are not content with the way the money is spent. The huge cost that is our legacy has done so little to reduce the amount of poverty. The inability to harness social policy, to use it as a tool for change, has not only been the main driver of welfare spending, it has resulted in the greatest social division we have seen for generations.
"We are committed to breaking with the past. We are undertaking a systematic review of the welfare programme. This review is both necessary and timely. We need a modern welfare system to reflect modern circumstances.
"Our welfare to work programme will provide people with a route out of benefit dependency. And our comprehensive spending review will lead to the modernised system that we need. I will say more about this later.
"First, we have immediate business. The House knows we are required to review the rates of benefits and national insurance annually. Our intention for the year 1998–99 is to uprate most national insurance benefits, child benefit, benefits for disabled people and carers by 3.6 per cent. This is the increase in RPI in the year to September. War pensions will also be uprated by RPI.
"As in previous years, jobseekers' allowance and the main income-related benefits, will be uprated by the Rossi index, which at September had a year on year increase of 2.4 per cent. The Rossi index, as

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Members will know, is RPI less those elements for housing costs. It is a more appropriate index to use for the income-related benefits where housing costs are, in the main, met separately. Most rates of deductions in respect of non-dependants have been increased over and above inflation. This will reduce the benefit paid in respect of housing costs to claimants who have non-dependants living with them.
"Taking forward this measure allows us to reverse the previous Government's planned measure to extend the single room rent restriction. The withdrawal of the extension, which would have restricted housing benefit to those aged over 25, has been welcomed both inside and outside the House.
"This was a hard choice in maintaining our commitment to live within existing spending ceilings. It is important to remember that the mandate we so recently received was based on a manifesto which committed us to controlling public expenditure.
"Moving now to national insurance, we do not propose to increase the rates of Class 1 contributions paid by employees and their employers or the earnings brackets for the three lower rates of employers' contributions. The rates of Class 4 profits-related contributions paid by self-employed people will also remain unchanged. The lower earnings limit for Class 1 contributions will increase broadly in line with the basic rate of retirement pension, as will the upper earnings limit which applies to employees' contributions only. Similar increases apply to the lower and upper profits limits for Class 4 contributions. The weekly Class 2 contribution paid by self-employed people and the voluntary Class 3 contribution also increase in line with this formula.
"The cost of the uprating will be £2.45 billion. The maximum available Treasury grant for the National Insurance Fund will be set at £800 million. Most new rates of benefit and the changes made to national insurance contributions come into effect from 6th April next year. Schedules showing the new rates of benefit and the new rates of national insurance have been sent to all Members today.
"The most pressing need is to develop our approach to people of working age. They are responsible for the support of their children. Their actions while in work will determine how adequate their income will be in retirement. The best we can do for people of working age is to give them the opportunity to work. This is our first objective for welfare reform.
"The wage motivation to work is for most people compelling—with the best will in the world benefits can never be a substitute for earnings. Equally, there are also very strong non-wage motivations for working which in total reflect and influence the shape of society. Work enables people to be in the mainstream of society, to make their own contribution, to develop their potential, and to offer a positive role model for their children. Work also provides access to social networks, and access to new opportunities for advancement.
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"None of this is new. It could be argued that making work the best form of welfare has always been an objective of social policy. But the facts show that the current social security system fails actively to promote a return to work.
"The fact is that an indifference to social policy, and an assumption that unemployment is a price worth paying for economic success, have meant that millions of people have been set aside from the labour market and condemned to a life of dependency.
"Our objective is to root out worklessness, and to give all people of working age a chance of economic opportunity. That is why our New Deal programme extends beyond the unemployed. We also need to give lone parents and sick and disabled people a hand-up. And we need to make sure that where possible, work pays and that tax and benefit systems encourage and not deter work.
"That is why we have a Whitehall task force on tax and benefits to help deliver the Government's pledge to streamline and modernise the welfare system. It is why we are introducing a minimum wage. It is why we are looking carefully at every benefit to see whether it helps or hinders people in achieving their aspiration to be in work. We are seeking to recast totally the aim and operation of welfare, to make clear that work, rather than benefit payment, is the right solution both economically and socially, for people of working age. And we will continue to support those people who cannot work.
"The second group needing our attention are children. Our objective here is to ensure that all children are supported, wherever possible, by their working parents. Nearly 3 million children now live in workless households, a threefold increase since 1979. The best way to support these children is to ensure that their parents are working. They benefit from the lasting financial security that work ensures and from role models which help them to learn how they too can live independent lives when they grow up.
"Our new deal for lone parents is helping to tackle this problem by providing a comprehensive package of back-to-work help for lone parents. Effective childcare arrangements are vital as nine out of 10 lone mothers would work if they could afford childcare. This Government are committed to a national childcare strategy, which will help parents, especially women, to balance family and working life.
"Child support maintenance has a major part to play here. Receiving regular maintenance payments helps lone parents work, independently of all other powerful influences on their ability to work. And we must move to a point where an absent father's failure to provide proper financial support for his children is seen as socially unacceptable.
"Our ambitions do not stop at people of working age. It is also essential to help pensioners. On average, pensioners' incomes have grown over the last 20 years but the gap between the poorest pensioner and the richest has widened. And projections show that this gap will continue to widen unless urgent corrective action is taken.

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"Our objective is to promote financial security in retirement in a way which enables people to build up a stake in their own provision. It is clear that the difference between richer and poorer pensioners is a result of the extent to which the former have had access to second tier pension opportunities, and have taken advantage of the chance to save during their working lives. Secure income in retirement will be achieved when people of working age realise that the more they and their employers make contributions to their own pension, the greater will be the reward when they retire.
"Work, to fund savings, is the best form of pension provision. That is why we have launched the pensions review. That is why we are consulting on stakeholder pensions, and developing citizenship pensions. This will extend the opportunities for good value pensions to the 8 million people who are poorly serviced by the existing arrangements. It will also begin to address the current inequalities between the opportunities of women and men to have adequate pensions.
"We are also taking action to ensure fair treatment of pensions on divorce, giving greater rights to women who have contributed to the build-up of pension by supporting their husbands in the home. And we are determined to tackle the situation where nearly a million pensioners do not take up the income support to which they are entitled. We have already commissioned research to establish the reasons why they do not. And from April we will begin a number of pilot exercises to find out the best ways of delivering income support to older citizens.
"As the manifesto made clear, we believe pensioners should share fairly in the increasing wealth of the nation. This is not just a long-term aim. We have already reduced VAT on fuel and from next year will abolish the gas levy. This shows we will act quickly. And in his pre-Budget Statement the Chancellor announced the winter fuel payment, paying pensioners £20 and the poorest £50. These payments will be made in time for the winter fuel bills. They will be on top of the normal pensions payments which will be uprated next April, as I have already announced.
"We are a modernising government. We believe in bringing opportunities to all sections of the community equally, but also believe that these opportunities bring responsibilities. Our reforms will be guided by our objectives for the main groups we are seeking to help: welfare to work for those of working age; security for older citizens for now and in the future; and support for children.
"As the House knows, the orders introducing the new benefit rates and the main elements of national insurance require affirmative resolution. We look forward to the wide debate on our programme for social policy that occasion lends itself to. I commend this Statement to the House".
My Lords, that concludes the Statement.
6.32 p.m.
Lord Higgins: My Lords, the House is grateful to the noble Baroness for repeating the Statement made earlier this afternoon in another place, not least because she does so, I understand, at some personal inconvenience.
The annual uprating Statement is an important Statement and, indeed, one of the few fixed points in the annual financial timetable. Before we had a unified Budget we had an Autumn Statement, the uprating Statement in the autumn, and the Budget in the spring. We then moved to having a Budget, an Autumn Statement and the uprating Statement in the autumn. This year, because of the election, we find that we have a Budget in the spring, an uprating Statement in the autumn and no Autumn Statement at all. We are grateful for that.
I ask the noble Baroness one question which arose from her closing remarks with regard to the orders but relates also to an off-the-cuff remark made by the noble Lord, Lord McIntosh of Haringey, in response to a question from my noble friend Lady Hogg when he was commenting on the so-called "green" Budget. He cast some doubt on the future timing and also on whether there would continue to be a unified Budget. Can the noble Baroness confirm that the orders we are discussing will be debated in the spring and whether the Government have any further view as to how the timing of the Budget and these orders will be related?
In considering these matters one of the notable omissions of detail in the Statement is the question of the extra benefits which have been previously paid to lone parents. There was a reference to the welfare to work programme, as one might expect, and a strange categorical statement that,
"nine out of 10 lone mothers would work if they could afford childcare".
I was not clear what the source of that precise statement was.
The noble Baroness has a history in relation to lone parents. For example, in November 1995 she commended the idea of the lone parent premium and the single parent benefit and condemned the then government saying that they would deliberately make those families poorer. She went on to describe this measure as,
"vindictive, punitive and utterly wrong".—[Official Report, 29/11/95; col. 601.]
Yet, as I understand it, that is what the Government are now proposing to do. The noble Baroness went further. In only February of this year, referring to those benefits, she said,
"It is one of the very few benefits that do not trap a parent in dependency. So, lo and behold, the Government propose in future to remove it. Why? What on earth are the Government thinking of?"—[Official Report, 20/2/97; col. 850.]
Perhaps the noble Baroness can now tell us what it is that the Government are thinking of, because this is very much a reversal. She went on yet further and said:
"It is as simple as that, and the Government are removing one of the very few benefits that target help on lone parents without a means-testing penalty. It is batty".—[Col. 850.]

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Whether "batty" is an expression normally used in your Lordships' House, I do not know. But we are entitled to know why the noble Baroness thought it was batty in February and does not think it is batty in November.
The implication in the Statement is that it is somehow due to the fact that the Government are under severe spending restraints which were imposed by the present Chancellor when in opposition. He said that he would stick to the then government's spending limits. But those limits were perfectly well known at the time the noble Baroness made those statements. Therefore, the argument that it was because of tight spending limits or the need to restrain public expenditure is not one which stands up to examination. We need an explanation as to why there has been this change of policy.
In relation to new recipients of the benefits, because the benefits will be abolished there is no question of uprating them. As I understand it, the Government propose to freeze the benefits of those who are already in receipt of them. Is it the Government's policy to allow those benefits to wither on the vine or is it a temporary situation which they hope later to reverse? I hope the Baroness can tell us.
Can the noble Baroness confirm also whether it is the case that, taking all the benefits that are now to be paid to lone parents, even after this Statement, the total amount being expended on lone parents is actually less than it was before the Budget and before this Statement? I say again—the noble Baroness may have been distracted—what is the total amount, including the welfare to work programme and everything else, which is now being spent on extra benefits for lone parents? Is that total amount less, greater than, or the same as that which was previously announced? My understanding is that the overall amount is in fact less rather than more. If so, that is something that many of the interest groups particularly concerned with lone parents would wish to hear. I am not disputing the basic underlying policy; it is the question of why the reversal has taken place which one needs to consider.
I turn next to the question of what is happening within the spending limits mentioned. I was particularly puzzled by a Question asked in another place on public funding:
"what is [the] estimate of the additional expenditure by her Department, its agencies and other non-departmental bodies in (a) 1997–98 and (b) 1998–99 as a consequence of higher uprating for inflation than was assumed at the time of the November 1996 Budget".—[Official Report, Commons, 5/11/97; col. WA 247.]
Mr. Field replied:
"Higher inflation than expected in the 1996 Budget has no effect on 1997–98 benefit spending".
That is straightforward enough. He continued,
"1998–99 benefit rates will be announced shortly. Increases in line with prices would mean an increase in benefit spending of about £600 million above that assumed in the 1996 Budget. The Government are committed to staying within its overall spending plans".—[Col. WA247.]
There is a puzzle here which has not been cleared up by the Statement we have just heard. If I understand it correctly, there is to be uprating in line with prices or, in the other cases, with the Rossi index. Is it the case,
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or is it not, that another £600 million has been allocated? I found the answer in another place rather puzzling. It seemed to imply either that there would not be uprating in the traditional way or that there would be an increase in the amount spent. It is not clear from that answer to the question in another place what the position is.
At all events, as I understand it, it is the Government's intention, as set out in the Statement, to uprate the benefits in the way in which the noble Baroness has described; namely, in line with the RPI or, in other appropriate cases, in line with the Rossi index. The answer may be that some benefits are not to be uprated. Indeed, the noble Baroness's opening remarks referred to uprating "most" of the national insurance benefits. Perhaps she will specify precisely which ones are not to be uprated.
Perhaps I may make a more general point. The implication of the Statement seems to be that the Government are now committed to controlling public expenditure. That is not the formula which has normally been used. What the Government have done up to now is to say that they will stick to the spending limits which were produced by the previous government. These nuances are sometimes rather important. We ought to be clear. Has the noble Baroness just announced a change in the policy? Is the Government's commitment simply to controlling public expenditure; or are the Government still maintaining the position that they will stick to the spending limits imposed by the previous government? If there is a change, it is a matter of considerable interest to your Lordships.
I should like to turn now to some points about pensions. There is a rather odd change really. The implication of what the noble Baroness said was that better off pensioners seemed to be getting a better deal than those on lower pensions. It is worthwhile looking at the department's press release of only a few days ago. As part of the overall survey of those in the lower income groups, the department said:
"There were far fewer pensioners in the bottom quintile (20 per cent.) of the income distribution in 1994/95 than in 1979: on … conventions for adjusting household incomes for household size, pensioners accounted for 24 per cent … of the bottom quintile in 1994/95 compared with 41 per cent … in 1979".
In other words, the position of pensioners has significantly improved in relation to the population as a whole. Perhaps I have misunderstood it, but that seems to be what is being said. Where they stand in relation to other pensioners is another matter. However, it seems to be an unfortunate policy if the Government are to argue that the differential between one group of pensioners and another is what is important rather than seeking to raise the level of those at the bottom without affecting the position of the pensioners who are better off. There is no doubt at all—I do not want to labour this point because it has been made many times—that the position of many pensioners will be significantly affected by the measures taken in the Budget. That seems wholly inconsistent with the Statement that has just been made.
The noble Baroness will know that many people have been advised to invest in PEPs rather than in personal pensions. Indeed, a number of people have felt that PEPs are a better long-term investment than going in for

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an ordinary pension scheme. The PEP arrangement is good in that respect. However, if I understand correctly the press statement which was issued by the Treasury this afternoon, it is proposed that the amount that can be invested in a PEP is now to be limited to £50,000. There may be many people who by now have accumulated a greater amount than that and will be relying in their retirement on the fact that they will be able to use that amount to invest in an annuity.
It is not clear from the press statement but it is important to know—this will no doubt be taken up in the newspapers in the next few days—whether or not those who have invested more than £50,000 in a PEP in anticipation of their retirement rather than invested it in some other form of pension will be "grandfathered"; that is to say, whether, if they have more than £50,000 in a PEP now, they will be allowed to leave it in a PEP. Otherwise, they may well find—this may apply to someone who is just about to retire—that, as a result of the changes announced this afternoon by the Treasury, the sum available for buying an annuity is less than they expected: and at very short notice. Perhaps they will be retiring in just a few months' time. It is important that the noble Baroness should clarify that point before we go any further into the matter. The press release was not as clear as it might have been.
I have one final point. Is it not the case that, despite the upratings which were announced by the noble Baroness this afternoon, the overall changes in government spending plans and their proposals for a new tax credit scheme, which were announced in the "green" Budget by the noble Lord, Lord McIntosh of Haringey, only a few days ago, will penalise women and favour men? The Institute of Fiscal Studies has been looking at this issue and thinks it is a basic trend—and, for all I know, a basic policy—of the Government to introduce changes, the overall effect of which is to penalise women and to favour men.
I well recall many years ago, when we were looking at the benefits system, that we were extremely anxious that the amounts should be paid to the wife rather than to the husband. There are real problems when families are faced with a situation where money is paid to one spouse rather than to the other. Therefore, against the background of the Statement, it would be helpful to know whether it is the Government's intention to do this or whether it is simply an accidental effect.
In her closing remarks the noble Baroness said that we shall have further opportunities to go into these matters in greater detail. I hope that that will be so. We should be grateful also if she will clarify when these further debates are likely to take place.
Earl Russell: My Lords, I thank the Minister for repeating the Statement. I am sorry to learn that she has had to do so at personal inconvenience. I hope it is not too great.
The Minister has invited a wide-ranging debate. I shall respond to that invitation in a moment but, first, I must welcome the basic fact of the uprating, though like the noble Lord, Lord Higgins, I have a suspicious mind. I, too, would like to know what is meant by the
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words "most benefits". No doubt an answer will be forthcoming. I should particularly like to give a warm welcome to the news that the shared residence requirement on housing benefit for the over-25s is not going forward. I should like to repeat the thanks I have already given to the Minister personally for her part in that story, by which I am delighted. I should like to know, though, why nothing has been done towards closing the gap, on which the Minister and I have both detained the House in the past, between the rates of income support for over and under-25s.
I know that this point is not technically part of the Statement, but it relates so closely to it that I believe I am entitled to ask. Has there been any uprating of the youth training allowance and the youth training bridging allowance? The noble Baroness may perhaps remember that I ask this question every year. I hope that this Government are better at knowing the answer than the last one, as I have never before found a Minister who had an answer to that question when the time came.
There have been rumours in the press recently about possible changes to the national insurance lower earnings limit due to the effects of the poverty trap. I see nothing of that in the Statement. That may possibly be because it is being left for the Taylor review, which prompts the question of whether we have any indication when that review is likely to report. Most of the Statement is a report on the Government's objectives, and I listened to it with considerable interest. However, what we know is limited because it has been said that this Government have hit the ground reviewing, and while the reviews are still revolving we do not exactly know what the outcome will be. I am glad to say that I can agree with a considerable amount of the general framework of the objectives that have been set out.
I share the concern about the social security budget. We must all hope that we can find reasonable ways to reduce it. I agree with the factual observation about the failure to reduce poverty. I say to the Minister that the department should not be too self-abasing in taking responsibility for that failure to reduce poverty. That failure is essentially a failure of the amount of work in the economy and of the excessive flexibility, from the department's point of view, of that work. As I understand it, it is not a failure of the welfare system. It would be an improper act of self-abasement if the department were to take responsibility for it.
I am a little concerned about the straitjacket set by spending limits. I listened with interest to the questions of the noble Lord, Lord Higgins, on that aspect. I gave notice that I would ask why the Government have committed themselves to the previous government's spending limits and have done so with links of iron tougher than the previous government ever used.
The Statement refers to a mandate, but I remind the Minister of the opinion poll which appeared in the middle of the election campaign showing that 56 per cent. of those intending to vote Labour simply did not believe that it intended to observe these restraints. They believed, in the memorable words of

