Lords Sitting of 19 February 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 Southwark.

Baroness Emerton
Dame Audrey Caroline Emerton, DBE, having been created Baroness Emerton, of Tunbridge Wells in the County of Kent and Clerkenwell in the London Borough of Islington, for life—Was, in her robes, introduced between the Lord Vestey and the Baroness Cumberlege.

University Physics Departments
2.48 p.m.
Baroness Lockwood Baroness Lockwood asked Her Majesty's Government:
Whether they are satisfied with the viability of physics departments in British universities.
The Minister of State, Department for Education and Employment (Lord Henley): My Lords, it is for individual universities to assess the viability of their own departments, in physics as in other subjects, in the light of demand from suitably qualified applicants and other factors. The Government attach high priority to science education and research. But it is not for the Government to dictate either to universities how they should organise their academic or financial affairs or to students which subjects they should study.
Baroness Lockwood: My Lords, I thank the Minister for that reply, and acknowledge the excellence of many of our physics departments, particularly in the area of research. However, despite the substantial increase in the participation rate of 18 year-olds in universities is it not a fact that that same increase has not taken place among applicants to physics departments, the numbers of whom have remained fairly constant over the past 20 years at about 2,900 per annum? Secondly, is it not a fact that even the largest and most successful physics departments still have difficulty in maintaining their financial viability without cross-subsidy from other departments? Does that not suggest that there is something radically wrong with the system? Do the Government agree that the time is opportune for a fundamental review of the country's needs in the whole area of physics, with a view to determining that there is a stable financial base to meet those needs?
Lord Henley: My Lords, I can give an assurance that just such a review is taking place under the chairmanship of Sir Ron Dearing. He is looking at the whole of the university sector. I should not wish to prejudge any of his
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comments, but I doubt that central manpower planning would be the foremost review to come forward. That has always been fraught with difficulty.
Perhaps I may correct the impression given by the noble Baroness about declining numbers. We have seen a dramatic increase in the number of students in higher education. We have also seen an increase in the numbers of those studying science and technology. The numbers of full-time first degree students on physics or science courses rose by 52 per cent. between 1990 and 1994. That is roughly the same as the 53 per cent. increase in student numbers over that period. Further, we are near the top of the OECD league for the proportion of new science and engineering graduates entering the workforce; and we are certainly well ahead of both the United States and Germany.
Lord Beloff: My Lords, does the Minister agree that a principal reason for problems in physics departments is the low standard of mathematics of many of those who ask for places? Is the Minister able to give your Lordships some reason to hope that the A-level standard will be restored and that steps will be taken to improve the calibre of those teaching mathematics in school sixth forms and sixth form colleges?
Lord Henley: My Lords, my noble friend is right to draw attention to the need to ensure that there is a supply of suitable applicants. I can assure him that the national curriculum now requires all young people to take science to the age of 16. That has led to a significant increase in the achievement of science GCSEs. For example, last year we saw the first ever signs since the introduction of GCSEs of an increase in the numbers of those taking single subject physics. I believe that that is to be welcomed.
My noble friend is also right to draw attention to the problems in mathematics and the need to maintain rigour in A-levels. That is a matter that we have addressed, as I think my noble friend is well aware.
Lord Taylor of Blackburn: My Lords, will the Minister answer the Question that is before him? Are the Government satisfied with the viability of physics departments, or not? Will he answer yes or no?
Lord Henley: My Lords, as I made absolutely clear, it is a matter for the individual institutions to look at their own subjects, whether physics or whatever. We do not believe it is a matter for us. I am sure that most of those involved in higher education would not want governments interfering in the internal affairs of their institutions.
Lord Haskel: My Lords, is the Minister aware that innovative manufacturing initiatives have successfully brought together government departments, university physics departments and research councils? They provide co-ordinated collaboration between industry and the science base. Those initiatives help a lot of manufacturing companies in this country. In view of

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what my noble friend Lady Lockwood said, will the Minister ensure that physics departments are not the weak link in that chain?
Lord Henley: My Lords, as I said, it is a matter for the individual institutions to look at their own departments. I am sure that all are doing so. We are satisfied that a suitable number of physics and other science graduates are emerging from our universities. That is why I quoted a figure showing this country to be near the top of the league in terms of the numbers of new science and engineering graduates entering the workforce. I was also able to give an assurance that we had seen an increase in the number of those studying physical sciences in the universities. Whether individual universities are having problems is another matter. It is a matter for those institutions.
Lord Annan: My Lords, to what extent does the Higher Education Funding Council advise universities on matters relating to the rationalisation of resources?
Lord Henley: My Lords, it is open to the funding councils to offer advice to the universities, which can benefit from that advice should they so wish. We also offer advice to the funding councils: it is that science and engineering should remain priority areas.
Lord Morris of Castle Morris: My Lords, to follow up the question put by the noble Lord, Lord Annan, can the Minister help me on two matters? Why is the Higher Education Funding Council unit of resource for physics lower than that for chemistry, biosciences or earth sciences? Will he tell the House the average cost to an English university of its department of physics as compared with its departments of chemistry and biology?
Lord Henley: My Lords, without notice I cannot answer those questions. That is a matter for the funding council. I will certainly ask the council to write to the noble Lord explaining the reasons for the different units that are used for different subjects.
Lord Winston: My Lords, the Minister gave us assurances about undergraduate entry to education. Can he give similar assurances about postgraduate physics students, particularly PhD students? Have the numbers increased to the same extent? They contribute so much to our science and technology base.
Lord Henley: My Lords, as I understand it, the same figures are broadly true for postgraduates as for undergraduates, and science and technology continue to account for about one-third of all graduate output. A very high proportion of physics graduates go on to postgraduate study. I believe the figure is in the order of 43 per cent., compared with some 21 per cent. for all other subjects.
Viscount Hanworth: My Lords, is the Minister aware that there is a disproportionate number of overseas students in the various physical science
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departments? Will he furnish the House with some exact figures? I think they would tend to throw a different light on the figures that he gave originally.
Lord Henley: My Lords, I am afraid that I cannot give the figures that the noble Viscount requires. I can only repeat that it is pretty clear that we turn out a fairly large number of physics and other science graduates. We have sufficient for the needs of the economy. We also heard only today from the noble Lord, Lord Desai, that the economy is in pretty good shape. That would seem to endorse the policies that we are pursuing.
Lord Graham of Edmonton: You must be joking!

Child Labour: UNICEF Report
2.56 p.m.
Lord Judd Lord Judd asked Her Majesty's Government:
Whether they have studied The State of the World's Children 1997 published by UNICEF, and what action they are taking to respond to the recommendations for action on child labour.
The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey): My Lords, the needs of children have always been at the heart of the United Kingdom's development assistance programme. We welcome this timely report from UNICEF and support its recommendations. The prime responsibility to tackle the problem of exploitative and hazardous child labour rests with governments but we remain ready to help by arguing for and providing education and specially targeted projects to prevent child exploitation.
Lord Judd: My Lords, I thank the Minister for that reply. Does she agree that the problem is not limited to the third world and that, if we are to lead convincingly, we have to address the issue of illegal practice in our own society? With perhaps as many as 250 million children still at risk worldwide, is there not a danger that the 1990 Convention on the Rights of the Child will become a mockery unless rigorous efforts are made to enforce it? Is there not an acute need for more precise data on the abuses so that they can be targeted? Apart from assisting in the provision of universal compulsory education, what is the ODA able to do in helping to build up reliable systems of birth registration and in encouraging companies operating overseas to introduce effective self-monitoring and monitoring of their suppliers?
Baroness Chalker of Wallasey: My Lords, the noble Lord puts a whole raft of questions. Of course we agree that child labour has to be corrected. We ratified the UN Convention on the Rights of the Child. The important thing is to allow civil society groups to hold their governments to that convention. That applies right across the world. We are committed to protecting children from economic exploitation through legislative, administrative, social and educational measures. It is

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one convention that has received near-universal ratification. That is why we take every opportunity to urge countries to ensure its effective implementation. But we need the help of civil society in the countries to do so.
It is right that there should be rigorous implementation. We can encourage and help countries to have reliable systems of statistics, including birth statistics. We can condemn bad practice—child labour and forced labour—and continue to urge governments to take all necessary measures. But, importantly, we can also help to educate them out of the practice. The way to educate them out of the practice is to make sure that children go to school and stay in school for longer and to see that governments are fully notified of any exploitation found by any donor country.
The Earl of Lauderdale: My Lords, can my noble friend tell the House whether any discussions have taken place within the Commonwealth about the child labour records of India and Pakistan in view of the extensive coverage of the Harare declaration on social matters?
Baroness Chalker of Wallasey: My Lords, I know that some discussion has taken place; it has been of a rather informal nature. My noble friend is absolutely right: this is one of the issues which the Commonwealth should take into account. I hope that the Commonwealth countries will work with us on the UN Programme for the Elimination of Child Labour, which sets out in detail the measures which every government should take. We have urged all countries to implement that programme. The ILO is taking a very good lead with the non-governmental organisations, prominent among them the Save the Children Fund, which has done excellent work in combating child labour.
Lord Redesdale: My Lords, is the Minister aware of the interesting statistic contained in the UNICEF report that 95 per cent. of child labour takes place outside the export industries, mainly in the agricultural sector? Is ODA currently funding any specific schemes in the agricultural sector?
Baroness Chalker of Wallasey: My Lords, yes, it is. I would need more notice to give the whole raft of such schemes. We have been working with the international programme for the elimination of child labour and support the Government of Pakistan's intention to set up 35 rehabilitation centres for child labourers. Some of those child labourers certainly come from the agricultural sector, although others may well come from the textile industry.
Lord Wyatt of Weeford: My Lords, is the noble Baroness aware that during the election campaign in Pakistan, Mr. Imran Khan, the cricketer, advocated child labour, of which there is a great deal in Pakistan, India and elsewhere among members of the Commonwealth? Will she consider withholding grants to those countries which use child labour?
Baroness Chalker of Wallasey: My Lords, this is a matter of education. I was not aware of what Mr. Imran Khan said in Pakistan but I am aware that in many of the south Asian countries to ban or to act against child labour per se can have a very negative effect. I think that that is something your Lordships would wish to be conscious of.
We know from Anti-Slavery International and others that in some countries where children have been stopped from working in the textile industry they have turned to prostitution. We obviously do not wish that to happen. There is therefore a very important role to be played by those donor countries who seek to educate the children and to make sure that they do not move from one bad situation to something which we might consider even worse. Child labour is a bad thing but there is no doubt that the basis for persuading countries to move away from child labour has to be an educative one.
Lord Jenkins of Putney: My Lords, is the Minister not aware that, as my noble friend said in asking the question, this is not a matter which concerns the third world alone? The report to which my noble friend referred says, for example, that between 15 and 26 per cent. of 11 year-olds and between 36 per cent. and 66 per cent. of 15 year-olds in this country are working illegally. In those circumstances had we not better put our own house in order? Should the Minister not have a word with her colleagues in government so that we can more effectively help others by first of all putting an end to this bad practice in our own country?
Baroness Chalker of Wallasey: My Lords, I am aware of the figures in the UNICEF report; I am also aware that there are questions about some of them. The critical thing is that all exploitative and hazardous child labour must be eradicated. In this country we shall certainly take any measures which are necessary to eradicate the problem of child labour. However, child labour is nothing like the problem in western countries that it is in the developing world. There is a very special problem in the developing world for which I am answerable in your Lordships' House. My colleagues will answer in this House for this country.

Local Authorities: Revenue Support Grant
3.5 p.m.
Lord Dubs Lord Dubs asked Her Majesty's Government:
Whether they have any proposals to alter the basis of support to local authorities through the revenue support grant.
The Minister of State, Department of the Environment (Earl Ferrers): No, my Lords.
Lord Dubs: My Lords, I thank the Minister for his usual helpful approach to these matters. Is there not something wrong with a system which classifies the City of Westminster as the fourth most deprived local

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authority in the country and results in the Government giving it so much support that a millionaire living in Belgravia pays less in council tax than, for example, a person living in the poorest quality accommodation in Liverpool and also thousands of other people up and down the country? Is there some good answer for that, or is it simply that the Government wish to support their Conservative friends at Westminster City Council?
Earl Ferrers: My Lords, there is a good answer, of which the noble Lord's last observations do not form part. The noble Lord says that Westminster is the fourth most deprived local authority. So it is. Noble Lords and noble Baronesses opposite seem to think that that is funny. If they addressed their minds to the facts, they would see that independent research carried out by Bristol University confirms that Westminster is the fourth authority on an index of material deprivation. The noble Baroness, Lady Hollis of Heigham, may therefore like to take the smile off her face.
If the noble Lord is still worried, let me point out that Westminster has a higher density of population than Hackney, Islington, Lambeth or Southwark; it has a higher proportion of people likely to be from ethnic minorities than Hackney, Islington, Lambeth or Southwark; it has a higher proportion of people living in overcrowded accommodation than Hackney, Islington, Lambeth or Southwark; and it has a higher proportion of elderly people over 85—some of whom may be in your Lordships' House—and a higher proportion of elderly people living alone than Hackney, Islington, Lambeth or Southwark. That is the reason for the grant which Westminster City Council receives.
Lord Mackie of Benshie: My Lords, what sort of council has caused these appalling figures?
Earl Ferrers: My Lords, if I may say so, that is a peculiarly helpful question from the noble Lord. It happens to be a Conservative council. If one looks at the position for Hackney, Islington, Lambeth and Southwark, one finds that they charge far higher council taxes. The council tax in Westminster last year was £295, in Camden it was £779 and in Islington, £853.
Lord Williams of Elvel: My Lords, will the noble Earl encourage the City of Westminster to improve the efficiency of its services? The Audit Commission demonstrated last year that many of the services provided by Westminster City Council are by far the most expensive in Britain. Westminster spends more on refuse collection and disposal, street cleaning and benefits claimants than any other council in England. Instead of giving Westminster Council a lot of taxpayers' money, would it not be better to ask it to get its act together?
Earl Ferrers: My Lords, it is up to the voters of Westminster City Council to decide whether the council should get its act together. It provides very good services at a council tax lower than anywhere else.
Baroness Hollis of Heigham: My Lords, courtesy of the Government!
Lord Dubs: My Lords, could I encourage the Minister to return to the real point of my question? Does he agree that, even if it is proper, as we all accept, that deprivation should command more support, the amount of money that the Government give to Westminster City Council goes way beyond the indices of deprivation in Westminster, to the point where millionaires in Belgravia pay less in council tax than ordinary people up and down the country who are much poorer? Surely the Government have got that wrong.
Earl Ferrers: My Lords, there is a scintilla of light in what the noble Lord says. This disposal of government money is made as a result of a formula. The formula dictates how it is worked out. The noble Lord might ask, "Ought we to change the formula?". I am bound to say that I too have often thought that we should, but whenever I have suggested it it has seemed rather like trying to move Mount Sinai, and Mount Sinai has won.
If the formula is altered it advantages some people and all the other people at the other end of the spectrum shout "Foul". It is not easy to do. We are always prepared to listen to proposals for the alteration of the formula. Oddly enough, the Association of Metropolitan Authorities put forward a possible change of formula last year, but we are not convinced that that represented an improvement. One result would have been that Camden would have lost £5 million. That would have been disturbing for Camden. I am sure that the noble Baroness, Lady Turner of Camden, would not have liked it. But that is one of the problems that arises when one tries to alter the formula.
Lord Kennet: My Lords, speaking of Mount Sinai, what steps are the Government taking to extradite a former Leader of Westminster Council, so that she may return to this country and pay the surcharge that she owes?
Earl Ferrers: My Lords, that has nothing to do with Mount Sinai and nothing to do with the Government.

EU: Structural Policies
3.11 p.m.
Lord Hooson Lord Hooson asked Her Majesty's Government:
What modifications and changes they will recommend to the European Union on the updating of the Communities' policies for aiding regional development.
The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie): My Lords, the Government believe that the reform of the European Structural and Cohesion Funds should lead to a regime which is affordable, durable and fair to all member states. The funds should be transparent and efficient and

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should provide value for money. Substantial administrative simplification is needed, while retaining effective appraisal, monitoring and evaluation.
Lord Hooson: My Lords, I thank the noble and learned Lord for that Answer. Is he aware that the published work programme of the European Commission for this year states that it is looking at the structural policies, which of course aid regional development. Bearing in mind the benefits that we have obtained from those structural policies in the past which have contributed to our now being net contributors, what suggestions are the Government making on that issue? With the noble and learned Lord's knowledge of Scotland—and appreciating my knowledge of Wales—does he agree that within those regions there are certain areas that particularly need help as opposed to the generality of the region? What, therefore, is the attitude of the Government to the suggestion that there should be local employment pacts in certain areas within those regions, so that the help is more selective?
Lord Fraser of Carmyllie: My Lords, with regard to the noble Lord's last point, I certainly believe that there should be greater simplification of the administration of those schemes. Indeed, post-1999, we should like to see a system in place which ensured that whatever money is available—we certainly do not want to see the amount contributed to those funds ever increasing—there is a desirability in ensuring that it is properly focused on those with the greatest need. At the present time something in the order of 51 per cent. of the population of the European Union receive funds out of those arrangements. It seems to us, without going into any precise figure at the present time, that we ought to allow for a greater focus.
Whatever has been the contribution of those funds, nothing should deflect us from the fact that it is the success of macro-economic policy in this country that has brought about unemployment reduction. The Republic of Ireland, Germany and Spain receive more per head from those funds, but in all three countries unemployment is moving in the opposite direction. The noble Lord, Lord Desai, who I am very sorry is not in his place today, seems to me to have put forward a set of extremely sound observations on the strength of the British economy,
Lord Shaw of Northstead: My Lords, does my noble and learned friend agree with the comments made in the recent report by the European Court of Auditors to the effect that it would like to see a much greater use, where possible, of loan facilities in the regions rather than grant facilities?
Lord Fraser of Carmyllie: My Lords, my noble friend makes a very important point. We want to see a wider range of opportunities for putting money into the regions. If such a device as resort to loans is used, one would hope that there might be greater appreciation of the cost of such an arrangement. We must ensure that there will continue to be grants and aid offered. As I said in my original Answer, we must ensure in those
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circumstances that there is proper appraisal, monitoring and evaluation. That is an issue which causes many within the Union the greatest concern.
Lord Bruce of Donington: My Lords, is the noble and learned Lord aware that the European Commission itself already has detailed plans on how to deal with this matter? Those were made public as recently as last spring in an edition of the Political Quarterly. The Commission proposed to the Intergovernmental Conference a redistribution of powers, whereby the Commission would communicate directly with the regions, bypassing national governments, in order to establish the position more firmly aided by the regional committee that was established under Maastricht.
Is he further aware that the amounts payable to regions in the United Kingdom come wholly out of the Treasury? As the Treasury is a net contributor to the European Community, does he agree that all that happens is that the money goes out of the British taxpayers' pockets to the Commission and is redistributed throughout the various regions, provided always, of course, that the regions advertise that the money comes direct from the Commission?
Lord Fraser of Carmyllie: My Lords, the noble Lord is correct to say that the United Kingdom is a net contributor to those funds. A number of proposals are being put forward for reform of those funds post-1999. Indeed, there is a committee of your Lordships' House looking into these matters. We look forward with keen interest to the opinions expressed following the completion of that investigation.
However, I do not accept that it is desirable or the right way forward for there to be that direct link from the Commission distributing the funds to regions. We have now established that there should be a single Vote, which allows the proper distribution of the funds within the United Kingdom, instead of spreading it across four departments. I should have thought that, in the interests of simplicity of administration, even though the noble Lord may not care for those funds, he would agree that such action is desirable.
Lord Haskel: My Lords, does the Minister agree that regional policy is at the heart of the European Union and the creation of the single market? As the Prime Minister keeps telling us that he wants to be at the heart of Europe, can the Minister assure us that any changes that the Government recommend to the European Union will be supportive of regional policies?
Lord Fraser of Carmyllie: My Lords, it is difficult to envisage any circumstances in which there will not continue to be regional policy. We are bound to recognise that we do not wish to see with the prospect of enlargement of the European Union an ever growing contribution by this country or indeed any other country to that. We should like to see the figure fixed at something like 0.46 per cent. of the European Union GDP as the top limit. It should not be more widely extended than that. As our unemployment so satisfactorily declines, and if countries from central and

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eastern Europe join the European Union, it must follow that, if we are to have a more precise and accurate focus, if anything, less would come to the United Kingdom than is the present case.