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Polly Toynbee, "Trust them—they are liars". I have never been one of those people, but when we talk about mandates we should not forget their existence.
I agree entirely with all that is said about the need for the opportunity to work. That is an analysis that I have been putting forward on this Bench ever since 1989. I am glad to see a government in place which shares it. But that again is not primarily a welfare issue. I do not believe, in any straightforward sense, that it is a fault of the welfare system that there is so little work. It has much more to do with the fashion for downsizing in industry. In a way, downsizing is freeloading on the public purse in just the same way as it would be if the public purse was asked to bear the cost of warehousing industry's unused raw materials. So, again, I do not believe that the department should be too self-abasing.
I agree about the importance of the principle that work should pay. I welcome the publication of the minimum wage Bill. I am extremely glad that it contains fewer exceptions than was feared at one stage. But I want to know why it is being argued that there should be a lower minimum wage for the under-25s. For reasons with which I am sure the Minister is familiar, I am not at all happy about that.
I become a little more worried when the Statement moves on from opportunities for work, with which I agree, to the desire to root out worklessness. That is a very curious phrase. It is at one and the same time utopian and draconian. It is remarkable how frequently those two concepts go together. We all want to reduce worklessness. If they were to root it out they would be the first government in recorded history to have done so. Indeed, I am reminded of the passage in 1066 And All That about the abolition of villains. Richard II was petitioned to abolish villains. He agreed and then put them all to death on the ground that they were villains. If one roots out worklessness it is going to take something like that to do it.
In fact, we have here something very like the language of Tudor economic policy—the distinction between the able-bodied poor who are to be whipped back to their parish and the aged and impotent poor for whom relief may be provided. The Minister knows as well as I do that that was a very difficult distinction to apply. It did not work very well.
The Statement talks about the fact that opportunities bring responsibilities. I agree profoundly with that if we take it as a rule of personal moral conduct. If we take it as a rule whereby moral judgment is passed over to the state and it decides which opportunities it is our duty to undertake, for me that is a very different matter indeed. People are very different from each other: they cannot all be moulded like plasticine into a particular social form. If the state attempts to do that for us it will inflict much unconscious cruelty and achieve a great deal less than it intends.
As regards the issue of single parents, I have asked the Minister before whether she can give an undertaking that single parents will not be compelled to work. I know that the Minister said on 3rd June that she does not favour any such policy, but I am becoming
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increasingly suspicious that the reduction of benefits, together with that being used, as Mr. Darling put it on "The World This Weekend" on Sunday, as an encouragement to work, means that we are getting somewhere very close indeed to compulsion by the back door. "Thou shalt not kill, but needst not strive officiously to keep alive". That concerns me very deeply.
The Minister knows that I am strongly in favour of the opportunity for single parents to work if they want to and if they are satisfied with the childcare arrangements available. But the right of parents to stay at home, particularly with young children, is a human fundamental. I would view with very great gravity anything that appeared to me to threaten that. I believe that the adequacy of childcare for a particular child—it must be for a particular child and not abstract—is something that parents must be left to judge for themselves. So if I begin to suspect that the deprivation is being used as a back-door compulsion my opposition will become much deeper than it has been up till now.
I have similar anxieties about the review of disability benefits and I would be very glad to be told that they are misplaced, because they may be. I entirely agree that it is a good thing that disabled people should work when they can. I agree that far more of them are able to work than we can give the opportunity to do so. I shall not soon forget one Greek island where a person unable to walk had been given the monopoly of selling cigarettes on the island and made himself an extremely good living. That is an individual fit of opportunity to person. Where one can achieve that, I like it. However, turning the pressure to work into something which comes close to conscription worries me considerably.
When talking about rooting out worklessness, one should not forget the problems of transport. The Minister knows that I have touched on this point many times previously, but if she looks in today's Guardian she will find a report from the Rural Development Commission which states that three out of four rural parishes in England have no daily bus and that 99 per cent. have no jobcentre or benefit office. That makes rooting out worklessness rather difficult.
Where one is asking people to do what they want to do, that is a proper use of the power of the state. Where one is helping them to achieve their own self-respect, that is a proper use of the power of the state. However, where one is undertaking a scheme of social engineering to fit people into a particular mould, that, like Plato's republic, is a world that may be beautiful to read about, but in which one would not want to live.
7 p.m.
Baroness Hollis of Heigham: My Lords, I welcome the comments of the two noble Lords who have spoken. I shall do my best to answer their questions. If, on checking the record, I find that I have inadvertently left any question unanswered—I hope that it will be inadvertence rather than any other reason—I shall write to them.

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Perhaps I may respond first to the noble Lord, Lord Higgins. The noble Lord asked first about the future timing, given the "green" Budget. This is a matter for the Chancellor, but I am told that we shall be debating the uprating order in February in the usual way.
Secondly, the noble Lord asked about the quoted statistic that nine out of 10 lone parents would work if only they had childcare. That information comes from research with which I am familiar, conducted by Bradshaw and Miller in 1990. The noble Lord has a point in suggesting that it has been slightly abbreviated, but it showed that lone parents wished to have the opportunity to enter work when their children were old enough or the childcare was in place. I repeat that that figure came from the 1990 research although later research subsequently reaffirmed it.
The noble Lord then referred to our debate in February 1997 in which I denounced the possibility of lone parents not being able to carry the higher rate of child benefit into work. The noble Lord asked whether there had been a U-turn. I am happy to assure him that there has been no U-turn because lone parents now on income support who enter work and go on to family credit will be able to take the higher rate of child benefit with them even if they are not currently claiming it because it has been subsumed within their income support level. If I may put it this way, they will be able to make a fresh claim after April 1998. Therefore, no such disincentive applies. Like the noble Lord, I should be worried if it did. I repeat that there has been no U-turn.
However, where there has been a change since the script of the previous Government, if I may put it that way, is that for the first time lone parents now have the opportunity of a New Deal. They are getting opportunities presented by a major expansion of childcare facilities—not just through the New Deal but through the announcement in the "green" Budget of £300 million which will allow not just the 35,000 children to enjoy after-school clubs as at present, but 1 million children in future. Too often when we talk of childcare, we focus on the nought to fives, but I am sure that we all recognise that childcare is also a real issue for those with children between the ages of five and 12 or 13. This is a major expansion; and, importantly, the minimum wage is also to come. All of those changes will serve to benefit lone parents and make the move into work an attractive possibility for her—it is usually a "her". Those are the changes since the previous government's strategy.
The noble Lord also asked how the sums work. If 1 understood him correctly, my answer is this: there has been a reduction of £400 million over the three years proposed in lone parent benefits. So far, that is being offset by the £200 million in the New Deal and the one-off strategy, mainly funded by lottery money, of £300 million in childcare under the "green" Budget. If 1 have misunderstood the noble Lord's point, I shall return to him to amplify my answer.
The noble Lord also asked about the £600 million. Again if I understood him correctly, he was asking how we balance the extra cost of inflation against staying
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within the spending limits. Clearly, estimates of future government spending are always subject to assumptions about the rate of inflation for the forthcoming year. As I understand it, if that assumption is wildly wrong—I defer to the noble Lord on this because I suspect that he knows much more about it than I do—the reserve is designed specifically to address those circumstances where there is a shortfall between forecast and outturn. I have no reason to think that that would not apply here, as elsewhere.
Like the noble Earl, Lord Russell, the noble Lord, Lord Higgins, went on to ask which national insurance benefits were not being uprated because the word used was "most" rather than "all". One now expects suspicious minds on the Opposition Benches, unlike previously. We were far less suspicious and far less cynical of the government's words! As I understand it, all national insurance benefits have been uprated except the Christmas bonus. However, the Chancellor has announced extra payments this winter which go beyond simple uprating. I refer, for example, to the money for the heating proposals.
The noble Lord asked about control of public expenditure and whether we are still reasserting our previous statement that we propose to stay within the spending limits of the previous government. Yes, we do so intend.
The noble Lord then asked a series of questions about pensioners and said that their position collectively, if I may put it that way, has improved in relation to that of the population as a whole. We have seen inequality widening within the pensioner group, but it is true that pensioners have been displaced in the lowest two deciles of households with below-average incomes. The reason that they have been displaced is good news for pensioners, but bad news for others. Pensioners have been displaced by workless households and, to some extent, lone parents. That is one reason why pensioners, relative to the rest of the population, have improved their position not only absolutely but also relatively. That is because, as we know, workless households have fallen well behind in terms of the growth in prosperity of the rest of the country. The noble Lord will understand that that is why we are so determined to expand opportunities for work for lone parents, disabled people and workless households alike. We know that it is their only path into prosperity.
Pensioners in real poverty remain those who are either on income support or, more to the point, who are entitled to income support but do not claim it. That is why we insisted, as I explained in the Statement, on undertaking research to find out exactly why some pensioners do not claim the benefits to which they are entitled and which would passport them on to other benefits. We need to know the number involved.
I shall have to write to the noble Lord on his point about PEPs. As I understand it, existing PEP holders will not be affected, but I shall have to write to the noble Lord because this is a Treasury matter and I shall need to check the position.
The noble Lord referred finally to the "purse to wallet" transfer behind the working family tax credit. He asked whether women would be disadvantaged as a

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result. We believe that women, like men, want and are entitled to enjoy access to work. Increasingly, as the married women's stamp comes through, so married women are able to enjoy the same opportunities as working men. It is worth reminding ourselves that something like 60 per cent. of all lower income households in work—that is, those enjoying family credit—are headed by a woman. The basic structural question of how such tax credits may be devised has yet to be determined, should the Chancellor accept the recommendations. As I have said, most lower-income households in work are headed by a woman and she would therefore be the recipient of any such tax credit in the future.
Perhaps I may move now to the points raised by the noble Earl, Lord Russell. The noble Earl referred to the dividing line of the age of 25 for differing rates of benefit, as he has over many years and I well understand where he is coming from. It applies in relation to benefits such as housing benefit, JSA and income support. It is an existing line and I am sure that the noble Earl will continue to be unhappy about it. In the past criticisms have been made of it. The presumption is that it reflects in a rough and ready way the difference between the replacement earnings lost and the costs incurred by people over and beyond that line. That is the explanation for it. I am also sorry to disappoint the noble Earl in that, like all my predecessors at this Dispatch Box, I do not know whether youth training will be uprated. However, unlike my predecessors, I assure the noble Earl that he will receive a written answer. If in future I am in the same position dealing with an uprating Statement I promise him faithfully that I shall know the answer.
The noble Earl also asked about the date of the Taylor review. As I understand it, it will inform the Spring Budget. The noble Earl dealt with the wider point about the failure of the welfare system and questioned whether the growth in social security expenditure damned the welfare system as such. I share his concerns and I wish that we had time to debate it more fully. In 1979 one penny in five of government expenditure went on social security; today it is one penny in three—more than is collected in income tax. The figure is £72 billion. Yet, one household in five is workless and the benefit system is disliked not only by those who pay for it but by those who receive it.
It is clear that much of the growth in expenditure since 1979 has been due to the failure of economic and social policies, such that even when employment figures improve many people who have low educational qualifications, those who are long-term unemployed, the disabled, lone parents and so on, remain beached because the tide has not floated them off the rocks of worklessness. That is why we need to renew and reform the welfare state based on opportunities for those who can, should and wish to re-enter work.
That takes me to some of the questions raised by the noble Earl about those who would do so. For example, he asked whether there would be a lower minimum wage for those below 25 and, if so, he would deplore it. No decisions have been made on that. The Low Pay
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Commission will make recommendations which will inform the Government's thinking in the spring. Like him, I would deplore the Tudor as I deplore the 1834 Poor Law. I rather sympathise with Speenhamland and in-work benefits. The reform of the welfare state under this Government could be said to be revisiting the justices of Speenhamland and Berkshire in a "read-across" way for the nation as a whole.
The noble Earl asked why we remained committed to the previous government's spending limits. The simple answer is that it was a manifesto commitment. The noble Earl said that 56 per cent of those who voted Labour did not believe that it would keep its manifesto commitments in that regard. We hope to prove that 56 per cent. of the population wrong by keeping our manifesto commitments and, as a result, restoring faith in the democratic process and going some way to meet head on the cynicism that affects voters when they enter the polling booth. For example, people believe that politicians are all alike; that politicians say what they need to say to get elected but do not keep their promises. That is not the view of the Prime Minister. I believe that in future we shall see very different policies from this Government.
The noble Earl went on to ask about lone parents. He asked that I give an undertaking that they would not be compelled to work. Compulsion is not the issue. Like him, I believe that parenting, whatever the age of the children, is as worthwhile and important a social contribution as working for wages in any economic situation. He pressed me about disability benefits and was also concerned about compulsion. The problem faced by disabled people is not one of compulsion but the current denial of opportunities that they experience. We know, because they tell us, that about I million disabled people wish to work but cannot do so for three reasons. The first reason is in part their poor health. That means that they cannot work a steady 35 hours a week. However, I hope that the labour market with its demand for flexible labour will be on their side so that with help they can re-enter the labour market.
Earl Russell: My Lords, I am most grateful for the noble Baroness giving way. Perhaps I may narrow down the area of difference between us. I agree with most of what the noble Baroness said, but my question is this. Will the disabled person have a share in saying whether something is an actual opportunity or will the Government tell him?
Baroness Hollis of Heigham: My Lords, what we shall offer to disabled people is what they tell us they want; namely, opportunities to move into work. Secondly, at the moment, those opportunities are blocked, sometimes by their health but at least as often by employers' perceptions. In that regard the Disability Discrimination Act will be an important tool. The third aspect is the benefits system. We want to go with the grain of their wish, which is to help them to overcome the hurdles that stand in their way. I repeat that compulsion is not the issue.
I have responded as fully as I can at this stage to the points raised by the noble Earl. If he wishes, I am very happy at a later point to respond more fully on this

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matter, perhaps by way of an Unstarred Question. However, I assure the noble Earl that, having been involved over recent weeks in meetings with disabled people about our welfare-to-work opportunities, in respect of which the Chancellor has made available £195 million, the bidding process enabling disability organisations and disabled people to spend that money to assist disabled people into work, will probably overwhelm us. As with lone parents, we are working with the grain of what people themselves want. They know that only work, in so far as they can do it, given their caring responsibilities and their health, is the best form of welfare for them. That is the basis of our renewal.

EU Gas Directive: ECC Report
7.16 p.m.
Lord Geddes Lord Geddes rose to move, That this House take note of the Report of the European Communities Committee on the EU Gas Directive (7th Report, Session 1997–98, HL Paper 35).
The noble Lord said: My Lords, I begin by declaring an interest, albeit perhaps a somewhat indirect one, through my non-executive involvement in a power generation company in some of whose stations gas is the prime energy source. I am most grateful that time has been found for a debate this evening so soon after the publication of the report of the European Communities Select Committee which stemmed from Sub-committee B's deliberations on the subject of the EU Gas Directive. I apologise to noble Lords that this has not given many much notice of the debate, but it was felt important to allow the House to consider the report and convey its view to the Government before the Government attend the next Energy Council meeting on Monday 8th December.
The history of this directive has been a long and painful process. Most of the single market was completed by the end of 1992, but energy was one of the few sectors left out. The Electricity Directive was given priority, and only once it was finally agreed, after months of apparent stalemate, in July last year, did attention return to gas.
Sub-committee B took evidence from 22 witnesses over a period of five weeks. Of those 22, 11 were oral witnesses. They included representatives from France, Germany, Spain, Norway and DGXVII. We were particularly grateful to those foreign witnesses who took the trouble to come and give evidence. Throughout our inquiry there was a problem keeping pace with a moving target. Since we started to look at the draft directive in June this year there has been a whole series of revised texts, under first the Dutch and then the Luxembourg presidencies. These are detailed in our report.
In the midst of these changes, we took evidence on 24th July from the Energy Minister, John Battle, MP. I take this opportunity to thank him again for the time he gave us and for the very high quality of his evidence.
By early October it looked as if a common position might be reached at the Energy Council on 27th October, so I wrote to the Minister on 16th giving
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him the sub-committee's provisional views. In the event, little progress was made, but (to quote from the formal conclusions of that meeting) the Council,
"confirmed its political willingness to reach a common position"
on the 8th. That is next Monday. Perhaps the Minister can say whether he still expects that to happen. If so, what has changed since October to make it possible? If not, will this be a high priority for the UK presidency starting on 1st January?
The background to our inquiry is that natural gas accounts for one fifth of the EU countries' total energy consumption, and use is growing, particularly for electricity generation. But gas-fired power stations account for only one eighth of all EU gas consumption. Nearly half is commercial and industrial use, and most of the rest is used for domestic heating and cooking.
Gas is a clean and efficient fuel. It is virtually sulphur-free and lower in other pollutants, including carbon dioxide, and so less harmful relative to global warming. But its energy density is only one thousandth that of oil, making it expensive to store and transport.
In 1995, the EU countries produced 60 per cent. of their gas from indigenous sources, principally the UK and the Netherlands. But the EU's import dependency is growing, and is expected to reach 45 per cent. in 2000 and 70 per cent. by 2020. Of the EU's imported gas, two-thirds comes from Russia and most of the rest from Algeria (much of it by tanker in liquefied form), with Norway a long way behind in third place.
It is obviously a cause for concern that Europe is becoming increasingly reliant on potentially unstable countries for a vital energy resource. We were fully aware that no directive can do much to alter this fact, but by creating a more flexible trading market it should improve security of supply—which has more to do with how many sources of supply are available and how easily one can be substituted for another than with whether those sources are indigenous or external.
From the UK's viewpoint a key factor will be the completion of the UK-Belgium Interconnector pipeline, scheduled for next year, which will connect the UK to the continental pipeline network. At least in the short term, the interconnector is likely to be used to export UK gas and we recognise in the report that this may—I emphasise "may"—cause domestic gas prices to rise. That is something upon which the Minister might wish to comment in his reply.
Britain can afford to take a fairly detached view. The Gas Act 1986 introduced competition in the supply of gas to industrial and commercial users; provided access rights to pipelines; and set up an independent regulator—Ofgas. With liberalisation now being extended to domestic consumers, Britain has already put in place a more competitive regime than anything envisaged by the draft directive. But British companies stand to gain from rights of access to continental customers, both as gas exporters and as pioneers of a competitive market. Liberalisation should also improve the EU's overall competitiveness. That is why we offer a general welcome to the directive in our report.