Privatised Utilities
3.18 p.m.
Lord Haskel: My Lords, in the absence of my noble friend Lord Currie of St. Marylebone, and at his request, I beg leave to move the Motion standing in his name on the Order Paper.
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, is it your Lordships' pleasure that the Motion standing on the Order Paper in the name of the noble Lord, Lord Currie of St. Marylebone, be moved by the noble Lord, Lord Haskel? Leave is granted.
Lord Haskel Lord Haskel rose to call attention to The Report of the Commission on the Regulation of Privatised Utilities published by the Hansard Society; and to move for Papers.
The noble Lord said: My Lords, I thank noble Lords for allowing me to introduce the Motion standing in the name of my noble friend Lord Currie. Unfortunately, my noble friend has gone down with flu and I am sure all noble Lords will join me in wishing him a speedy recovery. We are all grateful to him for bringing this well-written and reasonable report to our attention. I should also like to say how much we look forward to the maiden speech of the noble Earl, Lord Inchcape, and how delighted we are that he has chosen the important topic of regulation on which to address us for the first time.
In a way the debate is a continuation of that on privatised utilities introduced by the noble Lord, Lord Ezra, on 13th December 1995. At that time the noble Lord told us that the report we are debating today was in the process of being written. The Government, he said, had made a serious error in not reorganising the utilities before privatisation. In particular, British Telecom and British Gas should not have been privatised as monolithic monopolies. He was right, and the happenings of the past 14 months confirm that he is still right. The restructuring of British Gas last Monday also confirm that view.
A large number of tax credits and allowances granted by the Government to many of the utilities, which turn out to have been excessive, would have been unnecessary if the companies had been properly restructured before privatisation. It is because of that mistake that many of the proposals outlined in the report are necessary. The whole purpose of privatisation, as the noble Lord, Lord Ezra, pointed out, was to subject the utilities to competition. But the necessary restructuring was not done. What has also become obvious during the intervening time is that the Government still have no clear idea of what is a suitable structure for the utilities industries or a suitable form of utility regulation.
One of the main reasons why I welcome the report is that it seeks to build on experience and not to turn the clock back. New Labour is not seeking to turn the clock back either but to learn from the experience of the past 10 years and to ensure that the utilities contribute to the progress, competitiveness and growth of our economy. After all, not only are well-managed utilities important to our economy; they are also a significant part of it, accounting for approximately one-sixth of the total stock market valuation. It is wrong therefore that the privatised utilities should be so unpopular. We all know why. The excesses of privatisation caused that unpopularity.
I welcome the proposals contained in the report to publish a code of practice; to establish consultation procedures; and to have industry and consumer representation bodies. All those proposals should help to overcome the unpopularity of which I have spoken and are consistent with modern, open government. Not only do these sensible proposals encourage best management practice; they should also help end the cult of secrecy surrounding the regulation of privatised utilities. That they are unpopular is to our disadvantage: it lowers the morale of staff and acts as a brake on investment.
The report carefully lists the primary duties of the regulators. The promotion of competition is among the most important. Indeed, the report proposes that some licence conditions be replaced by the rigours of competition law. It rightly emphasises that stronger competition law will replace the more cumbersome regulation by licence and speed up decision making. However, that presupposes that we have an effective body of competition law, which we manifestly do not.
Competition law is inadequate, largely because it has not been modernised. We have had many consultative documents ranging from a Review of Restrictive Trade Practices Policy, published in March 1988, through, finally, to a draft Bill in August 1996 with many other documents on the way. However, in all those years nothing effective has been done.
New Labour would start where the Government's August draft Bill left off. It would introduce heavy fines for companies which break the anti-cartel rules and behave in an anti-competitive manner. It would give the Office of Fair Trading strong investigative powers and would go further than the Government's draft Bill and ban unfair behaviour such as predatory pricing by utility companies which dominate their markets. Utilities behaving in that manner would face civil claims from companies that have suffered from anti-competitive conduct. In short, it would introduce the much tougher regime suggested in Recommendation 18 of the report, modelled on Articles 85 and 86 of the Treaty of Rome. That would be an additional deterrent to possible fines by the Office of Fair Trading, or the usual reprimand as mainly happens at present.
With those tougher laws in place the work of the regulator in promoting more competition would be far more effective. It becomes necessary for the director general to be far more open and consistent, as foreseen in the report. As enforcement of competition becomes

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stronger and the rules tougher, there is a greater need to explain decisions. That would be done through the appeal body for competition law suggested in the report.
The present trade law did not envisage essential utilities being in the private sector yet retaining a monopoly in delivering their products. Most premises only have one electricity cable, one water pipe or one gas pipe. In those circumstances, regulation by price cap and competition is not enough. The customer has no leverage and so we have a "take it or leave it" attitude. As a result, with the existing inadequate competition law, many businesses are overpaying for all those services and British industry is losing out. That certainly happens in Yorkshire. Once in the private sector, neither the regulator nor the Office of Fair Trading was able to stop Yorkshire Water raising its prices and reducing its reserves to a level where it invited its textile customers to move production elsewhere. Some did—to northern Italy. Yorkshire textile companies were also asked if they would like lower priced electricity at the risk of being cut off—that to an industry which depends for its livelihood on quick response! My noble friend Lord Paul will speak of his concerns about supplies to industry. Lack of competition for electricity is a disgrace and a brake on our competitiveness.
The brokers, James Capel, who market the shares of all UK electricity stocks, in a circular of 27th January 1997—just three weeks ago—said:
"The perceived lack of competition in the electricity generation market has led to increasing calls from consumers for fundamental reform of the market. OFFA has publicly stated its disquiet over the present lack of competition. With a potential Labour Government on the horizon a review of the electricity market looks increasingly likely, focused on the reduction in National Power's and Powergen's price setting ability".
They set 70 per cent. of the side market price in the third quarter of 1996–97.
If the price is settled by a commodity market, it is important to see that that market is neither rigged nor speculative. The regulator could usefully look at that, particularly the paper producers of gas and electricity. There is a great attraction in buying it cheap on paper and selling the same paper dear. But it does nothing for the investment and progress of the industry. Indeed, it is difficult to know whether those contracts are an investment or a lottery. The circular is quite right. There will be radical reform under Labour.
There are many other sensible recommendations in the report which will be dealt with by other noble Lords on these Benches. There are recommendations regarding protecting the interests of the consumer, about which my noble friend Lord Dubs will speak. My noble friend Lord Berkeley will speak about regulating transport. Other noble Lords will speak about the recommendations regarding the appointment of regulators and their independence. The writers of the report are well aware of the dependence of the regulators on the industry which they are regulating for reliable and timely data so that the regulator can ensure that there are adequate supplies and that the utility companies are adequately financed. However, I was interested to note that the report did not think that the
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utility companies should be protected from bankruptcy. The Minister need not worry. All these and many other matters are yet to come. I beg to move for Papers.
3.30 p.m.
The Earl of Inchcape: My Lords, I am most honoured to be speaking here for the first time in this great Chamber. My father was too busy in shipping and took nearly 40 years to make his maiden speech, but with your acquiescence I am now making mine after only two.
When the utilities were first privatised, starting with British Telecom in 1984, it was absolutely essential that there should be some effective system of regulation until possibly the time came when full and genuine competition came to pass. They were, after all, state monopolies, and it was vital that the interests of the consumer be protected. This gave birth to the Oftels, Ofgas, Offers and Ofwats that we all know about so well. They were all headed by a director general, whose appointment was to be non-political, and they would have a staff of sufficient size and competence to enable them to do the job properly. These directors general would be given four primary duties: first, to ensure that supply is sufficient to meet all reasonable demands; secondly, to ensure that such supply can be financed; thirdly, to promote competition; and last, but not least, to protect and promote the interests of the consumer.
This carefully prepared report, which we are debating now, would indicate that, while there is naturally still some way to go, the system is working, the regulators are doing their job and all groups are benefiting as a result—consumers, investors and even the Government, as they do not have to fund expansion, some of which is enormous, and they can use the sale proceeds for other things too, as well as earn a lot in tax. Generally speaking there have been substantial reductions in prices, combined with higher levels of investment and improved standards of consumer service. Real competition is now really taking root, and this can be seen not only in the telecommunications sector, where a pact to allow open competition has just been signed covering 90 per cent. of the world's 670 billion dollar industry, but also in the gas and electricity fields. Only water is lagging behind, and there are very good and obvious reasons for this. It would seem that the RPI minus x system of regulating prices is working, and has the support of both the CBI and even the Fabian Society. It is a better way of doing things than the American system of capping profits, as this still leaves scope for more profit by way of improved efficiency and higher volume sales, while at the same time reducing the real price for the consumer.
There are many examples of benefits that well regulated privatisation has brought about, and here are just a few of them. Telecom prices have fallen by 40 per cent. in real terms on average, and the United Kingdom is one of the cheapest countries in the world now in which to make phone calls. This has come about largely because of fierce competition. Domestic gas prices have fallen by over 20 per cent. in real terms since privatisation in 1986, and are now lower than in Germany, France, Italy, Belgium and the Netherlands.

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At the same time industrial gas prices have fallen in real terms by no less than 48 per cent., providing generally the lowest prices in Europe.
Electricity prices have improved slightly too, and only water has gone up in real terms since privatisation. But this was necessary to cover the investment needed to improve the industry's infrastructure and to provide better quality water and high environmental standards required by EC directives; and without efficiency savings it would have been much higher than this. Also they look as though they are going to be in for a one-off price cut, along with electricity, in the year 2000.
BT has invested no less than £27 billion since privatisation, and offers a much more modern service, and new competition coming in during the past decade has done the same sort of thing. There is no waiting list now for installing telephones, and in 1984 the waiting list was 250,000. Only one call in a thousand fails to get through, compared with one in every 30 in 1984.
In 1979 nationalised industries were heavily overmanned and losing substantial sums of money. Now they contribute nearly £60 million to the Exchequer every week. British Gas, for example, paid £504 million in tax in 1994, and the regional electricity companies paid £461 million.
In conclusion, I must say that I have been in business for many years now and know by experience that in order to succeed you have to have a good product or a good service, and if possible better than anyone else's, unless of course you are enjoying a monopoly situation. Privatisation of the utilities has enabled them to modernise and become much more efficient. They have to comply though with the regulations that are clearly outlined in this report. This they are doing for the benefit of us all, and as I read it, there is no real need therefore to strengthen these regulations.
3.36 p.m.
Lord Ezra: My Lords, it is my pleasure to congratulate the noble Earl, Lord Inchcape, on the maiden speech which he has just given us and to express appreciation of the fact that he decided to do so rather earlier than his father in similar circumstances. As he reminded us, his father was well known in shipping circles. Indeed, I had the pleasure of meeting him on a number of occasions. He was a towering figure in shipping and in the City of London and we know that the noble Earl is himself also involved in some of those activities. We wish him well in them.
I should like to congratulate him on his knowledge of the subject of regulation, with which he probably was not very familiar until he had to prepare for this speech. But he has done his homework very well. He quoted many figures which are incontrovertible and he has given us a good synopsis of the situation. With this evidence of his capability in adapting himself to new subjects, I hope that we may hear from him on many occasions in the future.
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The noble Lord, Lord Haskel, is to be thanked for and congratulated on taking the place at short notice of his noble friend Lord Currie of St. Marylebone. Naturally, we also hope that the noble Lord, Lord Currie, will recover very quickly from his indisposition.
The noble Lord, Lord Haskel, is familiar with this ground and raised a number of important issues in connection with it, especially on a subject on which he is particularly knowledgeable—the question of competition policy. The noble Lord was kind enough to refer to a debate which I initiated in this House in 1995—indeed, I initiated an earlier one in 1992—and have therefore at intervals been raising the question of the regulation of privatised utilities. There was also an important debate on the subject initiated by the noble Lord, Lord Borrie, in May 1996. It is a subject which we have considered on many occasions, and rightly so, because of its importance. It is also a subject which has attracted much attention in academic and other circles.
We have in front of us the report from the Hansard Society which is the specific objective of our debate today. But there have also been reports by the CBI, by the National Audit Office and by the Select Committees on Transport and on Trade and Industry of another place. The Public Accounts Committee is also looking at the subject.
It is my opinion that as a result of this continued study of the subject of the regulation of privatised utilities—the question of regulation is relatively new in British industrial history—we now have emerging a consensus on what the next steps should be. I believe that certain issues are emerging on which all these studies and debates are reaching a common point. That is what makes this debate so timely and interesting, quite apart from what may happen as a result of the next government's policies.
Before we look at the analysis in the Hansard Society report, we must take into account the background to which the noble Lord, Lord Haskel, referred. Having followed these matters closely and having myself served in a nationalised industry for many years and participated in all the debates on the privatisation of the utilities, it is my opinion that it was not the original purpose of this Government, elected in 1979 and re-elected subsequently, to privatise the utilities. That came later. The original purpose of their privatisation intentions was to privatise those segments of publicly owned enterprise which could enter into the competitive framework. It was only later that they moved to the utilities, because obviously they raised a number of questions—particularly the supply of basic needs on a monopolistic basis. So that raised the question of whether one could put such enterprises into the private sector.
The Government decided to go ahead on the basis of a regulated regime. At the time when the first utility privatisations took place they worked out a system on which the question of competition, which was largely lacking because there was monopoly or near-monopoly operation, should be met by the regulatory system and that there should effectively be a form of "surrogate competition". That was the phrase used at the time.

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I remember that the noble Lord, Lord Moore, who was then much involved in these matters, produced a number of reports on surrogate competition as being the equivalent of real competition through the operation of the regulatory regime.
So when the first privatisations of utilities took place it was my opinion that the prime intention was to diminish the role of public ownership. A secondary objective was to bring as much money as possible into the Treasury, which as taxpayers I suppose we must applaud. But competition in the real sense only came third. It was not until the electricity industry was privatised, after the privatisation of telecommunications and gas, that an attempt was made to restructure the industry before privatisation, which was the point made by the noble Lord, Lord Haskel. Even that was done on a basis which left the generation of electricity virtually as a duopoly.
Therefore, what has happened is that since privatisation of these industries in a monopoly or near-monopoly form, the Government have taken a number of measures to introduce competition. That is particularly noticeable in the case of telecommunications, gas and electricity—water being an exceptional feature because of its natural monopolistic aspects.
The problem that has arisen is that, as the original legislation, which included the regulatory regimes, was postulated on one basis, we are now finding ourselves in the case of the enterprises to which I have referred on another basis. It raises the issue of whether that regime is absolutely appropriate to the new situation. The ground rules have been changed. Does the existing regulatory regime fit into these new rules?
I believe that in general the regulators have done a good job in difficult circumstances. I am not complaining about their dedication to their task. It is over 10 years since the first privatisation, and after so many changes having been introduced in many of the enterprises, I believe that it is now appropriate that we should be looking for a review. I therefore believe that the proposals in the Hansard Society report should be taken very seriously. There are such issues as the definition of duties, particularly between the regulator and the Secretary of State. It puts forward the interesting proposal that there should be a "social policy framework" so that the regulators will know where they stand in relation to social matters such as consumers who are in difficult circumstances. The National Association of Citizens Advice Bureaux has produced a report on that. It is very concerned about the way in which the present regime is working. There is the related question, which interests me a great deal, about energy efficiency and whether the regulators of gas and electricity should be taking a part in promoting that.
There is also the question of transparency which still needs to be dealt with. There is the question of consolidation. I agree with the recommendation that the time will come—certainly in 1998 when the gas and electricity markets are fully opened up—when Ofgas and Offer should be brought together. There are structural problems and the fact that the regulator is on his or her own. There is a personalisation factor. Should
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they have an executive board or an advisory board to support them? The report comes down in favour of an advisory board and there is something to be said for that. We shall then have to decide what role that board would play.
There is also the question of parliamentary accountability. I believe that there should be a single Select Committee in another place to which the regulators refer rather than a number of Select Committees depending on the enterprise. The appeals procedures need to be looked at. Finally, consumer representation needs to be sharpened up.
These are some of the issues referred to in this very valuable report. I believe it brings to a head the debate and discussions on this subject over a number of years, which I hope will be very seriously considered by the Government.
3.48 p.m.
Lord Berkeley: My Lords, I too would like to congratulate my noble friend Lord Haskel on instituting this debate and the Hansard Society on producing this fascinating document. It studies four regulators—telephone, gas, electricity and water, as we have heard. My regret is that it has left out transport. In the short time available I do not intend to cover all types of transport. I hope that we shall be debating soon the bus industry. But I would like to concentrate on rail since there is a rail regulator. Perhaps I may take this opportunity to declare an interest with the Piggyback Consortium and the Rail Freight Group.
We can surmise why there is no more than a passing reference to transport in this report. It comments that it is outside the remit of the commission which the Hansard Society gave it. So be it. I feel rather sorry for the rail regulator. On several occasions in the past month or two my noble friend Lord Clinton-Davis and other colleagues have tried to get the Minister, the noble Viscount, Lord Goschen, to come out fully in support of the regulator. We have signally failed. Perhaps we shall try again some time, and that may be tomorrow even.
The rail regulator has been left out of this report and he does not seem to get too much support from the Government. Perhaps that is because he no longer has to take notice of what the Government say, as from 1st January this year. Apart from that, there is good reason for treating rail like any other privatised utility. There are many similarities such as concerns over the monopoly supply of certain parts of it and other matters.
I shall seek to demonstrate why I think the five regulators should be considered together and why the new ideas and possible synergy between the other four covered in the report should apply equally to the rail regulator. Before doing so, perhaps I may describe the main powers of the rail regulator and then comment on the commission's report and on how its findings might apply to the railways.
We must first consider whether the railways are a monopoly. They are in competition with air and road, but I suppose that electricity is in competition with gas, and vice versa. There are now monopolies within the

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railways, such as Railtrack. There may be others in the future. We do not know, but they may come about as a result of the buying and selling of various companies. We need to consider whether the railways need regulating, how effective they are and whether anything else is required. The Government think so, since the rail regulator has the longest list of statutory duties of any of the regulators. In addition, he probably has the most concentration of power. That was well described in the magazine Utility Week, which I am sure all noble Lords read, on 17th January by Tom Winsor, who was formerly the chief legal adviser to the Office of the Rail Regulator.
I shall try to summarise briefly the four main powers of the rail regulator. First, every new access contract requires the regulator's approval. He has the right to require parties to change the contract, as a condition of his approval—and apparently has nearly always done so. He can even compel an unwilling owner of a station, track or depot to grant access on terms which he will decide—interesting, that one.
Secondly, he has the unilateral power to alter the commercial arrangements for access to track, stations and depots against the will of the parties concerned. I expect that other regulators wish that they had such powers.
Thirdly, parties have no right to appeal over the head of the regulator to the Monopolies and Mergers Commission in respect of the regulator's price control formulae. Those are in the access contracts. The regulator thus consults, publishes his proposals, listens to final representations and then decides. Again, other regulators may wish that they had such freedom, although I understand that Railtrack says that it is not bothered. That is good news.
Fourthly, the regulator has the powers to deal with anti-competitive and exclusionary conduct without going through the tortuous procedures of the Competition Act 1980. He can therefore act as policeman, prosecutor, judge, jury and executioner. He is also able to levy unlimited fines—nice if you can get it.
Those are strong powers, but how do they fit in with the commission's report and how do they work in real life? Perhaps I may give a few examples. First, the commission makes the point on page 3 of its report that the regulators have a strong challenge in attempting to regulate powerful companies with,
"deep … knowledge … of the relevant technology, markets and physical infrastructure",
with their core network containing "areas of natural monopoly". Those companies are run by substantial organisations,
"whose interests systematically conflict with many of the regulators' objectives".
That applies to the railways, and to the owner of the infrastructure, Railtrack, in particular.
Perhaps I may give two examples. The first relates to the problem of information. The regulator has only a small staff and it is easy for big companies to flood them with information and to bury the important stuff
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in lorry-loads of paper. It will be ages before the regulator can find what he really wants—if he ever does. The second problem, resources, applies to all regulators. They may trumpet their independence, but they are beholden to the Treasury for the money to run their organisations. They are non-ministerial government departments. They are funded by the Treasury and are therefore subject to public sector pay policies. Licence fees are not hypothecated to the regulatory organisation and go straight to the Treasury. The Treasury can therefore exercise a large measure of de facto control by putting pressure on the regulators via their annual budget negotiations.
I turn now to the complexity of the railways. The railway industry is probably the most complex industry, with thousands of contracts and other legal instruments. Many of Railtrack's customers—if you can call them that—have difficulty in their commercial dealings with Railtrack. One rail freight company likened it to having to teach market economics to unreconstructed Russians, so tenuous was the grasp of Railtrack's headquarters commercial department of the most basic of commercial contract principles and practices. That is a pretty lamentable comment. The problem is that people have nowhere else to go. There is only one Railtrack and you have to deal with it. That is why there is a strong case for imposing on Railtrack the statutory duty to be efficient and economical in its dealings with dependent customers.
Does the regulator have any power to compel Railtrack to make up its investment spending shortfall? The answer is that the regulator does not have a lot of power in that regard. He can ask questions. Perhaps we shall hear what is happening in the network management statement tomorrow, although not a lot appears to be happening at the moment. Other regulators are able to ensure that competition can be financed. They can promote competition and can protect the interests of the consumer, as well as promoting efficiency and economy, research and development, safety, the environment and the protection of vulnerable groups of users. Let us examine whether that can apply to rail—and whether it does. Page 6 of the report proposes that the regulators should produce an "Applications of Principles" document which would indicate how they see their activities developing over the next three to five years. That aims to increase the certainty of those with interests in the regulator's activities. That is good for rail and must be encouraged.
It may also be useful for the rail regulator to adopt good administrative practice by giving reasons for his decisions, as he is required to do by the code of practice on disclosure of government information. That would assist in the establishment of transparency in the decision-making process and would increase the confidence of the railway industry that the regulator will look after those users who are dependent on the network.
Page 8 of the report contains another interesting quotation about transparency, consultation and consumer representation. It strongly recommends