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We identify three significant issues in the report, and I shall deal with all of them. The first big question addressed by the directive is how much of the market should be opened to competition, and how quickly. It is already clear that the initial percentage will be around 30 per cent.—28 per cent. in the latest text, rising to 40 per cent. after five years and 45 per cent. after a decade.
Because the pattern of gas consumption differs widely between the member states, the draft directive also sets a minimum threshold beyond which a gas consumer would have the right to choose its gas supplier. Gas-fired power stations will all have that right, regardless of how much gas they consume. In the latest text, that threshold is set at 25 million cubic metres in the first stage—which would include only a few very large industrial users—falling to 15 million cubic metres after five years and to 5 million cubic metres after 10 years.
In our report we call for lower thresholds at stages 2 and 3—namely, 10 million cubic metres and 1 million cubic metres respectively—and for a shorter timescale—three years between stages rather than five years. Again, perhaps the Minister would be kind enough to comment upon our conclusions relative to those in the latest directive, and how the Government intend to deal with that question at the energy conference on 8th December.
The second significant issue relates to take-or-pay contracts. We recognised from an early stage that the issue of market opening cannot be detached from the difficult issue of so-called "take-or-pay" contracts. These are contracts between the major gas suppliers, mostly outside the EU, and gas companies in member states—mostly state-owned monopolies—which then distribute the gas to final customers. Under those contracts, gas companies agree to pay for agreed minimum quantities of gas every few months for the duration of the contract—which may be 20 years or more—and they must pay for the gas even if they do not actually take delivery of it (hence "take or pay").
In a monopoly situation, that suits both parties: the gas producers have the guaranteed income they need to invest in developing new fields and building pipelines; the member state gas companies have assured supplies to sell on to their customers. But liberalisation, as envisaged albeit modestly in the directive, threatens to turn this convenient arrangement into a millstone for the gas companies. With rival companies competing for their customers, the market price is likely to fall, and the former monopoly companies may find themselves unable to sell at a profit all the gas they are committed to paying for.
Contrica, one arm of what used to be British Gas, had just that problem, but it was made worse in its case by the inflexibility of the contracts to which it was committed. Most continental contracts have provisions allowing the price paid for gas to be re-negotiated in certain circumstances, and we argue in our report that greater use of such provisions could help to allay the fears of gas companies about the directive.
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The draft directive deals with the take-or-pay problem by offering derogations from the market opening provisions for companies which encounter serious difficulties as a result of their take-or-pay commitments. In the report, we accept that as reasonable so long as it applies only to take-or-pay contracts signed before it was clear that the gas market was going to be liberalised.
We were therefore dismayed that the text of the draft directive published by the Luxembourg presidency in July removed the distinction between those existing contracts and contracts signed more recently. That threatens to allow derogations to continue more-or-less indefinitely, making it difficult to see how a genuinely competitive market can ever be achieved.
When we took evidence from Mr. Battle in July, I put it to him that derogations for future take-or-pay contracts would, "drive a coach and horses" through the principle of the directive. Mr. Battle agreed and said that, unless future contracts were "very tightly controlled", the Government would be, "very sceptical about supporting them". He doubted, however, whether he could persuade other member states. Will the Minister indicate whether the Government have succeeded?
The third issue was that of transparency. The Minister also said in July that he wanted to see better transparency provisions in the directive, including a requirement for separate management of transportation and supply activities, unbundled accounts and so-called "Chinese wall" provisions to prevent large gas companies using information provided by other suppliers to benefit their own supply operations. Since then, the Luxembourg presidency has included in the directive clauses prohibiting transmission or distribution companies from
"abusing commercially sensitive information obtained from third parties in the context of providing or negotiating access to the system".
In the report, we call on the Government to press for further amendments, including, if possible, full management separation of transmission and supply activities. Do the Government believe it possible to achieve further changes to the draft directive? If not, how confident is the Minister that the directive as it stands will ensure fair access to the gas network? I should also be grateful if he would comment on the specific concerns that we raise in our report about the procedural aspects of the directive, which appear to offer pipeline owners too many opportunities for delay in granting access to rival companies.
It is my pleasant duty to conclude by offering considerable thanks to our special advisor, Michael Brothwood of the Denton Hall Energy Group and to Dr. Andrew Mylne, clerk to Sub-Committee B. This was his last inquiry before moving on to pastures new. I also thank his secretary, Jane Sanders. Too infrequently are secretaries thanked on occasions such as this. They do a sterling job in difficult circumstances. Finally, I thank all members of Sub-Committee B for the diligence which they displayed throughout our inquiry. I thank in particular the three members of the sub-committee who are speaking tonight. I beg to move.
Moved, That this House take note of the Report of the European Communities Committee on the EU Gas Directive (7th Report, Session 1997–98, HL Paper 35).—(Lord Geddes.)
7.30 p.m.
Lord Berkeley: My Lords, I apologise to the House for not being in my place when the debate started. As a member of Sub-Committee B, I welcomed the opportunity to study gas prices and deregulation across Europe. It confirmed that the attitude of different member states to deregulation, be it of gas, electricity or the railways, is similar. Some member states like it and some do not. The UK has already deregulated, which coloured much of our consideration in the committee.
I wish to cover two matters of considerable concern. They have already been mentioned by the noble Lord, Lord Geddes, and I shall be interested to hear my noble friend's comment in winding up. The first is the security of supply and the second is the price of gas to major consumers.
We heard evidence from Mr. Jonathan Stern, who for the past 10 years has been working on this subject for the Royal Institute of International Affairs at Chatham House. I and many of my colleagues on the sub-committee were impressed with his evidence. He stated that in the year 2020 70 per cent. of European gas supplies will be coming from outside Europe, mostly from Algeria and Russia, which are perhaps politically unstable. He went on to say:
"The concern one has in the case, for example, of a country like Turkey"—
Turkey is not within the European Union at present, but perhaps the comment applies to other countries—
"is that if there were a prolonged disruption of Russian gas they would have very considerable difficulty and turn off supplies to a lot of their gas customers".
The extent to which other supplies may be available depends partly on price and partly on the availability of a national grid. As we stated in our report, the availability of a free market would be advantageous, too. But the fact remains that, if 70 or 80 per cent. of energy supply can be turned off abruptly, most member states would wish to see some kind of contingency plan.
We in the UK are in a slightly different position because for the moment we are net producers of gas. However, one must question the situation in 20 years' time. I have a slight query about the wholesale rush away from coal which was started by the previous government. Furthermore, I am not sure about what will happen after thousands more jobs have been lost in the mines. I am sure that the Minister will have a response. 1 believe that we should have a contingency plan because we are acting with the rest of Europe with a European grid. If Russia, Algeria or any other country cuts out, we could be in trouble.
I turn to the major gas users, from whom we had interesting evidence. I wish to quote from Appendix 3, page 30, which shows that the UK's price to industry is the lowest within the EU. It is just about double that of Canada, with the USA falling somewhere in between.
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The same comment probably applies to household gas. Of course, if our price is the lowest, the price in the rest of the EU is much higher than the price in Canada or the USA.
The International Federation of Industrial Energy Consumers, the big companies which are energy-intensive users, told us that, out of their total production cost, 50 per cent. related to energy. Therefore, they go where the energy is cheap. Others told us that the big world multinationals do not like having too many plants in the same continent and they like to consolidate in some way. Therefore, we must find a way of encouraging these industries to stay in Europe, whether here or on the Continent. They will need cheaper gas if we are to achieve that, otherwise, they will go to the United States, Canada or somewhere else. I am convinced that, if the directive is implemented as outlined by the noble Lord, Lord Geddes, they will be assisted in staying.
I have a third concern. It was not clear from the evidence what the final result will be. When the directive is clarified, will it be enforced? We have many European regulations, and not only in this field, which are not enforced. It would be invidious to quote any in particular. My great fear is that whatever compromise is reached in the final text of the directive some will choose to ignore it completely. We may believe that it does not matter much in the UK. However, in terms of our industrial base we are very much part of the European scene. If there were a problem with such primary industries on the Continent we would feel the cold too. I should be grateful if the Minister would comment on EC policy on taking action against member states who do not enforce Community legislation.
Finally, I congratulate the noble Lord, Lord Geddes, on his excellent chairing of the sub-committee. It was intense, it was hard-working but it was occasionally fun. I hope that the report will find favour with the House and will be of interest to the community at large.
7.38 p.m.
Lord Haslam: My Lords, as a new member of Sub-Committee B, it was a pleasure to work under the chairmanship of my noble friend Lord Geddes on this complex problem. Many of the witnesses expressed doubts about the virtue of the proposed directive and no one believed that it would produce even a semblance of a level playing field across the Community. However, most witnesses accepted that on balance it is better to have a directive rather than to have none at all. Both the noble Lords, Lord Geddes and Lord Berkeley, referred to the question of security of supply, and I apologise for repeating some of those statistics but I believe that they are very important.
Some of the evident imperfections of the directive derive from the fact that there are only two major gas producers within the Community; namely, the United Kingdom and the Netherlands. Given that the dependency of the Community as a whole on supplies from Norway, Russia and Algeria is expected to rise to about 55 per cent. By 2010 and to 70 per cent. in 2020, it is clear that the import dependency of those member

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states without substantial gas production will be even higher, and in some cases will reach 100 per cent. The result will be that these other member states will welcome imports from the United Kingdom and the Netherlands with enthusiasm, as an alternative to the much less secure imports from politically unstable countries such as Russia and Algeria.
For example, British natural gas will soon be sold into Germany through the new interconnector pipeline, in which both British Gas and BP have major shareholdings. BP has also recently concluded a 15-year gas sales contract with Ruhrgas, the largest gas transmission company in Germany, in which BP has a 25 per cent. shareholding. Ruhrgas is obviously pleased to have this new source of a reliable gas supply and in no way views this as cross-border competition. Any normal competitive retaliation from Ruhrgas by supplying UK customers is, therefore, most unlikely. Also the existence of long-term take-or-pay contracts and the access problems to pipelines will further inhibit cross-border competition.
For these reasons I believe that the amount of meaningful cross-border competition likely to develop in the foreseeable future within the Community is absolutely minimal. On the positive side, however, the directive should help to stimulate domestic competition by creating a climate, which is favourable to the growth of liberalisation and which may well help some member states to overcome their domestic opposition to liberalisation. The UK gas industry can be proud of how it has set a shining example to the other member states by the way it has liberalised its domestic gas market.
Although it was not part of the sub-committee's remit, I must express some concern that for short-term benefits, we are willing to sell substantial quantities of UK gas to the continental markets. As the usage of gas in the UK has surged, our gas reserves have shrunk from 23 years in 1991 to 13 years by 1996, or 18 years if possible reserves are included. It is interesting that the German Government are still subsidising their coal industry and maintaining access to their coal reserves with a massive state aid of £4 billion per annum. This reflects one of their major concerns of becoming almost entirely dependent on imported gas from supplier countries, which are not only outside the community but which are also not in the "gile-edged category". Exporting our gas will bring the day nearer when we, too, are dependent on such sources. In extrernis we may yet again be subjected to a new OPEC-type regime!
Finally, returning to the gas directive, if one reflects on its objectives, it is clear that the outcome will fall well short of expectations, and in particular the ambitions of increased cross-border competition will prove largely cosmetic. On a school report basis the directive would probably in my view rate about three out of 10.
Having said that, it has been a great pleasure to serve on the sub-committee. I have enjoyed the rapport and differences which there have been between the members of the sub-committee and again, I thank the noble Lord, Lord Geddes, for his excellent chairmanship.
7.44 p.m.
Lord Bridges: My Lords, I was not a member of the sub-committee which prepared this report although I have served on it in the not-too-distant past. But in my position of current independence I am glad to welcome its appearance and the helpful analysis it makes of the European gas market, a subject of real importance. I thank, too, the noble Lord, Lord Geddes, for his clear and authoritative introduction to our debate this evening.
It should be noted that the report is concerned only with the way in which gas is distributed and marketed as part of the internal market regime in the European Union. It does not attempt to lay down the regime for a Community resource as it would if one were discussing agricultural goods or fish. Those are treated quite differently as resources belonging to the Community as a whole.
It is worth recalling that some attempts were made in the 1970s to classify energy as a Community resource but that idea was given up in the light of our implacable opposition. Indeed, I found myself at one unforgettable moment in the spearhead of our efforts to resist that attempt to make gas a Community resource when accompanying the then Prime Minister to a meeting of the European Council which was meeting in Maastricht, in, I suppose, 1980 or 1981. I was sent off at midnight to take part in a debate which lasted for several hours. I had to report to the Prime Minister on my success, or lack of it, at breakfast the following morning. My efforts had been successful but I was not complimented on my conduct because I had not been sufficiently firm.
It is useful to relate this subject to a wider and longer perspective of energy supplies in this country. A lot has happened in the past few decades. A generation ago, Britain was in the unique position as an energy producer and consumer. We drew the bulk of our energy supplies from a single resource—coal—which we had in abundance under our own control. However, because the industry was managed under a state monopoly—the Coal Board—and because of the great power wielded by a single trade union—the National Union of Miners—coal became an expensive source of energy at a time when oil was cheap and readily available. That had the effect of building high energy costs into our industrial structure.
The effect was particularly severe on energy-intensive industries; notably, electricity generation, cement, steel, fertilisers and ceramics. I suggest that that factor had a lot to do with our loss of competitive power in world markets in the 1950s and 1960s. The decision of the last government to break the coal monopoly has transformed that situation at a high social cost and, as others have pointed out, with a degree of loss of security. But we now enjoy a low-cost energy structure which is of wide benefit to consumers and many industries.
However, in continental Europe, little has changed. Energy supplies are either under the direct control of the state, perhaps most notably in France, or are conducted at strictly regulated prices. The report recommends that we should seek to end that regime by introducing energy contracts negotiated at arm's length and by separating gas production from companies transporting and selling gas to consumers.

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If policies on those lines were adopted, a commercial gas market would be created to the general benefit of all consumers. But for this country there is a delicate balance to be struck. The present condition of the European energy market gives British industry a competitive advantage in Europe wherever gas is a significant source of energy in industrial production. Adoption of the policies recommended in the report and under consideration by our partners would gradually remove that advantage, although it would have the positive effect of improving the competitive position of the continental European industry in the world market.
As the European market is our own largest export market, in this country we should benefit indirectly from that situation but I do not find it at all easy to weigh that balance. It would be extremely difficult to quantify. Nevertheless, although I do not expect our opinion to be adopted by our partners, I believe that we are right to point to the existence of an alternative policy and to the wider negative consequences of the current European modus operandi.
We should also note with care the likely consequences of the European gas connector referred to in paragraph 101, as has already been mentioned by other noble Lords. That too is a serious matter. With the gas connector, supplies in this country are likely to become somewhat constrained in the medium term. But I am in favour of a link with the continental gas grid since access to Siberian gas supplies, although not perhaps the most permanent source, would in normal times be very useful to us in offering an alternative source of supply when our own resource begins to taper off. Here I find the evidence of Clare Spottiswoode, Director General of Gas Supply, most impressive. I noted with particular interest her remark at question 189 (on page 45 of the report) that she saw the interconnector as a price dampening mechanism. I believe that to be a rather helpful way of looking at it.
It is rare, at present, for a European country to be able to draw on a choice of gas supplies, although I know that Italy does so as it deliberately chose to invest in pipelines connecting her national grid with both North Africa and Europe. There is, of course, the alternative source of liquified natural gas supplied by sea tankers, which was briefly mentioned by the noble Lord, Lord Geddes in his introduction. We were one of the pioneers of that business and we should perhaps take it into consideration today. I read that large contracts have lately been signed for the import of LNG by Japan from South East Asia.
It would be useful for us to have this technology and capability in reserve, given the large supplies of LNG available to European consumers in some African countries. I did not detect any reference to that aspect in the committee's report; perhaps I missed it. However, I suggest that it is something we might take rather more seriously than we have done in the recent past. The availability of LNG could well meet the contingency described by some noble Lords if supplies were interrupted from, say, Algeria or the Soviet Union. I should like to join other speakers in commending this extremely useful and informative report to the House.
7.51 p.m.
Lord Moynihan: My Lords, I intend to be brief, which will no doubt come as a great relief to your Lordships, not least because I have the privilege of summing up the subsequent debate and do not wish to keep either my colleagues or myself here at too late an hour this evening.
I should like, first, to declare an interest, in that I am a director of Ranger Oil, and am on the Phillips' Advisory Board as well as being chairman of CMA, the advisory group. Against that background and from my experience during my time as a Minister with responsibility for oil and gas in a previous government, I should like to congratulate noble Lords who sat on the committee on producing a really excellent report. I listened with interest to what the noble Lord, Lord Geddes had to say when introducing today's welcome debate. My only disagreement with the noble Lord would be on the impact on gas prices of the interconnector. I understood completely when he said that they may rise, but it is not my view that gas prices will rise.
If we look at two factors—first, the trading opportunities that the interconnector will generate, and, secondly, the overall supply-demand position in the UKCS gas market—I believe that we should he optimistic about pricing in the United Kingdom, not least because, so far as concerns gas, there is significant associated gas to come on stream in the coming years. There is, in particular, associated gas from the central North Sea fields and there are new fields in their own right coming on stream, such as Britannia. Then there are the carboniferous plays in the southern basin. I am one of those optimists who do not believe that the interconnector will only be an export route for UKCS gas in the short run. I happen to believe that it will be a long-term export route for UKCS gas. If one looks at the overall supply position, I am confident that that will be seen to be the case.
I listened most carefully to what the noble Lord, Lord Berkeley said in his speech. My reflections on that would be that, despite the tremendous political instability in the two countries that he mentioned—namely, Algeria and Russia—it has been notable that gas deliveries from both those markets have been remarkably constant. The question might be asked as to why that is so, especially when one sees the appalling effect of the civil war in Algeria. It is probably appropriate to reflect that both parties in a civil war, particularly the Algerian civil war, recognise the vital importance of the significant revenue flows that are generated from the export of gas. Therefore, I argue that any dislocation in the future would he very short lived; but it is a factor that we would be wise to build into a European gas policy.
I urge the Government to continue their policy of liberalisation of the gas market in all their dealings with Europe and, indeed, in their domestic dealings. I add to that the importance of completing the renegotiation of the FRIGG Treaty, an issue upon which I know they are in constant dialogue with our friends in Norway. I very much hope that the Government will be able to encourage the Norwegians to come to an early