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greater openness and transparency in decision-making by both the regulators and the Secretaries of State. The rail regulator should be encouraged to do that quickly.
I turn now to the issue of codes of practice for customers, partners and consumers (whether they are individuals, large or small companies or whatever). The gas and electricity industries already have codes of practice. They were established as part of the legislation. The Government forgot to do that with the railways in, I would suggest, their dogmatic haste to get them off their hands. There is no code of practice. There is no such statutory requirement, but I believe that such a code of practice should be established either voluntarily or compulsorily, depending on what progress is made. For customers of monopolies, there is always a natural fear of using the regulator to enforce the licence obligations, except in the very last resort, because if you upset somebody who is effectively the only source of supply for your business and that person turned nasty—I am sure that that would not happen—your business would really be at risk. It is important to bear that point in mind when consulting on such issues and asking about people's reactions. People may not react in public as they do in private—and with very good reasons, I believe.
What is the real objective of monopoly suppliers? Is it to encourage traffic? Is it to come up with new ideas for more cost-effective service provision? Is it to fight to eliminate unnecessary bureaucracy, which was, after all, the lifeblood of many of the old utilities, or is it to maximise profit for shareholders and hope that the customer goes away? I hope that it is not the latter.
Senior management say many of the right things, but delivery down the line is often haphazard, inefficient and the opposite to what one would expect of a big company dealing with its customers. In theory, the regulator has the power to point the monopoly supplier in the right direction in furtherance of his duties, but he desperately requires a comprehensive code of practice. I shall try to push forward this matter with Railtrack in the next few months. Perhaps it should be encouraged to come up with targets for increasing the amount of traffic that it carries.
In conclusion, I believe that the regulator is the sword and shield of the dependent user, but for rail he could do a great deal more to help people and organisations who are aggrieved and frustrated by the many shortcomings and inefficiencies that still exist in the industry. We shall continue to press for a code of practice to support participants, new and old, large and small, in this important industry.
4 p.m.
Lord Crickhowell: My Lords, I am grateful to the noble Lord, Lord Haskel, for giving us the opportunity to discuss this interesting and timely report. I shall speak about two particular aspects of the report. I welcome the fact, which was referred to by the noble Lord, Lord Haskel, that the Labour Party has learned something in recent years and has no intention of reversing the privatisations that it so bitterly opposed, for reasons made clear in the admirable maiden speech of my noble friend Lord Inchcape.
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The noble Lord, Lord Berkeley, referred to the importance of the regulation of Railtrack. I suspect that even more important than the regulator's action will be the nature of the contracts with the operators and the effectiveness of the carrot and stick regime that they incorporate.
There is a great deal in the report that is of value. Like the Commission, I believe that legitimacy and accountability are facilitated by transparency. The provision, publicly, of full and accurate information by those who are regulated is a fundamental requirement for successful regulation. The regulation of prices would be relatively simple if the regulator had as much information as the regulated about demand and cost conditions. That is very rarely the case.
It is also a clearly observable fact that the cost of meeting environmental objectives is routinely exaggerated. Companies have an obvious interest in maximising the evidence of costs before regulatory decisions are taken and minimising them afterwards. Publication of all the information that is provided enables comparisons to be made and doubtful claims challenged.
In the first Ofwat review of water industry prices carried out in 1994 the initial phase of the examination was admirably open, although unfortunately the wildly exaggerated first estimates of cost were given unjustified credence by the director general, who used them as a weapon to try to limit charges by reducing desirable environmental programmes.
At least in the opening phase there was a vigorous debate. The NRA, of which at that time I was chairman, challenged the original estimates. Quite suddenly, just as partial realism was creeping in, those of us involved in the quadripartite discussions with Ofwat, NRA, the water industry and DOE were told that the more realistic numbers then emerging were price sensitive and could not be published. In my view that was a wrong and nonsensical decision. The figures that we were then talking about were not those for individual companies and they did not incorporate Ofwat's firm conclusions about K-factors. It is hard to see how they could have been price sensitive. If they were there must have been a false market based on the original estimates. This deplorable situation must not be allowed to happen again. I suggest that we follow the example of some US regulators and ensure that every figure at every stage is available for examination.
If I agree with the Commission on openness, I am deeply concerned about its proposal that the economic regulators should no longer have environmental duties, or at least that they should be secondary. It was unfortunate that the Commission, composed of a distinguished group of economists and business experts, did not include an environmentalist. I believe that the Commission is correct in stating on page 6:
"In the case of the environment, the Environment Agency can impose binding obligations the cost of which the industry regulator has to allow to be passed on".
It goes on to say on page 44:
"The industry regulator has to allow the affected utility suppliers to pass through the costs of meeting enforceable prescribed standards. For this reason, the suppliers have little or no incentive

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to challenge such standards or to oppose proposals that involve costs out of all proportion to the benefit of consumers or other members of society. The industry regulator's knowledge and objectives make him/her a very suitable advocate of the consumer interest in the process of establishing and implementing environmental standards".
While it is true that the industry regulator must allow the cost of existing European Union and UK statutory obligations to be passed on, he can effectively block environmental proposals to which the environmental regulator may attach a very high priority. In 1994 Mr. Byatt, basing his case on the exaggerated estimates of the cost of EU regulations, argued that those costs were so substantial that no other additional regulatory requirement should be permitted. The NRA pressed its case very hard and in the event the Secretaries of State approved expenditure that allowed for some of the most urgent non-statutory schemes.
It is absolutely right that the Environment Agency should have a duty, as it has, to take account of costs. Given the development of statutory water quality objectives or wider environmental quality objectives, there is an instrument for costing those objectives and consulting upon them. But it is also essential that the director general should be obliged to take account of the need to protect and improve the environment.
The commission has stated that the industry regulator's primary obligation is to consumers. Mr. Byatt used to refer to "customers". But it is not just those who pay the bills or turn on the taps who are affected by decisions that are taken on charges. Equally affected are the wider public with an interest in preventing pollution, excessive depletion of the water table and ecological damage to rivers. Those are not matters that should be regarded as subordinate or residual obligations. If they continue to be regarded as important, as I hope they will, and not secondary objectives the industry regulator has an incentive to improve his inadequate consultation procedures.
In 1994 I was shocked and dismayed by the ignorance and lack of interest shown by the chairmen of the Ofwat consultative committees on environmental matters. Their consultation procedures at that time did not match those put in place by the NRA, which had been inherited and developed by the Environment Agency. The fact that the Environment Agency has a duty to consider the economic implications while the industry regulator must take account of environmental requirements does not prevent a tension between the two that is entirely appropriate and helpful.
I welcome the fact that at the present time the Environment Agency, the Drinking Water Inspectorate and the director general are working closely to establish improved arrangements for the preparation of material for the next review, but that must not lead to excessive cosiness. I do not apologise for the fact that during the last review there was a vigorous debate about these matters between Ofwat and the NRA. As a consequence, we got much nearer the true costs and protected vital environmental objectives while reducing the burden on those who paid the bills. Transparency must involve not just the publication of facts and figures but open debate about their legitimacy, what the public and the customer want, priorities and affordability.
4.10 p.m.
Lord Paul: My Lords, I have an interest to declare. I am chairman of Caparo, an industrial group which is a major user of energy in the engineering industry, and a former president of the British Steel Producers Association. I read the report with interest and welcome its call for tougher regulation. I congratulate my noble friend Lord Haskel on introducing the debate at such short notice and I wish my noble friend Lord Currie good health. I also congratulate the noble Earl, Lord Inchcape, on his maiden speech. His father was respected not only in the City of London but in the country of my origin, India. I know how daunting it is to make a maiden speech, having done so only two months ago.
Industry is very much at the mercy of the utilities. Few companies are large enough to provide their own supplies of gas, water and electricity. An adequate supply of those commodities is essential to competitiveness. The concern is that the utilities should be not only efficient, economic and safe, but that they should also carry out research and development from which industry will ultimately benefit. Existing legislation imposes a duty on the regulators to do that, but their attention seems to be diverted to the more powerful lobbies of the domestic consumer and the environment. The DSS and the Environment Agency have responsibilities for those. Who is looking after the efficient supply of commodities to industry? For instance, the supply of electricity to industrial users seems to be in the hands of a financial market which has little relevance to the needs of the industry. Is the Minister aware that such an important commodity for British industry as electricity is left to the kind of paper market which guesses what the price will be at 30 minute intervals, thus raising the cost to large consumers?
A pricing structure of such volatility and short-term outlook places British industry at a severe disadvantage to its international competitors. Even though they have a declining share of the market, most of the time the prices are set by National Power and Powergen. The regulator has failed to break the monopoly of the generators.
Converting a state monopoly into a private monopoly can be dangerous unless the private monopoly faces strong competition. Whenever examples of good privatisation records are given by the Benches opposite Members nearly always quote British Airways and British Steel. Those companies are successful because of competition not because of regulation. Competition is the best regulator, but, in the case of the utilities, that will take a long time.
The Minister will doubtless point to a reduction in price. I believe that it is not nearly enough. Fuel costs have declined by 50 per cent. and we have all heard about the savings in labour costs. Perhaps the regulator will inform consumers how the prices they pay are made up between the raw materials bought by the utilities and the value they add. The price reductions claimed by the managements of the gas and electricity companies are due almost entirely to the reduction in the prices of coal

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and gas. The major part of those savings remains with the generators. That is why National Power and Powergen have been able to increase profits year on year despite a declining market share.
It appears impossible for the regulator to get to the bottom of the matter. The regulator depends on the generators and distributors for information. The UK generators have diversified overseas and overseas companies have come into the UK. There is no unity of transparency of accounting. A fundamental problem for regulators is that they are dependent upon information about the true costs of industry from the management of the companies. Those managements have a clear incentive to obscure the picture. And so we have the regulator second guessing the company and the company second guessing the regulator. Of necessity, the regulator has to make comparisons between competing companies. That is becoming more difficult as companies merge, are overtaken by overseas businesses and themselves diversify into other countries and businesses.
A major concern for industry is the ownership of the suppliers and distributors of gas, water and electricity. Ownership is not transparent and it could be that the supplier of an important commodity is one of our competitors. Competitors can gain useful information about each other through their use of energy and water. If they behave in an uncompetitive or predatory manner the worst that can happen is a reprimand.
Let us compare the situation with that in the United States where regulation is much tougher. There an electricity supplier must reduce its price if another electricity company elsewhere in the US can supply at a lower price. Furthermore, in the United States one can learn a lot more about one's suppliers and competitors because company regulation is much more transparent. The filings of the US Securities and Exchange Commission make public a great deal of information which is not available in the UK. The penalties for filing wrong information, or for predatory or non-competitive action, are much higher. Firms can be fined their entire annual profit. Only last week Nynex, the telephone company, was ordered to pay 110 million dollars to its customers in New York State for shoddy services and improper business practices.
I am pleased to note the report's proposals regarding the accountability of the regulators. No one is clear to whom they are accountable. Appendix 5 of the report states that they can advise the Secretary of State for Trade and Industry and they seem to be appointed by him. That is a nice basis for a cosy relationship. The report's proposals to open up the selection procedures as established by the Nolan Committee and for having the public appointments unit oversee the appointment of the directors general is a sensible precaution.
I welcome the report's recommendations, but perhaps they do not go far enough. One suggestion I would make is that all utilities make annual public reports containing the detail and information required by the SEC so that those in business know who they are dealing with, what they are paying for, and where the profits are coming from. In that way we could work much more in a spirit
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of partnership and equality with the privatised utilities. That in turn would help British industry to remain competitive.
4.18 p.m.
Lord Dubs: My Lords, I congratulate the Hansard Society on its report, which is interesting and timely; my noble friend Lord Haskel on introducing the debate; and the noble Earl, Lord Inchcape, on his interesting and effective maiden speech. His speech contained a great deal of detail and he will forgive me if in a moment I differ from him in one respect.
I say at the outset that I believe that all the regulators are doing a good job, especially given the constraints under which they have to operate. I say that because some of the things which other noble Lords have said and that I shall say might be seen as criticism of them; it is not. It is a criticism of what was forced on them through the way in which the Government privatised those many industries.
The regulation of the privatised utilities is a difficult concept and real problems are posed as to how regulation will evolve in the fullness of time. That is something that we shall continue to discuss and argue about for many years. As the noble Lord, Lord Ezra, has said on a number of occasions, those industries should not have been privatised until more was done to ensure that competition was in place. Monopolies have been privatised with competition introduced several years later. In the meantime, the regulator has had to deal with the difficulties of a monopoly situation and the possible abuses of the power which resulted.
I was fortunate to be able to spend a couple of weeks in the United States last summer and I talked to one or two of the regulators. They too are struggling with difficult concepts. I switched on my radio one morning and I heard on a local radio station—I think it was in Oklahoma City—an individual who had won the primary election in order to stand for election to the regulatory body. I do not argue that we should elect our regulators or regulatory boards in this country. However, it was interesting to hear on the radio an extremely impassioned statement as to what that individual would stand for if elected. That brought the whole process into the open. That is something that we need to do, I hope by methods other than having elections for every regulatory body which is set up. The Americans are doing that somewhat differently, but we have something to learn from them.
There are two basic objectives: the first is to achieve competition and choice in services for consumers; the second is regulation where competition cannot be fully achieved or has not been achieved so far. But I believe that even if we achieve full competition—whatever that means—we shall still need to have regulators for those industries. Perhaps I may coin a phrase and say that I believe that the regulators can reach the parts which competition does not reach.
Perhaps I may illustrate that. There will need to be regulation of the pipes and wires which will supply the common services which individual companies will tap into for gas and electricity. We need regulation to avoid

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cherry-picking; to avoid a system that, through a price structure, might penalise poor consumers. We need regulation to ensure that environmental considerations have sufficient priority in the scheme of things; and we need regulation to try to encourage the companies to do more about energy efficiency.
Perhaps I may put forward figures relating to the performance of some of the utilities since privatisation. If one takes all the gas, regional electricity and water and sewerage companies together, since privatisation—that is, from the time that they were privatised to the present time—the number of employees has fallen by more than 20 per cent.; directors' remuneration increased by nearly 46 per cent.; pre-tax profits increased by nearly 12 per cent.; and complaints increased by 75 per cent. Let us take British Gas as one example. The number of its employees fell by 37 per cent.; its directors' remuneration increased by 280 per cent.; its pre-tax profits fell by nearly 59 per cent.; and complaints increased by 100 per cent. It seems to me that there was no question of performance-related pay there. But that is public knowledge.
We have moved through mergers and takeovers to what in some respects is a completely different company structure from that which existed when privatisation first took place, especially in the electricity industry. We have seen the beginnings of competition as regards domestic consumers of gas in the south-west. There has been a myriad of stories about improper behaviour and how the Devon County Council trading standards investigation revealed practices which were undesirable. There was a referral by the Gas Consumer Council to the Director General of Fair Trading, and other companies made offers but had to withdraw them because they excluded pre-payment meter customers. All that must be brought under some form of control. That clearly did not happen in the south-west. I hope that all the companies which intend to move into that area will take note of what has happened.
It is often asked to whom the regulators are accountable. They are appointed. Are they then to be left to make their own decisions without reference to anyone else or any body? At the moment, that is not clear. But I agree with the suggestion that we may need a board, perhaps of non-specialist advisers or non-executive directors, to work with each regulator, and with which the regulator would have discussions and involving some accountability. We need to be clear whether we are talking about advisers or non-executive directors because non-executive directors would be answerable for the decisions made. We need to consider those areas further and reach a conclusion about them in the future.
I agree with the noble Lord, Lord Ezra, that, when competition for domestic customers has been put in place, we might consider merging the gas and electricity regulators. They have more in common with each other than with other regulators and that would make sense.
The noble Earl, Lord Inchcape, was full of praise for the privatised utilities and said how much they had lowered their prices and so on. Perhaps I may put forward some other arguments. Our electricity prices to
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consumers are about double the average charge in the United States. I would like to know why that is so. The price of gas may have come down recently but there was a large increase in gas prices just before privatisation and that set the level against which we should judge today's prices. As regards British Telecom, between 1990–91 and 1994–95 British Telecom's charges to business users fell by 20 per cent. but charges to residential customers fell by 1 per cent. It seems to me that that poses a question as to how well the process has been working.
We all know what has been the public perception of boardroom excesses, share option packages and monopoly profits which followed the initial privatisation of many of those industries. The situation may be better now. Some of the people who derived personal fortunes from that may no longer be in those companies, although some perhaps are. Behaviour is perhaps now more responsible, but the public perception remains.
When I was in the United States in the summer, I discussed some of those matters with people in those industries. They were appalled by some of the large sums of money which the directors of those privatised industries were putting in their own pockets. The American perception is that if the private enterprise system is to work it must do so with a measure of public consent. The Americans know that and they are more restrained in what they do than some of the privatised industries were just after privatisation. If there is no public consent there will be a great deal of dispute about the way in which those industries operate, which is surely not healthy for the economy or the industries themselves.
Regulation is also necessary for the protection of the environment. I believe that there should be a legal obligation that these utilities should provide energy efficiency services. We may discuss whether regulation of emissions of, for example, CO2 would be best regulated by an environmental agency or the industry regulators. But most of us would agree that there should be some such regulation.
In the case of water, I believe that there should be mandatory leakage reduction targets. Perhaps there should also be targets for the length of time that the regional electricity companies take to repair cables. In the cold weather not long ago, it took those companies a long time to repair cables and consumers were left without supply for far too long.
After all, consumers need reliable, assured, good-quality supplies. There has been a report that one of the regional electricity companies has been surveying customers to see whether they would accept regular power cuts in return for lower prices. I hope that that will not be foisted upon people. It would be highly undesirable. It may be that some industrial users would be able to deal with power cuts if they do not have continuous manufacturing processes. But I do not believe that domestic consumers should be pressurised, bribed or obliged to settle for such an arrangement.
The regulators should ensure that the protection of the consumer is given much higher priority than it is at present. That is what I would like to see and that would

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be the proper way forward. As other noble Lords have said, the whole structure of regulation should therefore be more accountable and open. The way in which the regulators themselves are selected and appointed should be part of an open process. It would be a good idea, as the Hansard Society report says, that there should be a code of practice. The regulators should give full public reasons for the decisions they make and there should be proper consultation procedures about some of the areas in which they have to make difficult decisions.
I thought hard about whether the industry consumer bodies should be part of the regulatory system or should be independent of the regulators as in the case of gas. Some of the regulators believe that their consumer bodies are more effective within the regulatory structure but, on balance, I believe it would be better if they were independent of it. That is certainly a view taken by the Consumers' Association.
I also believe that consumer bodies themselves should have the right of appeal against decisions which they judge to be against the interests of consumers. The Hansard Society report says that utilities should be allowed to go bust. That is right in principle, although in practice I find it difficult to see how the regulators would allow that to happen. Perhaps that is something on which the Minister could give some guidance.
Competition policy has to be toughened up. I like the suggestion of the Hansard Society that legislation modelled on Articles 85 and 86 of the Treaty of Rome should be brought in with powers to enforce anti-competitive practices. There should be a method whereby companies could appeal against the regulator if they did not agree with the regulator's decision.
There is a case for parliamentary oversight of the regulation process. The idea of a Select Committee, possibly of both Houses, might be a useful way of keeping under permanent scrutiny the way in which the regulatory process works, because all these industries have a regulator. However, we would have to be careful that we do not come into conflict with the powers of the departmental Select Committees in the other place. I believe that we can find a way of achieving the right balance.
I understand that the regulators themselves talk to each other; they have a structure now for doing this. I believe it has been called the college of regulators, with parallel staff meetings. That is a good idea and would enable the input into a Select Committee to be effective.
I conclude by saying that the Hansard Society report has been invaluable to us in allowing us to have a debate and in to focus our minds on what are the real issues in the regulatory process. I believe that the aim of a regulation policy should be fairness and efficiency so that consumers are protected and safeguarded.
4.33 p.m.
Baroness O'Cathain: My Lords, the noble Lord, Lord Haskel, replaced the noble Lord, Lord Currie of St. Marylebone, to whom we send our best wishes. He has done a great service in introducing this debate to call attention to the report published by the Hansard Society
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together with the European Policy Forum. The poor old European Policy Forum has not been given much credit today for its part in the publication of this report of the Commission on the Regulation of Privatised Utilities.
The report is excellent in its analysis. All who read it will increase their knowledge base of how the regulatory system works. The 111 pages of closely typed and small print demand a fair amount of time and concentration, but it is time well spent. I shall use the report to draw conclusions which are not necessarily dealt with in detail in the report but which seem to me to be important when we consider this most important sector of the national economy.
The debate has naturally and inevitably concentrated on the duties of the regulators and the operation of the regulatory system: Oftel, Ofwat, Ofgas and Offer. A case for reviewing the regulatory system is made, but let us not believe that the regulators themselves are not frequently examining their own operations and considering how they can improve them. I believe it to be of fundamental importance that in the case of every recommendation in this report the question must be asked: how is the customer likely to benefit from the changes suggested? Of equal concern, bearing in mind the fundamental importance of these businesses to each one of us every day of our lives, is the added question: how can these utilities, subject to this regulatory regime, cope with more and more demands of a non-customer nature being put upon them?
Very frequently, the process is sacrosanct. The results of process are assumed to follow as night follows day. But there never seems to be much emphasis on the results of the process, or certainly not as much as there is on the process itself. We should also remember that the implementation of recommendations will almost certainly carry with it a cost. We cannot allow theory and concentration on the process to militate against efficiency.
Mention of the fact of concentrating on process and theory reminds me of a lovely, and true, story told of one of my economics lecturers. He went on to reach dizzy heights and his name would be known to each one of your Lordships, but I spare his blushes today. One day he agonised for hours over a specific policy proposal and eventually said, "Yes, I can see that it will work very well in practice, but how about the theory?" I hope that we do not get confused between the process and the results.
The justification for this report and the work of the commission is contained in the first sentence of the foreword. I did read the report; do not think that I am just concentrating on the first sentence of the foreword. It says:
"Public utilities are rarely out of the headlines. The way in which such basic staples as energy and water are provided and regulated is understandably a matter of continual public attention".
Everyone will agree that regulation is necessary, but we must take cognizance of the fact that all of these utilities have undergone enormous change in a relatively short space of time, setting themselves up as privatised organisations, moving from what one could call a dependency culture to a consumer and customer-oriented