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resolution on the matter. I believe that the resolution should serve as a template for intra-field pipelines across the median line. It could be an important template and a resolution of the issue would further liberalise the sector, which is something that the committee sought to achieve, and bring forward developments with what I consider to be interconnections rather than interconnectors, thereby bringing on marginal production which would otherwise not reach the market.
Without a shadow of a doubt, there are two most pressing issues which I hope the Government will take on board from the report and from the comments made this evening—namely, the need to be attached to market opening in their deliberations with their European colleagues, and, indeed, not just to market opening but also to ensure good progress thereafter. By the latter I mean that I hope the Government will foster larger steps than the presidency has proposed, seeking at least three years rather than the five years as proposed.
I believe that the take or pay proposals are in danger of blocking legislative moves towards liberalisation. Therefore, I very much hope that, so far as concerns market opening, the Government will have a strong resolve to push for a higher percentage than that which is currently negotiated. Like Centrica, I believe that an initial market opening well north of 25 per cent. is certainly worth while. As the Minister knows, if one compares the electricity directive with the gas directive, we are not on a level playing field. We should certainly be aiming to achieve a much higher percentage than that accepted in the electricity directive.
In conclusion, I hope that we can persuade member states as a matter of urgency to go further than the proposals which are currently before the House. I trust that the Minister will regard these words as a strengthening of what I understand to be the Government's resolve in what will be tough and critically important negotiations.
7.56 p.m.
Lord Skelmersdale: My Lords, it gives me great pleasure to follow my noble friend Lord Moynihan. With my chairman's permission, perhaps I may welcome him to our energy debates. My noble friend clearly has an enormous amount to offer. While he was speaking, I recalled the fact that I spent a few days in August in Uzbekistan which, of course, is a gas producer like Kazakstan, Turkmenistan and, indeed, that general central-Asian basin. Although gas currently tends to go east into Pakistan. India and China, there is no earthly reason why, when the time is right, it should not start to go west.
However, that is not what I want to talk about this evening. Given the lateness of the hour, I shall curtail my intended remarks, especially as regards my introduction. I am particularly grateful to my colleagues on the committee for allowing me to play a full part in this inquiry, possibly nudging against the Griffiths rules. If there is any complaint it is entirely my fault. Neither my chairman nor any other member of the committee shares any fault in that respect.
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With the exception of the noble Baroness. Lady Dean. we were all new to the subject—the noble Lord, Lord Bridges will remember this—as the committee reported in 1995 on the Commission's Green Paper on a European energy policy. Since then, we in the United Kingdom have almost achieved a complete free market in gas—something that our continental partners do not have, beset as they are by the monopolies of individual companies just as we had here between the 1960s and the 1980s. Perhaps I may say how delighted I am that Sir Denis Rooke, who masterminded the national grid for gas, was recently awarded a very high honour by Her Majesty the Queen.
Monopolies are by definition great protectors of their own interests, and state monopolies are the worst of the lot. It is hardly surprising then that the committee found that the most entrenched ones were those in the most developed countries, and those with no, or at best—like France—little gas of their own. The United Kingdom, Holland and Norway—a quasi-EC country, but one which obeys the rules through its arrangements with the Council of Ministers—are the only large scale producers. As my noble friend Lord Geddes said, most EC gas comes from Russia and Algeria, both of whom have ample supplies to sell, but unfortunately at a price which is considerably higher than it is here. Nonetheless there is more than enough to go round and I suggest that the supply is fairly secure although security is potentially unstable in the former case because of long and vulnerable pipelines and in the latter because of the political situation. That said, I have heard what my noble friend has just said on that matter. It is hardly surprising then that Europe as a whole wants access to United Kingdom, Norwegian and Dutch gas.
It is hardly surprising, too, that the big users of gas—the chemical companies and the electricity generators, in particular—wish to reduce their manufacturing costs, and that the Commission sees price barriers to trade for that reason. Its utopia of similar costs of production, whether in energy, wages, or raw materials, will lump all member states in the same boat and will make it inevitable that political integration will come if—and it is a big if—they ever achieve it. However, I must not be xenophobic. Indeed, I would not be a member of the committee if I was xenophobic about the Commission.
The industrial competitiveness of the Community as a whole, as against America, South East Asia, China or wherever, is a goal to be aimed at: hence this directive which intends to achieve common rules for the internal market in natural gas. Against this laudable objective. the Commission, as one expert said, faced "a carefully orchestrated campaign" of concerted opposition from the gas industry which,
"regarded the introduction of liberalisation as the equivalent to the end of civilisation-.
Looking back at recent history in this country, there are many who, in my children's words, would say, "Been there, Gran, done that, got the T-shirt". One must remember, however, that on the Continent the gas industry is hardly ever in the private sector. It is rigidly controlled by governments for all the reasons that we in this country believed in nationalised industries before

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the sea change of the 1980s. It takes political will to have free access to pipelines across borders or to have country X's supply firms use country Y's pipelines.
My noble friend Lord Haslam clearly believed some of our witnesses when they said that even though this was a minimalist directive, to have it was better than to have no directive at all, and that slowly pressure will build up from industry generally to change the situation. The noble Lord, Lord Berkeley, made the same point. The proof was the interconnector between Britain and Belgium. I know of contracts already signed for the supply of gas by Centrica, both in Belgium and in Germany, in anticipation of its coming on stream next year. Some sort of directive will be necessary to increase the penetration of that gas further into Europe.
What the Commission therefore needs to do is to make certain that derogations from the common use of pipelines are kept to the absolute minimum. This remains a major sticking point. I hope that goodwill prevails at the Energy Council next week. It should, I feel, be achievable if the Commission retains the lightest of possible touches on the tiller. If it gives the slightest clue that it will be heavy handed, I believe that the Energy Council on Monday will fail.
I refer to market opening. Over the past two years the basic premise has been agreed. However, the levels and speed are still a most contentious issue. We have had a fast reduction in this country—probably too fast—and to levels undreamt of still in the Community. In fact they will be undreamt of even at the end of the 10-year period described in the draft directive. There is no suggestion anywhere that a householder could purchase his gas from anywhere other than the national monopoly, unlike here where, within two years on the present plans, we shall see a competitive market across the whole spectrum. The draft directive goes to the other extreme and is so slow as to be meaningless. I believe that the report, suggesting as it does thresholds of 25, 10 and 1 million cubic metres of supply to a single customer per year, is so reasonable that it is in itself somewhat minimalist. Nonetheless, I believe that it is achievable and, most important, it is not too damaging to the supplier firms.
However, transparency of pricing is vitally important. I am not a believer in Chinese walls; there is too great a temptation to pass information between the transport arm and the selling arm in a single company. I am sure that Voltaire would agree, were he still alive, that in the United Kingdom we have the best of all possible worlds. Two separate companies, one for supply and one for transport, must be the ideal even if, as on the Continent, both will be state owned. That is certainly the case in the current state of play. There is also, in my view, little logic in a producing country having transport and production in the same firm. However, that is probably another matter and not really germane to the report.
As has been said, there is a short period between the production of this report and the Minister attending the Energy Council. If he does nothing else in his preparation I urge him to read and consider most carefully paragraph 114 on page 27. It is on these procedural points that this directive will founder, not on
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the apparently much bigger problem of "take or pay". Centrica has shown that even with the restrictive contracts which operate here, it is possible to renegotiate. It will be much easier on the Continent where we discovered that there are break points and clauses allowing changes depending on the costs of competitive fuels, and indeed for other reasons. As I say, I do not see them as an insurmountable problem although, like my colleagues on the committee, I do not like them in the first place and have never seen the need for them. I am afraid that the devil is in the detail of derogations. I wish the Minister all the best in resolving them for the benefit of all the gas using industries in the Community.
8.7 p.m.
Lord Ezra: My Lords, it is with a certain nostalgic feeling that I take part in this debate having been involved in the affairs of Sub-committee B many years ago, and for quite a long period. I am delighted to see that the noble Lord, Lord Geddes, is now leading that committee with such effectiveness, and that once again it has produced an excellent report.
I shall not repeat what other noble Lords have said in this well-informed debate in which brevity has been one of the keynotes. I shall try to follow that. Emphasis has rightly been placed on the importance of gas in the energy mix of the European Union. Emphasis has also been placed on the import dependence and the difficulty that that creates.
As to usage, the real growth is likely to be in the power station. I have always retained grave doubts about that. It is not so long ago that the Community prevented the use of gas in power stations and the reason was quite clear: gas is one of the best forms of primary energy available. If consumed directly, it can be used to the extent of 90 per cent. efficiency. Therefore one might well ask, why put it into a power station where the ultimate efficiency is 50 per cent.? It strikes me as a slightly odd quirk that we deprive ourselves of the full benefit of this valuable form of energy.
That leads me to another, related, matter which some noble Lords who are present may feel strongly about, and that is the progressive diminution of the coal industry in providing a necessary element of security. If I may diverge for a moment on that issue, it is a little odd that we in Britain, having the most efficient coal industry in the European Union, are reducing it at the fastest rate, while others are preserving their access to coal at higher cost. That may not directly relate to the subject under debate, but it is part of the issue of energy policy which I believe should be taken into account.
The specific issues which arise in connection with the directive have been well aired. There is the problem of the level of market opening. While there can he unending arguments about this, I believe that the 15 member countries are near achieving a resolution. I should be very surprised if they agree on anything less than has already been agreed in the electricity directive. Equally, there is the problem of take-or-pay contracts. We must recognise that those who produce gas in whatever country invest a great deal in that production;

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and they have to be covered by effective contracts. That applies as much in this country as it does elsewhere. There is a problem at present for the contracts of gas supply on the basis of field depletion which raises many issues in connection with the Competition Bill, with which the noble Lord, Lord Haskel, I, and others have been involved. We have to recognise the realities of the situation. Some measure of derogation for past contracts is justified, and we should take account of the nature of future contracts.
Access to the network, whether on a regulated or negotiated basis, has been carefully considered. In general, I imagine that it will be on a negotiated basis, as the regulatory system is relatively undeveloped at present on the Continent.
Transparency is another issue which has been mentioned. I doubt very much whether we shall achieve the total restructuring that we would like, but we should go as far as possible in accounting terms.
There is the interesting question of public service obligations. In Britain we no longer have this obligation. In the old days we had state owned coal, electricity and gas industries. They all had their public obligations to supply—to make sure that the energy was there when wanted. I am concerned that, under the new regime which our Conservative friends introduced progressively over recent years, that obligation has disappeared. It is felt that the market will provide the security. We have been going through an energy market which has been particularly beneficent in that sense. Any amount of energy has been available. But if things were to change who, ultimately, would be responsible? In law, no one in particular. On the Continent people think differently. We should have some sympathy with the view that a public obligation should be retained under the new arrangements.
I believe that the negotiating countries are very near agreement. I should be a little surprised if the agreement is not reached on 8th December. I very much hope that it will be. The nature of that agreement clearly will disappoint many in this country because we have moved so much faster. I believe that it does not matter too much how things are at the start because a momentum could develop which could push things forward.
I remind noble Lords of the electricity directive. The opening market figure was 22 per cent. When it comes into effect in 1999, it is likely to be 25 per cent. That suggests that there is an acceleration in these matters. The important thing is to start.
However, I very much regret one aspect. There is no mention in the directive, and therefore none in the report, of energy efficiency—the efficiency with which this prime form of energy should be used. In the legislation introduced for the privatisation of gas and electricity in this country, proper regard was paid to the need for efficiency. It has not been carried out as effectively as I should have liked, but at least regard was paid to that issue. I should like to see us pressing hard for something similar in the directive.
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I was reading the evidence involving the noble Lord, Lord Howie of Troon. He asked the representatives of the Commission how they thought that they would be serving the interests of energy efficiency by pushing for ever lower prices. He received a rather confused reply, as indeed anyone must. There is little incentive for people to save on energy if the sole objective is to reduce prices. There should be an objective to improve efficiency in use, to improve value in the hands of the customer. That element is missing.
I believe that the directive is a move in the right direction. I hope that it will come into effect quickly. However, I also hope that the issue of energy efficiency will be introduced in some way into the final version of the directive.
8.15 p.m.
Lord Mackay of Ardbrecknish: My Lords, I share the nostalgia of the noble Lord, Lord Ezra, for Sub-committee B. I was a member of it under his illustrious chairmanship. If my recollection is right, we investigated similar arrangements in the electricity industry and spent some time working out electricity interconnectors between various European Union countries. Therefore I share his nostalgic feelings for the committee.
I cannot say that I share his nostalgic feelings for the old days of the nationalised gas and electricity industries, coal companies, and so on. Perhaps I may recommend to the noble Lord page 47 of the report. The gas regulator, Ms. Clare Spottiswoode was giving evidence. At question 203, she answered by saying that she is a fundamental believer in market processes working better than government. She pointed out that,
"Governments in general tend to interfere in quite negative ways, although with good intentions, and they actually cause a lot of harm to the gas industry".
I shall not read out all she said in order to back up that point, but I commend the passage to the noble Lord.
I think I am right in saying that there may well be public obligations to supply in the gas and electricity Acts, but I am not a great expert in these matters. I suggest that the noble Lord, Lord Ezra, might consider that point.
The report relates to an industry where we and our continental partners are in different playing fields. We are major producers, with the Netherlands—a point made by many noble Lords who have taken part in the debate. My noble friend Lord Haslam illustrated the point by contrasting our position with that of many of our friends on the Continent who are dependent on Norway, Russia and Algeria. The noble Lord, Lord Bridges, commented on these differences and the important impact they have on the way we and our continental friends view these matters.
I believe that the situation will continue for a long time. Early in the development of North Sea oil people talked about the supply beginning to run out. It is not showing too many signs of running out. As my noble friend Lord Moynihan said, the potential sources of supply in the North Sea are there. We know about many, and we still find many. I share his view that there is not

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likely to be any problem of supply for us in the foreseeable future. That is one major difference between ourselves and many of our continental neighbours. It is a difference which my noble friend Lord Geddes referred to in his introduction.
There is another major difference. We have a more competitive regime in this country. My noble friend Lord Skelmersdale drew the attention of the House to paragraph 26 on page 11 of the report. Mr. Jonathan Stern, an independent gas analyst, said that the Commission had faced,
"`a carefully orchestrated campaign' of concerted opposition from the gas industry"—
in other countries—
"which 'regarded the introduction of liberalisation as the equivalent of the end of civilisation'."
In its findings, the committee continued:
"Opposition to liberalisation was difficult to understand from a British perspective".
Indeed, Ms. Spottiswoode, who I mentioned earlier, makes the same point in her evidence. I shall quote from Question 173:
"One of the things I have been very keen to ensure is that the Directive does not stop us doing anything we want to do, and because we are far further down the path of liberalisation the Commission has always been extremely keen to make sure we were not affected negatively".
She goes on to say:
"I am pretty confident the current draft has nothing in it which will stop us from liberalising and going down the route we are going."
I hope that the Minister will not only be able to confirm that that is the Government's view of current position but that he will be equally able to confirm the Government's determination not to allow anything in the directive which will inhibit the liberalisation and the competition we have introduced in our markets.
In his introduction my noble friend Lord Geddes specifically referred to several aspects and I agree with him entirely about the need to re-think the thresholds and the timescale and go for lower thresholds and a shorter timescale. That is important. On "take-or-pay", I must say that I have to turn to Ms. Spottiswoode again, because I think that the point she made in Question 194 was an interesting one, especially from someone coming from Scotland who has watched the gas and oil industry develop. Speaking about this whole issue she says that,
"it is about risk and managing risk, and that is the argument, I suppose, for "take-or-pay".
She adds:
"I think the first one is relatively easy in that the oil companies are used to managing risks. They spend their lives dealing with oil prices. They have no idea what oil prices are going to be a year hence, never mind 10 years hence, so they make their investment decisions on the basis of being the lowest cost producers".
If that is the case for oil, then it seems to me that it can also easily be the case for gas and I was pleased to see that the Committee came to the same conclusion, because it says at paragraph 111:
… the oil industry succeeds in achieving similar levels of investment without take-or-pay contracts".
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The committee goes on to say that they believe that "take-or-pay" contracts are contrary to the spirit of competition, so I hope the Government will endeavour to ensure that any derogations are given only for contracts already in existence and not for contracts to come.
The other interesting point—raised, I believe, by the noble Lord, Lord Berkeley—is about who is to police the gas regime. Is it to be the Commission? I have to say that my confidence in the Commission's policing of competition policy is not great. I remember during my short period in the Department of Transport constantly having to consider how the Commission could possibly agree to the large tranches of money that nation states like France were pouring into their aviation industry. The Spanish, and others, were also doing it. It did not seem to me that the Commission were being very vigorous about fair competition and opening up markets. That is also a worry in the financial services industry and so I am not entirely confident that the Commission would be a good policeman.
I wondered, therefore, whether a European regulator would be suitable, but Ms. Spottiswoode in her evidence knocked that on the head very convincingly when she said at Question 179:
"I think it would be a very had idea because each country has its own different system and I cannot imagine a European regulator would ever take the steps that we have taken in the United Kingdom to move things at the speed we have and get all the benefits that has brought to the United Kingdom. It is difficult to see a European regulatory body as anything other than a compromise across all countries' interests".
I believe that would he the case of the Commission, too, so the question of who is to police these matters could be very difficult. What we have to ensure is that inside each country an effort is made to police any competitive policy arising.
This is a fascinating and interesting report. In many ways I think that my noble friend Lord Geddes and his colleagues have produced a report with a great deal more substance to it than the directive on which they were reporting. It is to be regretted that the directive does not have more substance, but I believe we ought to recognise the difficulties experienced by some of our European friends. These have been illustrated by your Lordships tonight. I hope that they will recognise the huge advantages of liberalisation and competition which have been brought to this country and to our industrial consumers, who need energy as a prime source to produce competitively in the world and also to our domestic consumers who, thanks to liberalisation and competition and—dare I say it?—thanks also to privatisation, have enjoyed the fruits of declining gas energy costs. Unlike the noble Lord, Lord Ezra, on behalf of consumers, both industrial and commercial, I welcome that.
8.25 p.m.
Lord Haskel: My Lords, I am most grateful for the opportunity to reply for the Government to this Motion tonight. The gas directive is an important and late single market measure. I congratulate the committee on a most full and helpful contribution to the Government's