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business, changing from a sheltered financial position to one where they have to survive on their own financial acumen. All of this has imposed huge workloads and culture change and indeed has produced new problems. It is most important that we are not instrumental in putting yet more heavy burdens on them. None of these burdens can guarantee a better customer service or indeed lower customer prices.
All businesses—dare I suggest even governments and government departments—should constantly ask these questions. What have we learned or what are we learning from the systems we have adopted? If starting from scratch, would we be doing it this way? The most difficult question arising from the answers to these two questions is: is it wise to change? In other words, will the benefits outweigh the inevitable disruption and probable extra cost caused by the change?
It is easy for economists, management consultants, accountants, policy analysts, civil servants and politicians to see flaws, because most of us as a collective group look only for flaws. Success is at worst anathema and at best accepted without comment and certainly without congratulation. Of course, serious flaws must be sorted out, but less serious flaws should be dealt with on an evolutionary basis and in an evolutionary manner. This sounds as though I am advocating a softly-softly approach, which is wholly uncharacteristic of me. My attitude is usually to say, if there is a problem, "sort it out". In one sense I am advocating a softly-softly approach, but I would like to justify this by a quick analysis of where the utilities have come from and what changes they have had to make at every level since they have been privatised.
I have five points. The public utility reported directly to Ministers. The Ministers and officials took total responsibility, in effect. The privatised utility had to set up a board, work within the terms of the Companies Act, abide by Cadbury, Greenbury and, soon to come, Hempel and report to shareholders.
Secondly, the public utility was able to rely on Ministers and officials to take responsibility and even take the rap for policy decisions. The privatised utility has to devise, initiate and monitor policy, subject to scrutiny from the regulator, the media, customers and shareholders, to mention just a few and not in any order of importance.
Thirdly, the public utility never had to worry about its future capital and revenue financing. Yes, there were periods of financial stringency, but it was never the fault of the utility; it was always the fault of "the government". The privatised utility, on the other hand, has to negotiate its own financial security with banks and other financial institutions, develop pricing policies, become adept in financial matters—in effect, survive financially.
Fourthly, as it was production and distribution oriented the range of skills required to operate a public utility were mainly technical in nature and fairly few in number. The privatised utility, on the other hand, has of necessity to employ a whole new range of skills (or
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competencies, as the jargon now calls them): for example, marketing, financial management and customer relations, just to mention three.
Fifthly, and finally—this is just a sample of the differences—operating in a state monopoly environment the public utility was cushioned from the customer, being supply and production oriented in the main. The privatised utility, on the other hand, operating in the competitive market, has to concentrate on customer satisfaction.
The conclusion I wish to draw from this quick analysis of the differences between the public and privatised utilities is that yet more change could lead to overload or indigestion, and we ought to be wary of that. The noble Lord, Lord Ezra, suggested that, as privatisation of the utilities took place quite a long while ago, the time is now right to consider change. The privatisation of British Telecom took place in 1984 but that of the regional electricity companies took place only in 1990 and that of British Energy only last year. I do not know what a sensible "bedding down" time is but I suggest that it is a little more than six years in view of all the work—
Lord Ezra: My Lords, I referred not only to the length of time but also to the significant changes that have taken place in certain of the sectors, particularly gas and electricity.
Baroness O'Cathain: My Lords, that is, of course, a valid point. I thank the noble Lord for mentioning it. However, I believe my point still stands; namely, relatively few years have passed in terms of the privatised utilities having to develop a completely new ethos and culture and learn new skills, and we shall create difficulties if we tamper with them once more.
The recommendations in the report concerning the workings of the regulators' own operations not impinging on the operations of the utilities is another matter. I was heartened to note—a couple of other noble Lords have mentioned this—that on page 47 of the report the commission agrees with the suggestion made by some witnesses to the commission that it would be helpful for the regulators to be able to call on a board of independent individuals, but not those representing sectional interests. That is a terribly important point.
It should be stated that regulation has been a terrific success. The regulators ought to be congratulated on all that they have achieved. I was pleased to hear the noble Lord, Lord Dubs, make favourable comments about the regulators because they have achieved a great deal. Their contribution to the success of the privatised utilities is acknowledged by the said utilities—and what better commendation could there be?
In my home area there has been a reduction of 22 per cent. in annual electricity bills in real terms since 1991 and there has been much better customer service. These improvements have been brought about by the combination of competition and action taken by the regulators. This combination, regarded by the electricity company as a double edged sword—that is, it cuts both ways—operates wholly in favour of the

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customer. The regulator has played a serious role. For example, the simple introduction of league tables has resulted in much better service and the electricity company—Seeboard in this case—is rightly proud of its number one position nationwide, but conscious that it has to work even harder to maintain that.
Another simple but most effective action by the regulator has been the hugely improved standards of customer service. There is a list of "offences", mistakes or inadequacies—call them what you will—which the regulator has drawn up and which incur fines. One such is that if the utility makes an appointment to read a meter and fails to arrive at the time promised it incurs a fine of £20. In 1996, of the 411,000 appointments made, only one failed to meet the promised time and incurred a fine of £20. If we recall the days when we had to stay in to wait for the meter reader and all the rest of it, the present position is a sea-change.
The relationship between the regulator and the private utilities is excellent. In the regional electricity company that I have named there is regular communication and a deep understanding of the problems and concerns expressed by both parties. It could well be described as a partnership based on the sole objective of ensuring that the service provided is the best possible.
It is imperative that that success is built upon and not tampered with or harmed in any way. It is only by striving for a stable environment in which the utilities operate that it can be guaranteed that the ultimate customer—you and I—will continue to benefit. What no one needs is uncertainty. Uncertainty and change there will always be but some uncertainty is created by political dogma, and that is the uncertainty the utilities can well do without. I make no bones about referring to the current uncertainty created by statements that the party opposite would bring in a windfall tax on the privatised utilities if it got into power. That is greatly exercising the utilities at the moment. Not only would it be a retrospective and possibly illegal tax; it would also weaken the financial base of the utilities and in turn would lead to higher prices for customers. I know that the party opposite is usually most concerned about unemployment, but such a step could ultimately lead to job losses.
But leaving aside all of that, will the party opposite consider how it can justify such a volte face? When the proposals to privatise the utilities were produced by this Government, the Opposition fought them tooth and nail and in doing so they talked down the price. The utilities were sold cheaply. The businesses have capitalised upon that, with magnificent results for customers, and now noble Lords opposite want to milk that. We should be extremely grateful for the success of both the utilities and the regulators and subscribe to the maxim "If it ain't broke, don't fix it".
4.46 p.m.
Viscount Hanworth: My Lords, I too with to thank the noble Lords, Lord Currie and Lord Haskel, for their respective roles in promoting this important debate. And may I also offer my congratulations to the noble Earl, Lord Inchcape, on his maiden speech?
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Since my noble friends have dealt in detail with many of the technical points which arise I feel free to be more discursive. More than 40 years ago, the American economist John Kenneth Galbraith, wrote a small book, American Capitalism. The thesis of the book was there was a remarkable disparity between the ideology of American business enterprise—its self-image, if you will—and the realities of American industrial organisation.
Since much of the book was to be devoted to an analysis of economic mythology, Galbraith thought it appropriate to begin his account with some words which can be found at the start of the tract of John Maynard Keynes, The General Theory of Employment Interest and Money.
Keynes, in his introduction, observed:
"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood—Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist".
That is not an attractive passage. It is a distasteful display of arrogance on the part of a professional economist. However, as Galbraith explained in his book, Keynes's dictum provided an accurate summary of the state of mind of the American business establishment in the 1950s. What is also clear is that it summarises the outlook and the mentality of the political party which has been in power in Britain over the last 18 years.
The economic theories which have held such sway arose at the end of the 18th century and are commonly associated with the name of Adam Smith. As many will readily recall, Smith asserted that if it were allowed to operate without hindrance and intervention and if individual self-interest were given free rein, then the economy would be guided, as if by a hidden hand, to a state in which the wealth of the nation would be maximised and in which competing interests would be reconciled in a manner which would be to the benefit of all concerned.
Among the major hindrances to the free operation of the economy, Smith identified the power of monopolists. Prominent amongst the monopolies which he observed were those which had been sponsored by the state, many of them in association with the military provisioning of the wars with France. He attacked state monopolies with particular venom. Neoclassical economic theory, which is Smith's intellectual legacy, was invoked by the Thatcher administration in its pursuit of the denationalisation of Britain's public utilities. These were to be taken out of the hands of the state and subjected to a regime of competition which would restore their health and eliminate their supposed economic inefficiencies. Some weak guidance was to be applied by independent economic regulators whose role was to monitor the performance of the denationalised industries and to ensure that they had been purged of their erstwhile tendencies; but it was envisaged that, ideally, this role would be largely superfluous.
That was the ostensible purpose of privatisation. But little has been done to ensure that privatised industries should be subject to competition. Many are the subjects