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consideration of this directive. It is also very timely. As several noble Lords have mentioned, the Council will be meeting on 8th December to agree the directive, and I am grateful for the opportunity to debate the committee's findings in advance of that date. I say to the noble Lord, Lord Geddes, yes, there is a very good chance of agreement on 8th December. And if there is no agreement on 8th December it will certainly be a priority for the United Kingdom to achieve one.
As several noble Lords have mentioned, it has not been an easy task for the committee. As one speaker remarked, it has been like trying to hit a moving target. Successive presidency drafts have been tabled, involving new proposals on key issues, and the picture still continues to change. Indeed, there were developments or discussion as recently as Friday and I will try to take account of these.
The committee has taken evidence from a wide range of those who are active in the gas market and those interested in the way it works, including my honourable friend the Minister of State for Science, Energy and Industry. Evidence has been received from companies based inside and outside the United Kingdom, from Members of the European Parliament, from the Commission and from the Norwegian Government. I congratulate and thank the committee upon the thoroughness with which it has pursued its inquiries. The result is a well-informed and valuable analysis of the issues confronting European legislators in considering the first step in opening the European Union to gas market competition.
Several noble Lords have suggested that the gas directive is not in the United Kingdom's best interests and that we should be better off keeping the benefits of competition and of our gas to ourselves. This is not the Government's view. Like other noble Lords, the Government attach priority to the completion of the single market, and the gas directive is an important single market measure. We believe it is desirable for the European Union as a whole to benefit from gas competition. This can bring important benefits to the competitiveness of European Union companies and the wider welfare of the European Union. What is good for the European Union is also good for the United Kingdom. As the committee notes, competition in the European gas market will improve export opportunities for United Kingdom gas producers. This competition should also help the United Kingdom companies which are interested in investing in the European Union in energy-intensive power generating projects. In addition, it will afford considerable opportunities for British companies to provide expertise in the workings of the competitive gas market. The computer applications alone for a competitive gas market across Europe are estimated to be worth billions of pounds by the turn of the century.
A more competitive European Union is good for United Kingdom trade and United Kingdom employment. That is why the Government are committed to pursuing the best outcome possible in terms of effective market opening under the gas directive. I can promise the noble Lord, Lord Mackay,
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that we are committed to that. In doing so, the Government have sought to ensure that the directive will not undermine the competitive market which is currently being unrolled in the UK. I can assure noble Lords who were concerned about the point that competition within the United Kingdom will continue as planned. The committee is right to draw attention to the issue and I am pleased to be able to say that we are on course to achieve the objective.
We do not maintain that the United Kingdom model for gas competition should be the only one available. That is because at present there is no homogeneous European Union gas market. The position varies greatly within the 15 member states. While the UK is a large, mature and liberalised market, there are countries such as Greece and Portugal where natural gas has been available to customers for months only rather than years. There are many variations within the Union and it is those differences between market structure and maturity which mean that member states have different views about how they see competition developing. Accordingly, there is a general wish to permit a large measure of subsidiarity in implementing the directive's core provisions.
Here I respond to the point made by the noble Lord, Lord Ezra, about energy efficiency. It is a matter for subsidiarity. The directive does not seek to impose energy efficiency measures on member states. The decision as to how best to achieve energy efficiency without distorting the single market is up to each individual member state.
Many noble Lords raised the point about member states which are substantially or wholly dependent on imported gas, much of which originates from outside the European Union. The noble Lord, Lord Geddes, gave us the figures. Of course, that has created political concerns about the nature and pace of market openings which have not perhaps been uppermost in our minds in the UK. But we agree that the European Union will be heavily dependent on imported gas in the future. However, liberalisation should not make the position any worse. Indeed, it should help, to the extent that a more open and flexible European market is created which may encourage the development of other possible sources of supply. The political support for some changes that we and the committee consider desirable—for example, the function of separation of gas transportation and supply—has not been present in the considerations of other member states for that reason.
Like the committee, the Government would prefer to see a more ambitious measure than that proposed by the Luxembourg presidency. The Government have sought and will continue to seek at the Council on 8th December improvements to the proposed extent of market opening and the quality of the third party access regime designed to implement that. Depending on how far we can get, there will, of course, be room to speculate about how much difference the directive will make in practice. But whatever the precise outcome, the Government share the view of some noble Lords that on balance it is better to have as good a directive as we can achieve than to have no directive at all.

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Through consistent presentation of the UK case, persuading others of its relevance, it has been possible to make some progress on the concerns raised by the committee. For example, the presidency's proposals contain a form of the Chinese walls which so disturbed the noble Lord, Lord Skelmersdale. The provisions will require transmission and distribution companies not to abuse commercially sensitive information obtained from third parties in undertaking their own gas sales.
A noble Lord raised an important question about the scope for cross-border trade and the impact of the UK-Continent gas interconnector pipeline. The importance of both the directive and the interconnector lies to a large degree in the fact that they will help to make new forms of activity possible. Although the number of major sources of supply into the UK market is comparatively limited, there will be additional competition between those sources of supply for market share, once competition in supply is established.
In addition, by providing an assurance of third party access rights for large industrial customers, the directive will open the door to new forms of market activity. The potential of the directive to facilitate such developments will be reinforced by the interconnector. The interconnector will link developments in the liberalised UK market to Europe. I agree with the noble Lord, Lord Moynihan, that trading and arbitrage are likely to develop around the interconnector, which will help promote similar developments in the European industrial supply market. We are therefore likely to see the emergence of traders and aggregators in the European market, as well as the more traditional forms of gas trade.
Some noble Lords raised the issue of the impact of the interconnector on UK gas prices. On that, the Government anticipate that on price and otherwise the interconnector will in the long term benefit UK customers. The noble Lord, Lord Bridges, reminded us of Clare Spottiswoode's comment about the interconnector having a price-dampening effect.
UK gas will only be sold abroad if it cannot find a competitive outlet in the UK and it is economic to sell elsewhere. However, by connecting the UK and the European markets, the interconnector is likely to lead to more stable UK prices than in the past and to enhance Britain's security and diversity of supply. Liberalisation in the United Kingdom will then continue to ensure that our consumers benefit from competitive prices.
I now turn to two other major issues: market opening and the take-or-pay contracts. On market opening, the Government agree with the committee's wish to see competition introduced into the European market as widely and rapidly as possible. We agree that it is desirable to achieve lower thresholds for eligible customers in second and third stages. There is also a case for shorter periods between stages of market opening. But it has been agreed that all gas-fired power generators should be able to benefit from competitive supply in order to avoid distortion in the electricity market.
It is important for European Union competitiveness to encourage the service innovation which will go to the competition in the electricity market and the power
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generation market. I can assure noble Lords who are concerned that the Government will not seek an improvement on the Luxembourg presidency proposals at the meeting on 8th December that we shall certainly do all we can.
Turning to take-or-pay, discussions on the possibility of derogating from the directive in respect of problems arising from long-term take-or-pay contracts have been one of the most difficult areas of negotiation. The Government share the concerns of many noble Lords about the potential for such derogations to delay the establishment of a competitive market. There has, however, been a strong political wish on the part of other member states to include such provisions for both existing and future contracts. The Government's view is that this should be seen as a transitional issue. It should be recognised that there is some potential for problems to arise as competition is introduced and in that sense a case for derogation is undoubtedly much stronger for existing take-or-pay contracts than for future ones.
We argued that case. However, the force of the political debate has been in favour of including the possibility of derogations for future contracts. We therefore sought other means of limiting the potential anti-competitive activity and the most significant safeguard in that respect is that any derogation can only be granted if important competitive criteria are met. For example, there is a requirement to show that no other alternative to a derogation is reasonably available. Most important, we have worked to ensure that those criteria are harder to satisfy for future than for existing contracts.
The Government believe that assurance can be taken from the fact that it is the European Commission, not the member states, which has the final say on whether a derogation may be granted. In our view it is essential that the Commission should have that role to ensure that we have a real single market in gas. We are concerned, however, at developments at discussions on Friday. Those showed a wide range of support for French proposals to allow member states considerable freedom to protect their companies in respect of existing take-or-pay contracts in ways which may blunt the impetus to competition under the directive. That remains a difficult issue and noble Lords are right to draw our attention to it.
My noble friend Lord Berkeley and other noble Lords raised the question of coal. I do not want to enter into a debate on the coal industry tonight. However, in Europe it is possible that the directive will, over time, encourage greater competitive pressures on the coal industry. It may assist with the removal of coal subsidies mentioned by the noble Lord, Lord Haslam.
The UK is already on course to open its gas market fully to competition by next year and the directive will not require the Government to make any additional changes in the UK energy markets.
I have tried to cover the Government's views on the main issues raised by the committee. I have also tried to answer any questions, and where I have not been able to do so I shall certainly write to noble Lords. I close by repeating the Government's welcome for the report.

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I know that the Luxembourg presidency will be pressing for an agreement on 8th December and it is therefore extremely helpful to my honourable friend to have the committee's support and guidance on the key issues before the meeting.
8.42 p.m.
Lord Geddes: My Lords, before making my brief closing remarks, perhaps the Minister could help the House. Doubtless because my attention was distracted, I am not now clear as to whether on Monday the Government will or will not seek improvements regarding market opening. My attention must have been elsewhere. Perhaps the Minister could say.
Also, before the Minister answers, did I hear him correctly say that last Friday, under strong pressure from the French, the take-or-pay derogations may well be continued for future contracts as well as for existing and past contracts? If that is so—I am sure all members of my committee would support me—will he ask his honourable friend to do everything possible to change that decision? As I said in my opening remarks, the Minister himself said that any derogations on take-or-pay for future contracts would, to use my words, drive a coach and horses through the whole point of it. Perhaps the Minister would be kind enough to reply.
Lord Haskel: My Lords, first, I can confirm that we will seek improvements in access. On the question of take-or-pay contracts, last Friday there were developments and discussions and those discussions showed a wide degree of support for French proposals to allow member states considerable freedom to protect their companies in respect of existing take-or-pay contracts, both now and in the future. It is a difficult issue and the Government will bear that in mind on Monday. They will negotiate as best they can to convince other member states that the derogation should not happen. If it does happen, it will only happen under extremely tough circumstances.
Lord Skelmersdale: My Lords, this is an important point and, with the leave of the House, perhaps I can press the Minister to say who else was involved in those discussions. Clearly the French were and 1 assume we were. But that is an assumption and it may be we got to hear of it on Saturday morning.
Lord Haskel: My Lords, I do not know who was present at the discussions. I only know their outcome.
Lord Geddes: My Lords, I am grateful to the Minister for clarifying my first question and relieved that the Government will be seeking improvements regarding market opening. In relation to take-or-pay contracts, I hope that this last interchange will strengthen his honourable friend's arm—if I can put it that way—in discussions next Monday, as I hope the whole of this debate will strengthen his honourable friend's arm. As I said in my earlier remarks, he was an impressive witness. In the committee's view he seemed to be going along exactly the right lines and I hope that
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what we have reported and what has happened during the debate this evening will strengthen his arm on Monday.
I promised to be brief and I certainly shall be brief; the evening is not as young as it used to be. I wish to make just one or two quick remarks. I noted with pleasure what my noble friend Lord Moynihan said in regard to his doubt as to whether prices would rise once the interconnector is in. I repeat what I said in my opening remarks, that the committee thought they might. I hope that he is right. We have slight fears on that subject.
The noble Lord, Lord Ezra, was a redoubtable chairman of Sub-Committee B, and I sat at his feet for many years. It was entirely predictable that he should raise the subject of coal but, with respect, that is not directly relevant to this debate or the report. However, regarding producers needing cover—I believe that was his expression—I am glad that my noble friend Lord Mackay drew his attention to paragraph 111. The committee was strongly of the view that if the oil industry did not need take-or-pay contracts, why did the gas industry need them? We have heard no evidence to take us away from that view.
I believe the Minister said in his opening comments that some noble Lords had said that the EU gas directive was bad for the UK. The committee certainly did not come to that conclusion and I am not sure that I heard that remark anywhere in the House this evening. I would hate him to think that the committee took that view; it did not.
Having said that, I am extremely grateful to all noble Lords who have taken part. It has been a good and short debate—almost exactly one-and-a-half hours. I have already thanked members of the committee but am particularly grateful to those noble Lords who were not members of the committee who took part. I commend the report to the House.
On Question Motion agreed to.

Iraq
8.48 p.m.
Lord Avebury Lord Avebury rose to ask Her Majesty's Government what is their current policy towards Iraq.
The noble Lord said: My Lords, before coming to the main theme of this debate, perhaps I may say how delighted I was to see that my noble friend Lady Nicholson of Winterbourne has chosen this subject on which to make her maiden speech. In another place she was a formidable campaigner for human rights in many parts of the world, but she is particularly renowned for her work on behalf of the victims of Iraqi oppression. She has undertaken works of an important and charitable nature to succour particularly those who were on the receiving end of Saddam's wrath in the marshes which were cleared by him of almost the entire population. We look forward to hearing what she has to say about that tragic situation.
It was six years ago that Saddam was evicted by the allies from Kuwait, but we left the job half done. We did not get rid of Saddam himself, first, because we had no authority from the Security Council to do so; but also because we were afraid that the Egyptians and the Saudis would drop off the alliance if we went ahead to Baghdad. Instead, President Bush encouraged the people to dislodge Saddam themselves. However, when the Kurds in the north and the Shi'as in the south took his advice, he left them in the lurch. The result was that hundreds of thousands of people were killed or driven into exile, the holy cities of Najaf and Karbala were devastated, and the opposition to Saddam was severely discouraged and weakened.
However, one objective that the Security Council adopted in Resolution 687 was the destruction under international supervision of all chemical and biological weapons and their means of delivery, and that Iraq should not acquire or develop nuclear weapons, or engage in any research for that purpose. I intend to concentrate on this subject because I know that the noble Lord, Lord Rea, and others will be dealing with the humanitarian situation in Iraq.
The Iraqi regime has made no fewer than seven "full and final disclosures" of its biological weapons programme, the most recent of which was in September 1997. But, as your Lordships are aware, it has never agreed to full and unfettered access by UNSCOM to monitor compliance. That was the cause of the latest crisis. On 12th November the United Nations described the Iraqi attempt to impose conditions on the special commission as "unacceptable". As a result of vigorous diplomatic efforts, and perhaps also the concentration of US and British forces in the region, the regime backed down on the composition of the UNSCOM team. But it is still imposing restrictions on where it can go. In particular, it says that UNSCOM cannot enter any of Saddam's 78 palaces. Your Lordships might well ask how a state which claims that it is too poor to give children proper medical treatment can afford to make such lavish provision available to its ruler, especially considering that each of those palaces has a large surrounding area which is treated as part of the presidential estate, and so the scope for hiding weapons, laboratories and production facilities in those areas is quite considerable.
The former head of UNSCOM, Dr. Rolf Ekeus, said that the Iraqis gave up about a third of their capability in missiles and chemical weapons and sought to keep two-thirds. They admitted that they had 25 warheads and 166 bombs filled with biological agents such as anthrax, botulinum and aflatoxin immediately before Desert Storm. In 1990 alone, Iraq produced up to 1,700 pounds of a chemical nerve agent VX, which I am informed is enough to kill half the population of the world. It has also stockpiled vast amounts of materials used to produce this deadly substance which has 10 times the lethality of the chemical Sarin, which is also very deadly. UNSCOM has been unable to account for all the VX that has been produced.
The Iraqis engaged in new and more sophisticated tricks of concealment, such as establishing companies in Jordan for the procurement of equipment and raw
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materials. It would be useful to know what steps UNSCOM is taking now to monitor Iraqi use of third country production or development facilities. The latest report by Dr. Ekeus' successor, Mr. Richard Butler, says that, although UNSCOM has now accounted for all but two of the imported prohibited missiles, it has been unable to check on Iraq's indigenous production of missiles, warheads and components. There is uncertainty about the extent of Iraq's continuing efforts to produce VX and about the existence of production equipment for chemical weapons manufacture. Mr Butler says that the most serious and persistent area where Iraq has disregarded its obligations to the United Nations is that of biological weapons. The report takes note of systematic concealment of activities and emphasises that failure to grant access has impeded the disarmament process and the work of the commission.
To summarise, it is clear that Iraq is a very long way from compliance with Resolution 687 and appears to be playing its usual game of brinkmanship in defying the United Nations. Nevertheless, it would be unwise for the US and Britain to attack Saddam on the grounds of recent prevarication and threats when he has not actually used violence. We would incur the rage of the whole Arab world, where there is a strong feeling about western double standards. They see that Israel gets not so much as a diplomatic slap on the wrist for armed action, which results in many civilian deaths, while Iraq could be on the receiving end of a huge air attack, more or less regardless of the strength of the provocation.
If Saddam was unwise enough to shoot down a UN aircraft, or to use violence against UN personnel, we would have to consider the position. But the launching of a few Cruise missiles, as in 1996, would have no effect on Saddam's policies. At worst, it could endanger the lives of UN personnel in Iraq, while at best it would lead to even less co-operation by Iraq with UNSCOM.
If Baghdad was on the point of developing an operational capacity for delivering weapons of mass destruction, there would be a powerful case for taking pre-emptive action against the sites themselves. He did use prohibited weapons in the Iran-Iraq war and in the notorious attack on Halabja nearly 10 years ago. It is unthinkable that he should ever be allowed to regain that capability as the Security Council decided when it passed Resolution 687. What it missed then, and what I do not think is fully appreciated nearly seven years later, is that as long as Saddam remains in power, that danger still remains. We needed a strategy to get rid of the dictator and to promote a pluralist democratic alternative inside the country, daunting as that task may be.
In the south, the Shi'as who number perhaps 12 million out of Iraq's 20 million population, had no tradition of political activism, and their religious leaders disappeared and almost certainly were murdered after the uprising of March 1991. Shi'a institutions were systemically destroyed, including libraries, religious schools and mosques. The marshes of the south were systematically drained, and the people who used to live there were internally displaced, except for 30,000 who became refugees in Iran and on whose behalf my noble friend has worked so assiduously.
It is clear that the Shi'as would like to see the back of Saddam and would probably like to manage their own affairs in a federal Iraq. There is no demand by them for union with Iran because of religious affinity, as some people imagine. So we should have taken the trouble to encourage political consciousness among the Shi'as, with those living in exile and through broadcasts in the Arab language service of the BBC. We should have made it clear that in a post-Saddam Iraq we expect the Shi'a population to exert the political influence to which their numbers entitle them. I should be grateful if the Minister would confirm that that is a corollary of the mission statement.
In the north, we have to understand that Barzani's control of the 1 million dollars a day revenues from the illegal traffic in oil has militated against a political agreement between the PUK and the KDP for reunification of the region. We are still trying, after losing count of the deals which have been agreed and then fallen apart. For the moment, there is a ceasefire and a partial withdrawal of Turkish forces from the region. But the chief of the Turkish general staff said over the weekend that the army will re-enter in strength any time it feels like it. That is intolerable and we should say so firmly. We have been far too sotto voce in condemnation of Turkish intervention in northern Iraq, which is a breach of the United Nations charter. I should like to know from the Minister whether we will now speak up more clearly about this violation of the charter.
The Turks had the effrontery to suggest that Ankara should be the venue for the next round of KDP-PUK talks. However, I understand that the alternative of London has been suggested. If we are to be the hosts, we should not invite the Turks. But we should ask the minority parties from northern Iraq and perhaps other distinguished Kurdish personalities who are not members of any party. We should insist on an interim government of national unity, leading to elections under neutral supervision for a new regional parliament, as was agreed in Paris, Drogheda and Dublin. We should insist that all revenues be paid into an escrow account and disbursed according to the arrangements that are already in place for 986/1111. There should be a fall-back policy that if any party obstructs the agreement, the holding of elections or their supervision, then the allies will cease to deal with its leaders, helping only those who are ready to adopt democratic principles as a first step towards applying them throughout the whole of Iraq. Above all, the question of the money has to be solved and since Resolution 986 is clear in forbidding any exports of oil products other than those specified by the Security Council, the KDP must agree to hand over the proceeds of this traffic to be spent for purposes agreed with the unified administration.
There needs to be a permanent forum in which democratic Iraqis from every section of the community can participate in a discussion of strategic moves towards a free Iraq. That could be an expanded and revitalised Iraqi national congress or, perhaps, to emphasise that it is part of a new co-ordinated approach, it could be a new body altogether.
The UN rapporteur on Iraq, Mr. Max van der Stoel, says that Iraq remains in the grip of one of the most ruthless dictatorships that the world has seen since the end of the Second World War. We need a coherent and effective plan for replacing this evil villain who does horrible things to his own people and, if given the chance, would threaten the whole world.
9.1 p.m.
Lord Rea: My Lords, in contrast to the noble Lord, Lord Avebury, who concentrated on UNSCOM and weapons inspection, I shall concentrate on the progress in meeting the humanitarian needs of the Iraqi people.
In February 1991, as the noble Lord has said, the United Nations task force abruptly ceased its advance into Iraq although it could probably have taken both Basra and Baghdad in a few days. The subsequent withdrawal and abandonment of the Kurds in the north and the Shia in the south who had risen against Saddam was a shameful episode only partly assuaged by the protection later afforded to the Kurds.
The decision to leave Saddam in power—perhaps as a prop to the status quo in the Middle East—has been revealed as a major mistake. Taking a rather cynical view, it could be held that the persistence of a defiant Saddam in charge of a repressive regime, a bete noire if one likes, has provided the United States with a good reason for continued high military expenditure long after the end of the Cold War.
Saddam's survival is something which most of us, particularly Israel, as the noble Lord, Lord Beloff, pointed out during Question Time today, could well do without. Whatever the reason behind the fact that Saddam's regime still exists and is causing international concern, the real brunt of the decision to allow him to stay in charge of Iraq has been borne by the long-suffering Iraqi people. For five years after the Gulf War the Iraqi regime has refused to allow the Security Council Resolutions 706 and 709 to operate. These would have allowed the import and monitoring of necessary food supplies in return for the sale of a limited amount of Iraqi oil, the proceeds to be handled through an escrow account by the United Nations. During this period Iraq orchestrated a campaign inside and outside the country which blamed the United Nations sanctions for the undoubtedly severe food shortages and the breakdown of the health care systems and infrastructure which occurred in Iraq.
I am afraid to say that I was one of those who was taken in by this to some extent at the time. It was quite hard to believe that a ruler would deliberately starve his own people for a propaganda effect. In retrospect, that was very gullible of me. After all, he had gassed, as the noble Lord, Lord Avebury, said, some 8,000 people in Halabja in 1988. In fact, the population has not only had to live under a repressive regime, but it has had to tighten its belt and suffer a disastrous increase in infant and child mortality, the true extent of which may never be accurately known.
This was all blamed by Iraq on the United Nations, particularly the United States. That was apparently believed by a large section of the Iraqi people. The

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antagonism thus created against the West was unfortunately boosted by unwise missile attacks on Baghdad by the United States a few years ago. However, last year Iraq finally agreed to the implementation of Security Council Resolution 986, which could be held to be an updated version of the previous Resolutions 706 and 709, providing for humanitarian supplies in exchange for limited oil sales. I gather that oil under this plan started to flow in December 1996—exactly one year ago. The food and medical supplies started to arrive shortly afterwards. This scheme appears to have been reasonably successful, at least where it has been monitored, although inevitably there have been delays and difficulties.
At present we are just reaching the end of the second 180-day period of operation of the agreement and we are awaiting the Secretary General's report on this second phase, which will then lead on to the approval of the next 180-day phase. I have seen the interim report of the half stage of 90 days on into the second phase, which records considerable achievement, at least in the three northern governorates, which is the Kurdish zone, although it is still too early to make a full assessment. However, I gather that on the strength of that report it has been suggested that the amount of oil sales be increased to deal more effectively with the urgent humanitarian needs of the Iraqi people.
I believe that there are some 150 monitors, very few of whom are British or American, supervising the distribution of the food and medical supplies. Mr. Benem Savan, who is a very able Cypriot of Lebanese descent, was appointed three months ago to co-ordinate the work of United Nations monitors and to suggest improvements in their methods of operation. Initially, these operations were supervised by the United Nations Department for Humanitarian Affairs, but that was not very effective. I gather that Mr. Savan is due to report shortly on his work so far. Can my noble friend the Minister say whether this report will be published and when?
During this exercise of the distribution of humanitarian supplies, there appears to have been reasonably good co-operation between the Iraqi and Kurdish officials and the monitors, at least in the northern parts of the country. But the Secretary General's report says very little about what is happening in the south, particularly among the Shi'as—the special concern of the noble Baroness, Lady Nicholson—who suffered Saddam's revenge after their 1991 uprising, as described by the noble Lord. Has my noble friend any news of the operation of Security Council Resolution 986 in those areas? How many United Nations monitors have been allowed in, particularly to the marsh area—if anybody is still living there—and to Basra?
Turning away from humanitarian concerns, can my noble friend tell the House the prospects for building a viable Iraqi opposition in exile? What is the present status of the Iraqi National Congress? How many political parties are part of that organisation? It is good news, as the noble Lord reported, that a further ceasefire
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between the rival Kurdish sects, the KDP and the PUK, has been arranged, but we have seen many before, so what chance is there of a permanent rapprochement?
Finally, the repeated incursions and now almost permanent presence of Turkish armed forces in Northern Iraq can hardly be contributing to the welfare of the Iraqi Kurds in the area. Can my noble friend say whether, as has been reported, agricultural activity has been disrupted and the distribution of food impeded by the presence of Turkish troops? It will be interesting to hear whether Her Majesty's Government know whether the Turkish incursion, ostensibly to track down PKK guerillas, has succeeded in finding any. I believe that they are extremely adept at melting into their mountain background. Do Her Majesty's Government believe that the Turkish forces ever really intend to withdraw behind their frontiers?
9.10 p.m.
Baroness Nicholson of Winterbourne: My Lords, it is indeed an honour to be a Member of this House. I wish to place on record my gratitude for the welcome all have shown me, and most particularly my colleagues on the Liberal Democrats. One of my Conservative friends wrote to me saying, "God does indeed move in mysterious ways"—all that I can say is that He has placed me among the most remarkable colleagues.
I have to declare an interest in Iraq. As the noble Lord, Lord Avebury, remarked in his most interesting speech, in 1991, at the end of the Gulf War, I formed a small human rights group, the AMAR International Charitable Foundation. The ballpark figures today are that we have worked in Iran and Iraq, particularly in the south, with 6 per cent. overheads and wholly local staff and resources. The interest perhaps is that, although I am a volunteer, we are partners financially of the European Union through ECHO, which provides 47 per cent. of the funding. We are also funded by DfID—thanks in part to the noble Baroness, Lady Chalker of Wallasey, and to the new Secretary of State—which has given 25 per cent. of the funding. Private donations, ranging from those of the Emir of Kuwait to schoolchildren in the United Kingdom, represent another 25 per cent. of our funding. We have a partnership agreement with UNESCO, receiving a fraction of funding (3 per cent.), a Memorandum of Understanding with the emergency division of the World Health Organisation, and now a partnership with the Irish Government (Irish Aid), which focuses on education.
This work has taught me that the people of Iraq are close to the hearts of the British people. The mixture of private and public funding has touched the lives of, and provided basic support for, half a million or more refugees. In five years we have raised and spent approximately £5 million. With 50 doctors, we provide 120,000 annual medical consultations, with five clinics, two laboratories and a new clinic under way. We have provided clean water supplies and sanitation in five camps. Two more deep water wells are now under construction. Garbage collection and sewage disposal is now provided in another four camps, with another project under way. Electricity has been supplied to two

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camps. We have provided 3,500 tonnes of food and approximately 250,000 pieces of clothing, most of which was funded by ECHO and the European Union. There are now 11 schools with 215 teachers, educating 6,500 primary schoolchildren.
In addition, we have established a permanent standing conference on Islam and the European Union in partnership with UNESCO and partly funded by the European Union. We are now drawing academics, politicians and senior religious figures from 27 nations. Our first conference was opened by the Archbishop of Canterbury, Ayatollah Taskiri of Iran and Dr. Federico Mayor, the director general of UNESCO.
Finally, we have conducted a huge scientific survey and report on marshland drainage. At the mid-term point of 1993, we reported that 50 per cent. of the marshes of southern Iraq had been drained and now only 10 per cent. of that area—half the size of Wales—remains under standing water. One-third of the refugees for whom we have cared in that period are marsh dwellers, commonly known in Wilfred Thesiger's great phrase as the "Marsh Arabs", who seem to me as I talk with them to be the water bushmen of the Arab-Persian Gulf. Those thousands of people are self-sufficient, strong and adaptable—a community literally stretching back to Sumeria, whose ancestors created the wheel, the rule of law and writing.
Since all but two of our staff—we have two European staff, one Frenchman and one Englishman—are refugees or local experts, and all those we serve are refugees, they have become closely aware of Iraq's current horror. A once honourable nation has become a living concentration camp. Human rights and freedoms have been deliberately demolished. There is no freedom to follow a faith. This year during the great Shia annual period of mourning for Arbaeen Iman Hussain men and women were slaughtered in their thousands by the regime's police as they worshipped. In south Iraq the holy city of Najaf is as important to Moslems as Rome and Canterbury are to Christians and parts of Jerusalem which reflect the sacred places of Judaism.
It is a dreadful, dreadful state. The regime now attacks small towns and villages in the south almost daily. We hear about them from the southern Iraqi refugees who are with us in Iran. It encroaches militarily in the barer areas of the north. In 1996 I visited 150,000 refugees as they swarmed across the border. We set up a large clinic and distributed blankets. As bombs rained down upon us we saw fear on the faces of children. Thousands died then to join the several million already killed whose escape from torture and imprisonment seemed to come only with death. Iranians, Kuwaiti prisoners of war, Iraqis, the Marsh people, the Kurds, the Shia and the Sunni disappeared. There are so many dead that they are uncountable. There are so many torments that we cannot feel.
But no tyranny is eternal. Once the watershed has been crossed and Saddam has been vanquished what lies ahead? Can we not look further tonight than just the miserable horrors of today? I urge Her Majesty's Government to join with me and many others in this House and the other place who understand Iraq to plan
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for the establishment of a new Iraq which surely should be a liberal democracy, perhaps a federated structure to reflect the curious nature of the Iraq that the United Kingdom created in the 1920s. Almost all the people wish for a liberal democracy.
I believe that much can be done when Saddam is toppled, but it will be much less effective if it is done in haste in the aftermath of what emerges than if it is done today. I believe that in our presidency of the EU we should draw as a nation upon our knowledge of Iraq—we have perhaps a more profound knowledge of that country than any other nation in the world—and the knowledge that we have gained in so many places in the world of post-conflict situations and of what to do. Saddam may go tomorrow and we must prepare. We have much experience from east and central Europe with the collapse of communism and the Soviet Union. I have witnessed the excellence of the Know-How Funds and the work of those whose expertise has been brought to bear. I saw that in Poland. It was wonderful to watch their stock exchange and banking system being created.
What about assisting in the restoration of professional standards through the establishment of professional bodies similar to those that we have in the United Kingdom? For example, are we supporting the Iraqi Medical Association? I helped the British Computer Society to set up a similar body in Hungary. Professional bodies with peer group analysis and pressure surely offer a way forward. We have seen this happen with the legal profession in the post-war tribunal in Rwanda. It is short of lawyers and judges. What are we doing? We are helping there. In the field of education, I recall assisting the Open University to begin work in Bulgaria. The Open University is one of the most important developments in the post-war era. It still has not spread throughout the world as it could and should have done. Surely the Government can help with that.
Finally, what will become of a unique and extraordinary body which has a rightful reputation once its work has been completed? I refer to the Truth and Reconciliation Commission of South Africa. That is a unique and extraordinary body set up by the Parliament of the new South Africa to heal past wounds and not rely always on law and punishment. Can we look again to see whether that can help?
What is our aim? Our aim is surely the creation and support of a stable nation where the gross national product expenditure of 37 per cent. on weaponry—the recent figure—is a past nightmare and not a future goal. That calls for Western self-discipline. I seek a register of arms first in the European Union and then internationally so that peace can reign.
9.20 p.m.
Lord Sempill: My Lords, it is a great pleasure to welcome the noble Baroness to the House and to congratulate her on a staggeringly moving maiden speech. I am sad that not more Members were present to hear her. I wish also to convey a special message of welcome from my noble friend Lord Weatherill, our Convenor, who unfortunately had a prior engagement.

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He told me that the noble Baroness was the only MP to have moved him to tears as she related her experience with the Marsh Arabs and her determination then to set up a consolidated fund to aid their project. He was so moved that he reached for his cheque book and contributed on the spot.
The noble Baroness has an impressive curriculum vitae, especially relating to her work for human rights. She has chaired various all-party parliamentary groups with a special focus on the Middle East and a series of highly successful appeals. She is someone with immense energy and is rightly regarded as a doer rather than a talker. Her appearance last week at the truth and reconciliation proceedings in Johannesburg in a role as protector of a key witness showed another major attribute—that of courage. I know that her talents will be fully appreciated in the House. We all look forward to her next contribution.
I am grateful to the noble Lord, Lord Avebury, for raising this Question. I thank him for giving such a clear exposé of the situation in Iraq and where we are today with it. However, I believe that it is time to review our relationship with Iraq, especially in the light of the Government's desire to conduct the nation's foreign policy on ethical grounds.
Recent events have resulted in a substantial amount of media coverage, some of it unfortunately, or disturbingly, of a jingoistic nature. There is an example from The Express of 10th November:
"Blair sends chilling warning as he backs Clinton over UN".
and:
-RAF go on alert to blast Saddam".
The outcome of the recent incident has been hailed as a victory by both Iraq and the US, with Russia claiming the high moral ground as the mediator. The reality is that the UN inspectorate is back in Baghdad, and the Iraqis still have the capability to manufacture weapons of mass destruction. The inspectors, however, are unlikely to make any headway, especially in the light of a statement by the Iraqi foreign minister Mohammed Saaed al-Sahhaf on 25th November that the government would "throw out" any inspectors who tried to enter sites designated as palaces, even if that provoked a US military strike. The previous day, President Clinton had announced that there were now 78 of those palaces, some of which encompass more land than Washington DC.
We have an impasse. As with many diplomatic coups, the Russian achievement is essentially to have given everyone a way out of a difficult situation but to have done so by telling each player something different. The Iraqis are told that they will be issued with a series of certificates that Iraq no longer possesses various weapons of certain descriptions— certificates which, I suspect, will be issued on a less rigorous basis than in the past—and that once the last certificate is issued sanctions will he lifted. To the Americans and their close allies—namely, ourselves—the line is there have been no concessions to Saddam and that the inspectorate will continue as before. Washington has not signed any paper, and Russian assurances to Iraq have no American endorsement.
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We now have statements from Moscow and Paris, stressing the need for the lifting of sanctions, which goes to show how the emphasis is now shifting. I strongly recommend that the Government conduct some high level talks with both the French and Russian governments in order to clarify their relationships with Iraq. It is certain that the bargain struck in Geneva will never work. All it will do is put off a crisis which will eventually burst on us in the form of either a new confrontation with Saddam over the inspections or his emergence, after sanctions have been raised, fully armed with the very weapons of which the United Nations vowed to deprive him.
The ability to produce these weapons of mass destruction with limited resources was highlighted in this week's edition of Time magazine under the headline "Germ Warfare". The article introduces us to Dr. Rihab Rashida Taha, Iraq's long-time chief of bioweapons production. She trained in the United Kingdom and is known to various American inspectors as "Dr. Germ". She is attributed with thwarting United Nations officials at every turn. Of more concern is the subsequent revelation about bioweapons. According to a Pentagon official, they can be produced using a recipe found on the Internet, a beer fermenter, a culture, a gas mask and a total investment of around 10,000 dollars. The official says:
"If you buy commercial equipment and put it in a very small room you can he producing anthrax within a month".
Anthrax is a bacteria which causes deadly haemorrhaging in the brain and chest. Iraq admits to brewing more than 8,500 litres of the substance, although American experts believe that the true amount is three times that. A United States Defense Department official says that a fatal dose is,
"smaller than a speck of dust; something you wouldn't even see".
If we accept that Iraq's overall concealment efforts are highly organised and involve thousands of people. how can we realistically hope that the UN inspectors will ever find these weapons? Is it not time to review post-Gulf War strategy, stand back from our vendetta with Saddam and view Iraq as an important regional power in one of the most volatile areas of the world?
The general consensus is that a split is appearing within the post-Cold War order, which envisaged permanent co-operation between North America, Russia and Europe acting together to keep the peace. We are seeing the decline of American influence in the Middle East following its failure to deliver a range of promises made after its successes in the Gulf War in 1991. The US set itself some tough objectives. They were to isolate, contain and sanction not only Iraq but Iran and Libya, hoping that those regimes would collapse or be changed. It intended to broker a peace negotiation between Israel and the Palestinians. It also intended to ameliorate the differences between Greece and Turkey and, it was hoped, resolve the crisis in Cyprus. It was an ambitious plan for the Middle East and the eastern Mediterranean.
However, the results have been meagre and the Arab states have lost confidence. And let us not forget that all of those states must cope with an anti-Israeli,

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anti-American constituency inside their own countries. Their dilemma is most clearly evidenced in the case of Jordan and King Hussein. He was the Arab leader who tried to mediate between the West and Saddam before the war and before siding with us. He still faces Saddam, an enemy whom he was assured would be removed. And to compound the problem, he now has in Netanyahu an Israeli leader who has little respect for him. The lack of a united front effectively undermines the use of force against Iraq and might even create a much wider area of conflict and substantial damage to the already weak economic fabric in the region.
It is time to change our strategy and perhaps take a completely different initiative. A good starting point may be that raised by Simon Jenkins in a very interesting article in The Times on 12th November entitled:
"Exploding the myth … It is time the West stopped fooling itself that bombs destroy dictators".
He writes:
"This is not a moral foreign policy. For seven years sanctions and bombing have been tried and failed. If Britain wants a proper Iraqi 'policy', it should seek an end to sanctions, flood the country with trade, help to pluralise its institutions and offer scholarships to Iraqis at British universities. In other words, the policy should be the opposite of one that clearly does not work. Such a 'contact strategy' would not only be humanitarian, it would almost certainly hasten the day when Saddam Hussein is toppled by enemies better able to garner local support".
I believe that a different strategy needs to be developed. Whether it should be as dramatic as that suggested by Simon Jenkins, I have my doubts. Equally, I believe that our current quest to seek and destroy all weapons of destruction has failed. The dynamics in the region are changing and new opportunities will present themselves. I believe that it is now the time to be pro-active and not reactive in our future relationships with Iraq.
9.31 p.m.
The Earl of Winchilsea and Nottingham: My Lords, what a pleasure it is for me to congratulate my noble friend Lady Nicholson on her excellent and moving maiden speech. Her personal experience brings a priceless contribution to the subject under debate and I am certain that we shall all benefit from her participation in your Lordships' House for many years to come.
I visited Iraq once in August of last year. The purpose of my visit was to deliver and help to install a wide range of parts for the air-conditioning system which was inoperative in the children's hospital in Baghdad. It had been inoperative since 1990 because it had become impossible to find spare parts due to UN sanctions imposed against Iraq. With the indulgence of the House, it is important that I offer an explanation as to how all this came about.
I was asked to do this by a close businessman friend of mine, Mr Ronald Laybourne, who is an electrical engineer living on Tyneside, and he had been asked to do it by the president of the Friendship Force of Atlanta, Georgia, USA—Wayne Smith. Wayne had visited Iraq
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and, in particular, the children's hospital in Baghdad at the invitation of the Association of Iraqi Women, and he had been appalled at the conditions he found. He returned to Atlanta determined to see what he could do to help alleviate the terrible working conditions in the hospital. An obvious way would be to get the defunct air conditioning system up and running. It was not difficult to see why he thought that. When Ron and I were there the temperature climbed to 69 degrees centigrade in the shade, outside the hospital, which is 156 degrees fahrenheit. It was several degrees higher inside it.
Wayne telephoned all his American air conditioning contacts and gave them the list of part numbers he had been given by the resident engineer at the hospital, but they were unable to match the numbers with any American product. Wayne therefore telephoned Mr. Laybourne in Newcastle, for two reasons. First, he is a long-standing member of the Friendship Force. Secondly, he knew that he was an electrical engineer. Ron soon established that the entire air conditioning system installed in the hospital was of British manufacture. The company was traced to Nottinghamshire and, yes, they could supply all the required parts.
I should explain that the Friendship Force is a non-profit making organisation dedicated to making friends around the world by organising exchanges with ordinary people, and as such is strictly non-political. Wayne Smith agreed to do what he could to help because politics played no part in what he saw as the purely humanitarian action of improving the terrible conditions prevalent in the hospital.
It was at this point that Mr. Laybourne went to Iraq himself to double check the system and the part numbers which he had been given by Wayne. He was able to satisfy himself that none of the parts could possibly be used anywhere else except in that particular air conditioning system in the hospital.
On his return he contacted me and asked whether I would be willing to assist in obtaining the necessary licence from the UN Sanctions Committee in New York, and also whether I would consider going with him to Baghdad to deliver them personally and to help install the parts. I agreed.
I must apologise to the House for this somewhat lengthy lead-in account, but I think it is important to stress that we obeyed all the rules and regulations, and never attempted to cut corners or in any way undermine the position of the UN. Everything was done strictly by the book, even though we did it purely for humanitarian purposes, to help the staff, and the young patients and their families in the hospital. We did not do it for the benefit of the Iraqi Government, although our visas were issued to us under the auspices of the Iraqi Minister of Health.
Conditions in the hospital were horrendous. I was taken on a complete tour of the hospital by the director, a splendid man of enormous humanity who himself was slowly dying of cancer and in considerable pain because there were no drugs available to treat him. I was shown the hospital dispensary. Only two items were on the

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empty shelves—aspirin and eye ointment. The hospital, which is the Iraqi equivalent of Great Ormond Street Children's Hospital, is the only paediatric hospital in Iraq. Children come from all over the country for treatment. Very often their families come with them and, because they cannot afford hotels or have no friends in Baghdad, they pitch camp in the hospital entrance lobby when they are not sitting by the bedside of their son or daughter. The hospital car park has been turned into a makeshift camp with families cooking and sleeping on the tarmac.
I was shown ward after ward of children, ranging in ages from infants of a few weeks old dying of malnutrition, to teenagers, victims of various forms of cancer but mostly bone cancer or leukaemia. What was very interesting indeed to discover was that all of these youngsters, without exception, came from the southern part of Iraq where the war had been fought. The doctors were convinced that they had contracted their illnesses due to exposure to the fall-out from the different types of weapons used.
I was also taken to the operating theatres and I witnessed an operation taking place on a five year-old girl to remove her appendix. Noble Lords may think that that was unfortunate for one so young, but it happens. That is normal. But without any anaesthetic—is that normal? Yes, in Iraq that is normal; it is also obscene. They had no anaesthetic of any kind in the entire hospital. If they had not operated, that little girl would have died. As it happens, she survived the incredible trauma, which speaks wonders for the skill of that surgeon.
That little girl was strapped to the operating table, with four distraught and weeping nurses holding her down while the surgeon did his magnificent best through his tears. I can still hear her screams, and no doubt I always will. I kept on wondering what I would be feeling if that was my own daughter Alice lying there on the operating table. How would I feel? Who would I blame for there being no anaesthetics? Would I blame the hospital director, or Saddam Hussein? No, I would probably blame the UN and, more specifically, the USA, which I would see as being the puppet master pulling the strings of the UN.
What do you tell her family? How do you explain to them why she had to go through that operation fully conscious? What do you tell all the other parents whose children are suffering from illnesses which could be successfully treated and which would not be terminal if there were drugs available to treat them? You can only tell them the truth, which is that there are no drugs available because of the UN sanctions imposed against Iraq. The UN will tell you, of course, that sanctions do not include medicines, pharmaceuticals, or foodstuffs, and that, on the face of it, is true, until you think about it a little more.
The only way that the Iraqis have of paying for food, drugs, and medicine imports is with hard currency. They are selling everything that they own in order to scrape together a few dollars to buy outrageously priced medicines on the black market. You can buy anything
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that you want in Baghdad if you have unlimited pots of money, but you will need to have a wheelbarrow in which to cart it around.
Before the Gulf War, one Iraqi dinar was worth close to three US dollars. We were able to get 1,000 dinars for one US dollar, so in 1996 inflation stood at 3,000 per cent. I saw windows, doors, door knobs, hinges, taps, shower fittings, plumbing connections, anything in fact that you would expect to see in a DIY shop here in the UK. The difference is that all these things on sale in the markets of Baghdad had come out of people's homes—they were secondhand—and because of that people were living in houses with no doors or windows, no heating, no plumbing, and sometimes no roof because the tiles had also been sold to buy food and medicine.
The only export Iraq had which everyone else wanted was, of course, its oil. You stop the flow of oil and you stop "Mrs Iraq" going down to the corner chemist to buy a bottle of cough mixture. So what is "Mrs. Iraq" going to think? Who is she going to blame—Saddam Hussein? That is possible but she would be wise to keep that to herself as you cannot trust anyone. There are agents and secret police everywhere. She will most probably blame the USA whom she sees as exerting the most influence on the UN.
A tremendous legacy of hatred is building up in Iraq against the West, particularly against the United States, simply because innocent people are being punished. The tragedy is that that hatred did not exist prior to the Gulf War, nor did it exist even during the war itself, or when Baghdad was being bombed. The very least we can do—I urge the Government to take a strong stand on this at the UN—is to see that no other five year-old Iraqi child has to endure a surgical operation without anaesthetic, or that no one has to continue to drink filthy, contaminated water because spare parts to repair the sewerage system in Baghdad can no longer be obtained and raw sewage is mixing in with the drinking water. I know that you can always buy bottled water, or you can if you are prepared to pay an entire month's wages for one bottle.
I am currently involved in sending supplies of pharmaceuticals to Iraq through the generosity of an anonymous donor who has made available large sums of money for that purpose. He recently paid for a huge quantity of powdered infant formula milk to be sent to Baghdad over a period of one year in a noble effort to stop infants dying through malnutrition. That was successfully completed in September. We are just embarking on a similar programme with pharmaceuticals, most of them for the treatment of various cancers. Let us hope that when the revenue from the agreed oil sales comes on stream, and is available to purchase medicine and pharmaceuticals, this disastrous situation in Iraq will be eased a little.
I intend to return to Baghdad next spring to check how the pharmaceutical programme is going, and also to see whether the hospital's air conditioning system is still up and running, which it certainly was when Ron and I left it. I just hope that I am in time to see my good friend the director of the hospital before he dies.
9.42 p.m.
Lord Hylton: My Lords, I thank the noble Lord, Lord Avebury, for the way in which he has introduced this debate. The Question concerns our current policy towards Iraq. This is not an easy subject to discuss because the great majority of us have not had any access to that country for a long time. It is therefore quite possible that I may find myself repeating points that have been made by previous speakers, and if so I apologise in advance.
I wish briefly to mention three factors that we need to take into account. The first is that we are confronted by a megalomaniac dictator. He has been responsible for two major wars of aggression. The first was against Iran, and that lasted between seven and eight years, and the second was, of course, against Kuwait in which we ourselves were directly involved. Mention has been made of Halabja. That is only the worst item of Saddam Hussein's devastation of the northern Kurdish area. Mention has also been made of his destruction of the Shi'ite holy places, and of his forcing out of virtually the entire population of marsh Arabs in the south. This man has murdered, tortured and pillaged his own people. He has refused for six years to sell the oil that he might have sold in order to buy medicines, children's supplies and other humanitarian materials. That point was effectively brought to our attention by the noble Lord, Lord Rea. That failure to sell oil has produced exactly the situation described by the noble Earl, Lord Winchilsea and Nottingham. I can bet any sum that any noble Lord cares to risk that the medical care available to the regime, the members of the party, and the security forces leaves little to be desired, while the rest of the people suffer in the way described.
UN resolutions exist on almost all these points. I believe that it is right to enforce them just as it is right to enforce and implement resolutions dealing with Israel. Just because a country happens to he a democracy, and happens to have friends in the United States, it still should not flout the will of the United Nations. The fact that it has done so for many years explains why so many Arabs throughout the Middle East and elsewhere still sympathise with Saddam Hussein.
The second factor on which I wish to touch relates to the Kurds. Probably the best estimate that can be made is that some 25 million people of Kurdish origin live in the Middle East. There are no accurate counts. They are the largest single group of people without a country to call their own; and those people have to put up with and have dealings with three of the most repulsive regimes in the world: Iran, Iraq and the military forces of Turkey.
In Iraq, the Kurds amount probably to between 3.5 and 4 million people out of a total population of 19 to 20 million. I pay tribute to the safe havens organised by the previous Prime Minister some years ago. Those undoubtedly saved the majority of Iraqi Kurds from the vengeance of Saddam Hussein and from the very strong probability of death by starvation and disease. Since then, alas, the Kurds of Iraq have been poor friends to each other. Despite elections in 1992, and a rather temporary Government of Unity, civil war has followed.
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I pay tribute to the patient efforts of the United Kingdom and the United States to achieve ceasefires and to resolve that internal conflict. To my knowledge, British diplomats have been travelling regularly from Ankara to Northern Iraq for that purpose. I am glad to hear that their efforts have at least resulted in a new ceasefire which became effective on 24th November.
The third factor is Turkey. For 13 years a continuous armed conflict has been in progress in eastern and south-eastern Turkey. Those are the very areas of Kurdish majority population. That has led to the imposition of martial law in the east and to predominant military influence throughout the whole country. I am not aware of any official effort to take up the various ceasefires offered by the Kurdish Workers Party or—and this is important—to negotiate the reasonable political and cultural demands of the Kurds in that country.
This war has continued, and the 1990s have seen many and prolonged Turkish military attacks into northern Iraq in search of the elusive PKK guerillas. These attacks have caused much damage and many civilian casualties.
In October Turkey compounded these offences by intervening openly on the side of the Kurdish Democratic Party and against the Patriotic Union of Kurdistan. Turkish forces were 50 to 80 miles away from their own frontier inside Iraq, fighting battles near, curiously enough, the Hamilton Road from Arbil to the Iranian frontier. (This road, as your Lordships may know, was built in the 1920s by a New Zealand engineer of that name.) Yet there was virtually no international protest or action.
I believe that Iraq should be seen in the context of the whole Middle East. The region is strategic for all Europe, the United States, Japan and Russia. If the rule of law cannot apply in the Middle East, where else can we expect it to apply? I suggest that the United Nations should recognise this strategic quality of the region and take much more responsibility for it.
Israel should honour the Oslo agreement, and here I should like to welcome the forthright replies of the Minister, the noble Baroness, at yesterday's Question Time, although I was not here to hear them myself. Turkey should live by the standards of the Council of Europe, the OSCE and NATO, to which it already belongs, and by those standards which are upheld and believed in by the European Union, of which Turkey aspires to be a member.
The United Nations should monitor and control all trans-frontier and military operations. Saddam Hussein, on his past record, cannot be trusted. He can only be constrained by military force to carry out his minimum obligations.
Such an approach may perhaps sound a little idealistic or, if you prefer, a little pessimistic, but I believe that it is in the wider interests of this country and of the whole world, and in fact it may be the only way to prevent wars, the loss of life, and the creation of refugees which these almost inevitably entail. The Question on the Order Paper addresses the current policy, but I would like to see that current policy being thought through as

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far as it can possibly be and the long-term factors, some of which have been referred to tonight, taken more fully into account.
9.53 p.m.
Lord Moynihan: My Lords, I should like personally to welcome and warmly congratulate the noble Baroness, Lady Nicholson, on her maiden speech. Politically, I am hopeful that with such eloquence and insight it will not be too long before we can welcome her hack to the Benches behind me.
In the light of recent events, I think that this is an exceptionally timely opportunity to hear a clear, unambiguous statement of Government policy on Iraq, and I congratulate the noble Lord, Lord Avebury, on securing this debate. Events this year are not the first time that Saddam Hussein has presented a naked challenge to the will of the international community, vested in the resolutions of the United Nations Security Council. It is vital that the Government have a clear, unwavering policy on Iraq, together with our international partners, since the consensus of world opinion, presently focused on Iraq, doubts that this will be the last time that the Iraqi despot attempts to dictate to the United Nations.
Saddam Hussein demonstrated the extent of the megalomania described by the noble Lord, Lord Hylton, when he invaded Kuwait in August 1990, and since the end of the Gulf War he has repeatedly flouted Security Council resolutions. In 1993 he violated the no-fly zones and last August his attack on Arbil in northern Iraq was a clear violation of Security Council Resolution 688. The US military response to his aggression in northern Iraq, strongly supported by the previous government, I am pleased to say, sent an unequivocal statement that such behaviour would not be tolerated.
An unequivocal statement that diplomatic and moral authority rests with the Security Council was again required last month. The international community cannot allow itself to be drawn into a protracted game of cat and mouse, in which Saddam Hussein ignores the rules defined by the Security Council and invents his own as he goes along. As usual, I listened intently to the noble Lord, Lord Avebury, and I heard what he said in his comparative analysis of Israel and Iraq. One critical difference to me and central to this debate is that the UN Security Council resolutions are not negotiable and that no country can determine the composition of UN teams and no country should defy UN resolutions.
Since your Lordships' House heard the Government's Statement on Iraq just over three weeks ago, the Opposition joins with the Government in welcoming the news that Saddam Hussein has apparently responded to intensive diplomatic pressure from the Russian Federation in particular, and has agreed to let the UN Special Commission inspectors return to Baghdad.
I should like to take this opportunity to reiterate the Opposition's support for the Government's firm stand in this crisis. We deplore Iraq's failure to comply with UN Security Council resolutions. In government and now in opposition, we supported the UN efforts to end
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Saddam Hussein's programme for the manufacture of weapons of mass destruction and to enforce the UN no-fly zone over Iraq.
Thus we support the Government's influence in securing a tightening of sanctions and we support the Government's refusal to rule out any option, while pursuing a diplomatic solution. Saddam Hussein's actions in obstructing the work of the UN Special Commission and in expelling the American inspectors on the team were an unacceptable breach and an uncompromising challenge to the international community.
In the years since the illegal invasion and occupation of Kuwait and the subsequent imposition of sanctions, it appears that Saddam Hussein is no closer to full compliance with Iraq's obligations under the terms imposed by the UN. No one can doubt the gravity of the current situation. The UN Special Commission's reports on the weapons of mass destruction amassed by Saddam Hussein are deeply alarming. Iraq is thought to have developed enough biological and chemical weapons to decimate the world's population several times over.
I should like to express the Opposition's full support for the highly skilled work of the UN Special Commission and to pay tribute to the work of its two chairmen, Rolf Ekeus and now Richard Butler. UNSCOM's mandate has been repeatedly impeded by a catalogue of delays, restrictions and, on occasion, absurd excuses, while damning evidence has been removed or destroyed. Nevertheless, during its six years of work, the team has been very effective in dismantling a large part of Saddam Hussein's nuclear programme and appears to have halted his attempts to develop a growing chemical arsenal. The monitoring regime has destroyed more weapons than were destroyed in the course of the Gulf War, and I should like to pay tribute to that success. Indeed, Richard Butler has not ruled out the possibility that this whole crisis may have been contrived by Iraq because UNSCOM was getting close to making a key discovery, to deflect attention from the real issue of the weapons, and give Iraq time to move the evidence and force the inspectors to start their search all over again.
UNSCOM has reported that Iraq's biological weapons represent an area,
"unredeemed by progress or any approximation of the facts",
and may include deadly nerve agents and mustard gas. I urge the Government to heed the words of the former United States president, who observed during this crisis that Saddam Hussein is, "hiding, ducking and dodging", and the,
"only way to make him comply is to be strong".
The Opposition welcomes Saddam Hussein's climb-down in the face of the international community's united front, but I wish to ask the Minister questions on the immediate implications of that, recognising that full replies may not be possible this evening. However, I hope they will, as posed, spark some debate and consideration of the key issues. Does the Minister agree that the crisis has only ebbed, rather than passed and that the true test will be UNSCOM's ability to undertake

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its work on the ground, without hindrance from the Iraqi authorities? Will the Minister confirm that, as a result of the Russian diplomatic initiative undertaken by Foreign Minister Yevgeny Primakov, Saddam Hussein has agreed unconditionally to allow the American UNSCOM inspection to return to Iraq?
Can the Minister further confirm that Iraq has accepted the return of the UNSCOM personnel in its previous composition as stipulated in Security Council Resolution 1137 and that the same UNSCOM inspection team has returned to Baghdad? Can the Minister also confirm that to secure Iraq's co-operation, no incentives or quid pro quos were offered during the Russian negotiations, which would indicate any capitulation of the UN to the demands of Baghdad? Can the Minister inform the House what the specific reference in the joint Iraq-Russian communiqué of 20th November to,
"improving UNSCOM's activity on the basis of respecting Iraq's sovereignty and security",
means? Can the Minister further confirm that there will be no price to pay for the unity of the Security Council and that Saddam Hussein's agreement to back down was not bought by the prospect of the relaxation of sanctions?
I note what the noble Lord, Lord Sempill, said about the shifting sands of the geopolitics of the world, let alone of the region, and I ask the Minister to give her views on that issue. Would the Government agree that the success of the Gulf operation in 1991 depended greatly on the support of Kuwait and Iraq's neighbours? In the event of military action against Iraq, would similar support be forthcoming? It seems unlikely, given that on 2nd November 1997, the Arab League expressed a,
"total rejection of any military action to be taken against Iraq",
and even Kuwait rejected military action. Why do the Government believe that the Arab states reacted so negatively and, unlike Britain and the United States, were prepared to rule out the option of a military solution? I genuinely believe—it reflects the comments of the noble Lord in introducing the debate—that there is a dangerous perception of an anti-American backlash among Arab states, based on the tripartite belief that the US will never lift sanctions while Saddam Hussein is in power, therefore giving him no incentive to comply; that sanctions have caused the Iraqis to suffer disproportionately; and that the US operates a double standard in its respective treatment of Israel and Iraq. That backlash was demonstrated by poor attendance of the US-orchestrated Middle East-North Africa conference in Qatar on 16th November, while by contrast Saddam Hussein seems to have his knees firmly under the high table of Middle Eastern diplomacy. He has been invited to attend this month's Islamic Conference in Tehran and his Deputy Prime Minister, Tariq Aziz, has been in talks with Syria, Iraq's former arch enemy.
I believe that there are important developments and that important questions have been raised in this debate on the geopolitics of the region. It is important for the Government to reflect on those issues and their views
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would be welcomed by the House. Also, can the Minister say whether the crisis revealed any rifts within the permanent membership of the Security Council.
I share the noble Baroness's insistence that we look over the horizon and beyond today's conflict. Noble Lords are wise to urge the Government to raise their sights beyond today's crisis. The Minister will no doubt respond to the many comments on Iraqi opposition movements; the importance of assisting with humanitarian aid; the situation in northern Iraq: sanctions and the oil-for-food deal which were so clearly made this evening.
Iraq has a huge potential, once its people are released from the yoke of tyranny under which they are currently enslaved. The international community must stand by to help with reconstruction and renewal and to ensure Iraq takes its place in the family of nations. For the past six years Saddam Hussein has traded in a currency of concealment, lies and deception. We must make it clear that Saddam Hussein's juggernaut on the road to defiance and transgression will not bring power. kudos and legitimacy, but only bankruptcy in its wake.
The only route to prosperity and acceptance by the world community is to comply fully and unconditionally with Security Council resolutions. Only in that way will sanctions be lifted. If modern history has taught us anything, it is the peril of unchecked tyranny. Short-term appeasement pays few dividends. Britain, as a permanent member of the Security Council, has a duty to protect the integrity of the United Nations. Britain has a duty to stand firm with our allies against the twin forces of tyranny and aggression, as we did in 1991, and we have a duty to remain vigilant to ensure that Iraq co-operates fully with the UN and the UNSCOM inspectors can carry out their full mandate to prevent the acquisition of nuclear, chemical and biological weapons. So, on behalf of the Opposition, I assure the Government of our committed and unconditional support in the action they take to pursue a clear and firm policy towards Iraq to achieve these goals.
10.5 p.m.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, I, too, thank the noble Lord, Lord Avebury, for initiating this important debate. The depth and sincerity of the noble Lord's commitment to human rights is well known in the House and he ably demonstrated the strength of his convictions again this evening.
I should also like to add my congratulations to those already expressed in your Lordships' House to the noble Baroness, Lady Nicholson of Winterbourne. Knowing her capabilities, I have looked forward very much to her contribution this evening. I was indeed right to do so. It was a knowledgeable, eloquent and keenly felt intervention. We look forward to drawing more in the future on her expertise and on her tremendous powers of expression.
Saddam Hussein is a dictator who has remained entrenched in power through his own ruthlessness. He has caused untold misery and suffering to the Iraqi

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people. He is a threat to regional and international security. One need not look far for examples of Saddam Hussein's brutality. As recently as 1994, he once again threatened the people of Kuwait with occupation of their country. He has pursued a consistently brutal approach towards his own people as the Iraqi Kurds of Halabjah and the Shia of the southern marshes can testify. The noble Lords, Lord Avebury and Lord Rea, reminded us of that.
The question we are facing today is one about the Government's current policy towards Iraq. Our policy is twofold: the containment of a despotic leader who threatens regional and world security; and the protection of the Iraqi people from his inhumane repression. We conduct our policy by lending our full support to the United Nations and by ensuring the implementation of Security Council resolutions. I thank the noble Lord, Lord Moynihan, for his points of support over those.
However, we must not lose sight of the aim of sanctions. Sanctions against Iraq came into effect as a result of its illegal occupation of Kuwait in August 1990. The sanctions isolated Iraq and threw the spotlight of world opinion on the terrible excesses of Saddam Hussein's regime. They have prevented Saddam Hussein from expanding his arsenal of weapons of mass destruction. They have shown other would-be aggressors that they may not invade sovereign states with impunity.
Resolution 687 lays down the foundation for the UN Special Commission—UNSCOM—and invests it with the task of inspecting and rendering harmless all Iraq's stocks of weapons of mass destruction and ballistic missiles. It is a horrifying fact that at the start of the Gulf War Saddam Hussein had sufficient chemical and biological weapons to kill the world's population several times over. UNSCOM has succeeded in removing more of those weapons than were destroyed during the Gulf War. Like the noble Lord, Lord Moynihan, we applaud the efforts of this dedicated team of specialists who have made so much progress in spite of Iraqi deception and concealment. The work of UNSCOM knows no conditionality. It is not for Iraq to negotiate the terms of Security Council resolutions. Nor is it for Iraq to determine the nationality of UNSCOM members or the sites that they may inspect.
As the noble Lord, Lord Avebury, told us, in October, UNSCOM's executive chairman, Richard Butler, published a report which told of a prolonged strategy by Iraq of obstructing inspection of sensitive sites and duplicity in its so-called full and final declarations. In particular, it cited an "almost complete lack of progress" in the field of biological weapons. UNSCOM suspects Iraq of holding large quantities of anthrax and VX among others. These are capable of killing the world's entire population. They have to be destroyed.
The noble Lord, Lord Avebury, asked about UNSCOM's mandate outside Iraq. UNSCOM's mandate is to inspect sites within Iraq only under SCR 687.
The recent stand-off between Iraq and the UN was only the latest chapter in an ongoing saga of deception. On 13th November, US members of UNSCOM were
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expelled from Iraq, compromising the safety of the remaining team, so that they also were forced to leave. Iraq also threatened to shoot down the UN reconnaissance plane that supported its work.
Throughout the crisis that ensued, we were engaged in intensive multilateral diplomacy, as described by the noble Lord, Lord Hylton. I thank again the noble Lord, Lord Moynihan, for his support over our endeavour. We did not enter into negotiations with Iraq, which they were not entitled to expect. Instead, we invested our efforts in bolstering the Security Council. The Security Council was unanimous in its condemnation of Iraqi actions. On the same day that Iraq initiated the crisis, the Security Council responded with a strongly worded Presidential statement demanding full compliance with UNSCOM. On 12th November it unanimously adopted SCR 1137, which punished Iraqi officials responsible for the crisis by imposing a travel ban on them. By achieving unanimity, the Security Council was able to impose its authority on Iraq.
Iraq's actions were a blatant and ultimately unsuccessful attempt to question the authority of the Security Council. Saddam Hussein had thought to be able to exploit supposed divisions in the Security Council. He failed because the council, standing united and firm, sent an unambiguous message to Iraq that it must comply with relevant Security Council resolutions.
We succeeded. Saddam Hussein backed down. Iraq has now unconditionally allowed UNSCOM inspectors to return. This success was achieved through our policy of pursuing a diplomatic solution backed by the credible threat of military force.
Saddam Hussein's political posturing impressed nobody. He must now allow UNSCOM to enter all sites which they judge necessary to inspect. He must submit to their inspections without further attempt to mislead or make false declarations. These are indeed the tests as the noble Lord, Lord Moynihan, suggested they were.
Well-meaning people criticise the effect of sanctions on ordinary Iraqis and complain at the length of time they have been in force. They ask when they will be lifted. The answer is simple. Sanctions will be lifted when Iraq complies with all relevant Security Council resolutions and Saddam Hussein knows this. But he consistently refuses to comply. He has taken a cynical decision to exploit the suffering of his people in the hope that the international community, suffering from sanctions fatigue, will give in. We shall not give in. Iraq has to comply with the relevant Security Council resolutions before sanctions can be lifted.
Let it be clearly understood that we have no argument with the people of Iraq. I applaud the work described by the noble Earl, Lord Winchilsea and Nottingham, in the humanitarian undertakings which he witnessed. Sanctions are aimed at the Iraqi regime, and not at the people. It has always been possible to import food and medicines into Iraq, but unfortunately Saddam Hussein has always preferred to spend Iraq's money on palaces for his regime rather than treating children or helping the sick. It is Saddam Hussein who is responsible for the suffering of the Iraqi people. By refusing to comply with Security Council resolutions, he alone is delaying the day when sanctions can be lifted.

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I assure the House, including the noble Earl, that we care deeply for the welfare of the Iraqi people. Proof of this is our sponsorship, in 1995, of Security Council Resolution 986, known as "oil-for-food", referred to by the noble Lord, Lord Rea. This allows Iraq to export a quota of oil and use the revenues to buy essential humanitarian supplies. The resolution contains safeguards to ensure that the revenues are spent on the welfare of the Iraqi people and not on the aggrandisement of the regime. The measure has since been renewed in the form of SCR 1111 and we are pleased that supplies are reaching the Iraqi people and alleviating at least some of their suffering. We will support a further renewal later this week. With our Security Council partners we are also looking at ways of making "oil-for-food" work more effectively, as indicated by my noble friend Lord Rea.
Additionally, the UK has provided £94 million in aid to the Iraqi people since 1991, making us the second largest bilateral donor of aid. We have been instrumental in helping to rebuild the shattered economy of northern Iraq, an area that had suffered greatly under Saddam Hussein's infamous "Anfal" campaign. Several of our aid programmes are specifically directed towards helping Iraqi children.
As many noble Lords have said, Iraq has a terrible human rights record. We strongly condemn Saddam Hussein's appalling record of brutality towards his own people. The highly respected UN Special Rapporteur for Human Rights, Max van der Stoel, has reported a catalogue of human rights abuses in Iraq. These include the disappearance of hundreds of prisoners of war, the mutilation of army deserters, summary arrests and executions, torture and the infliction of barbaric punishments, as described by the noble Baroness, Lady Nicholson. In his most recent report Mr. van der Stoel states:
"It cannot be said that any human rights are respected in Iraq".
In coalition with the US, we enforce No Fly Zones above the 36th parallel in the north and below the 33rd parallel in the south of Iraq. This action is in support of SCR 688 (adopted in 1991), which demanded that Iraq end its repression of the Iraqi civilian population.
The noble Lord, Lord Avebury, referred to the position in northern Iraq. We have also been actively promoting peace in northern Iraq between the warring Iraqi-Kurdish factions, the Patriotic Union of Kurdistan (PUK) and the Kurdish Democratic Party (KDP). Following renewed fighting in mid-October which ended a year-long UK/US brokered ceasefire, we have again managed to negotiate an end to hostilities with a new ceasefire that came into formal effect on 26th November. We are now working on setting up substantive reconciliation talks between the two sides.
We view with concern recent Turkish involvement in the fighting in northern Iraq. We recognise Turkey's right to self-defence from the terrorist activities of the Kurdish Workers Party. However, we have made it clear
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to the Turks that we do not accept this as justification for any involvement in the conflict between the PUK and KDP.
The noble Lord, Lord Sempill, asked questions about a number of different issues. Dealing with Iraqi intransigence is not an East-West power play; nor is it an exercise in posturing from individual countries. However, it is vital that we secure the position in the whole of the Middle East. That is recognised by the countries mentioned by the noble Lord: Russia, France, the United States and the United Kingdom. All are united in insisting that Iraq must comply with UNSCOM. All also agree that Iraq must comply with all the relevant resolutions before sanctions can be lifted.
The noble Lords, Lord Avebury and Lord Rea, asked me about support for the Iraqi opposition. We support and encourage efforts to form a united representative opposition to Saddam's regime. Two recent meetings at the FCO, designed to promote that aim, were successful.
The noble Lord, Lord Moynihan, asked specifically about the composition of the UNSCOM team. It is the same UNSCOM team and Mr. Butler is responsible for its selection. No deal was done with Saddam Hussein. Saddam must now realise that the Security Council cannot be dictated to.
It was also suggested that perhaps support for us in the Middle East was not as great as it had been. Noble Lords may be interested to learn that we received strong private support from a number of Gulf states throughout the recent conflict. As Saddam's neighbours they recognise that the threat he poses to the region is a real one. All Middle East countries are worried about Saddam's capabilities in weapons of mass destruction.
I should like to deal with some of the remarks of the noble Earl, Lord Winchilsea and Nottingham. He asked what we would say to the parents of the child he saw undergoing an operation. We would say that Saddam had deliberately taken a cynical and wicked decision to allow the Iraqi people to starve and their children to suffer in the way described by the noble Earl. Saddam has taken that decision in order to increase pressure on the international community. It is difficult to believe that anyone can take such a decision but, knowing what Saddam has already done to women and defenceless children in the Iraqi marshes, perhaps we should not be surprised that he has taken it.
As to the future, we look forward to the day when Iraq is no longer ruled by a regime that ignores international obligations and brutalises its own people. Such an Iraq will no longer be subject to sanctions and can realise its enormous potential, its wealth of people and its natural resources as the noble Baroness suggested earlier. There are many Iraqis in the UK representing opposition groupings and working to bring about democracy in Iraq. We support their efforts and look forward to the day when Iraq can rejoin the family of nations as a respected member.
House adjourned at twenty-one minutes past ten o'clock.