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of natural monopolies, and it is impossible to populate them with the competitive enterprises of neoclassical economic mythology.
Such provisions as have been made to induce competition are bizarre in the extreme. The competition in rail franchising has been a mad scramble for windfall profits. The competition in the gas industry promises to be competition among rival sales forces to bamboozle the public with a confusing array of discounts, rebates and loss-leaders, all designed to market an identical project piped through the self-same gas lines. In the case of water and sewerage, there really is no possibility of any meaningful form of competition.
We should have no doubt that the real purpose of privatisation has been to make it almost impossible for industries to fulfil the social agendas which were envisaged when they were nationalised.
I may say that some of us—perhaps there are many—on this side of the House are proud of the history of the nationalised industries in this country. Nationalisation was applied to a set of industries which were in a state of chaos and dilapidation. In some cases, notably mining, the industries had been notorious over many years for abusing their workforce. I think that it is true to say that the nation at large had a high regard for the nationalised industries in their heyday.
Moreover, it is becoming clear, in the light of recent academic research, that far from being examples of economic efficiency, some of the industries in question had records of investment and innovation which were markedly superior to those of similar industries, in the United States and elsewhere, which were the subject of so-called free enterprise.
According to the thesis of Professor Galbraith, it was quite inappropriate to describe the conditions under which the analogous American utilities were operating as free enterprise. The industries of transport, electricity supply, telecommunications, and so on, were each subject to an active regime of federal regulation which did not hesitate to set the prices and other essential parameters within which they should operate.
It seems surprising, at first, that, under such circumstances, so little complaint was heard from the industries regarding the heavy interference of the state. However, the fact of the matter was that the federal regulatory commissions had been so deeply penetrated by the industries themselves that it was often difficult to determine whether they were working in the interest of the state and of the consumer or merely of the industries. This is a hazard which, in this country, we must resolve to avoid.
In particular we ought to heed the example of the electrical supply industry in the United States. That industry has been subject to a form of regulation which has allowed it to withdraw its services from low-income inner city areas with the result that some urban ghettos are now completely bereft of electricity. That is an extraordinary circumstance which should not be tolerated in any advanced industrial country in the 20th century.
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In this country, there are already some disturbing analogies with the American experience. Some of the erstwhile public utilities are currently pursuing pricing policies which are bound to compel poorer people to forego what have long been regarded as the basic amenities of life; namely, water, gas and electricity. Moreover, it seems that there is little that industrial regulators, with their present, inadequate, powers, are capable of doing to avert this circumstance.
Another experience of American federal regulation has been the sporadic episodes of state intervention, ostensibly designed to foster competition, which have utterly disorganised the industries in question. The two best known examples concern the telecommunications and the aviation industries which have both been subject to federal cartel busting.
Among the more felicitous consequences of those interventions is that Britain's own air passenger and telecommunications industries have been able to exploit the opportunities which have arisen to become major players in global markets at a time when their strongest competitors have been disabled. We ought to heed that warning as well.
The point of these stories is to assert that economic regulation has to be attuned to the circumstances of the industries concerned. It cannot afford to be the product of a preconceived ideology which is intended to be applied across the board and which is liable to be applied sporadically.
In this country, we have already seen some of the deleterious effects of applying the free-market ideology to nationalised industries. It is simply not enough to place the task of regulating a major industry such as gas, water or electricity in the hands of a solitary professor of economics suffering an unaccustomed degree of public exposure or in the hands of some worthy doyen of consumerism. In the words of Galbraith, there is a need for a strong countervailing force which can stand in opposition to the considerable economic powers of the industry.
In the case of the telecommunications industry, for example, we need to guard our national interests and ensure that the path of technological innovation is a smooth one. In the case of the domestic utilities of gas, water and electricity, we need to bind the industry to a social contract. In other words, the state itself, following socialist precepts, must enter the demand side of the market to ensure that the interests of the consumer are not sacrificed to the uninformed forces of the market or to the greed of a new class of corporate moguls.
4.55 p.m.
Lord Peston: My Lords, it is an excellent report; and it has been an excellent debate. I add my congratulations to the noble Earl on his maiden speech. I think I heard him say that it was 40 years before his father made his maiden speech, and two years have elapsed before he now makes his maiden speech. I believe that there is more to human life than speaking in your Lordships' House and I see no reason to apologise for taking time on these matters. On the other hand, I found his speech interesting and robust. I hope that he will be encouraged to speak again before another two years elapse.

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The report is of great value. The chairman, John Flemming, is one of the most distinguished economists in the country. He got together a group of members of extraordinarily high standing. One can always think of other interests that one would like to have on such a commission and—dare I say it?—I think that probably there are too many economists in areas where other issues need raising. Nonetheless, the members are all to be congratulated.
It is a most appropriate time for such a debate. We are at the end of an era of economic policy making. We shall soon have a new Parliament and a new Government whose task will be to lay down the foundations for economic efficiency and prosperity for the new millennium. I do not wish to exaggerate, but I think it is obvious to all of us that the performance of the privatised utilities will be a significant factor contributing to that, as will the behaviour of the regulators. My noble friend Lord Paul was right to emphasise how important that is for the future efficiency of industry in general. The noble Baroness, Lady O'Cathain, was right to emphasise more generally the customer interest in this matter. But one should not forget that the customer interest includes the interest of industry. The noble Baroness rightly emphasised the importance of practice. However, to refer back to her joke, the trouble with practice is that it is excruciatingly boring. What is really interesting is theory. That is why some of us at least concentrate on matters of that kind.
A paradox to which I must refer at the outset concerns the intellectual origins of regulation in this country. It used to be associated with the so-called revisionist wing of the Labour Party. The late and lamented Anthony Crosland took the view a long time ago that nationalisation was really an irrelevance and that where monopoly was inevitable the public interest could be better served by regulated private ownership. It is intriguing that such a philosophy, rejected by his own party at the time, was adopted and adapted by this Government. I say "adapted" because I do not believe that Crosland would have favoured selling off the public's assets at prices so disadvantageous to the long term interest of the taxpayer. I believe that he might have advocated retaining an equity interest in all the relevant concerns. But those are technical matters.
Having made that point, let me make another point in the Government's favour. Most economists, including myself, had taken it for granted that we are dealing with the so-called natural monopolies. I think that the noble Lord, Lord Ezra, used that expression, as have others. Indeed the Government seemed to start from that position. The privatisation of gas was an example; and the way electricity was privatised into what was essentially a duopoly was another. Interestingly, since then, thinking has moved forward. As the noble Lord, Lord Ezra, said, the regulators are supposed to encourage competition. The Government have at least started to do some of the things that they can do to promote competition. Most of what has happened so far is experimental. I agree with my noble friend Lord Hanworth that some of the experiments seem a little silly. Nevertheless, trying to be objective, if we are to have the utilities within the private sector, but
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regulated, it may well be that we can think more imaginatively of possible competitive solutions or analogies. It is certainly a subject worth thinking about. The whole point is that regulation was, and continues to be, experimental.
I was involved from these Benches when some of these issues were debated. Those who devised the original legislation, and those of us who argued about it, did not fully appreciate what was in the process of being developed, rightly or wrongly. I have no difficulty in confessing that I did not anticipate for one moment many of the important and interesting problems that have emerged. That is one of the reasons why the Hansard Society report is of such value. It is also why I think all of us—not least, the Government, but outsiders as well—need to take a long, hard look at the regulators and the process of regulation. Here again. I am afraid I disagree slightly with the noble Baroness, Lady O'Cathain. I do not think it is too soon to examine this matter. If we are to learn from what is going on, we have to examine the process of regulation more or less continuously through time just to see whether we can do better. That is effectively the point made by the noble Lord, Lord Ezra.
To revert back to the remarks of my noble friend Lord Hanworth, as I understand it, the regulator is meant to create an operating environment that is analogous to the working of the competitive market. It is all a bit peculiar, because three of the four Acts of Parliament to which we are referring—leaving aside the water Act, which is the most peculiar Act of Parliament altogether—use the expression, "meeting all reasonable demands". As I have said before in this House, the concept of "reasonable demand" does not exist in economics. I have not the faintest idea what it is supposed to mean. I have asked more than one Minister sitting on the Benches opposite to give an account of it. I must tell the noble and learned Lord that I do not insist that he does so today. The point is that the competitive market certainly does not operate on any concept of "meeting reasonable demand". It operates on the concept of "meeting demand". That is different altogether. That is therefore one of the problems for the regulator; he is supposed to see that "reasonable demand" is met, when some of us believe it to be a meaningless concept.
More generally, producing an analogy to the competitive market is easier said than done. We have to recognise that competition in the real world is a highly dynamic process. It is far from the static model so beloved of economics textbooks and academic articles, and—dare I say so?—professors of economics.
The important point to bear in mind—this is a great problem for the regulator; I am certain it is one that noble Lords on the other side of the House appreciate—is that in a competitive environment it is still possible for a firm to earn very large profits. Therefore the appearance of large profits is not necessarily an indication of lack of competition. That is particularly the case if new competition can appear. The sophisticated view of competition is that such profits are meant to bring in new competition and then they are driven away. How is that to be simulated by a regulator? I have very

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little idea as to how that could be so. In some cases, as my noble friends pointed out—for example, local water supply—it is impossible. Hard as I may think, I cannot think of a way in which to achieve "free entry" into a local water supply. But others more intelligent than I may be able to do so.
The second point about an analogy with the free market—a point made in the report—is that profits are justified as a reward for taking risks. But one of those risks is the risk of bankruptcy. One matter that is not fully appreciated is that the regulator must regulate in such a way that bankruptcy still remains possible. I know it is difficult, but that is so. If the regulator allows the use of market power to avoid the risk of bankruptcy, shareholders in the privatised utilities are, ipso facto, being over-rewarded.
One of the main objections to monopoly generally is that the owners of the monopoly firm are rewarded by more than is necessary to bring forward the output in question. That is what the regulator is supposed to prevent. The evidence is that, typically, he does not, but the point can be argued.
In my view it is a genuine error to say that monopoly profits are acceptable if they are ploughed back into investment. It is simply not a valid argument. Monopoly profits are not acceptable, end of story. If investment is desirable, it must be financed in the normal ways. What worries me slightly about the regulators is that they seem to have fallen for that argument.
My noble friend Lord Hanworth referred to the "arrogance" of a professional economist. Speaking as an arrogant professional economist, as he well knows, perhaps I may make one point about the windfall tax. It is a well-known proposition in first-year economics that proportionate tax on the profits of a monopoly has no effect on allocation of resources, price or anything else. Therefore it is simply impossible that the windfall tax that my honourable, right honourable and noble friends wish to introduce could have the adverse allocative effects that are sometimes suggested. The alternative is that economics is wrong—which I, of course, find impossible to believe or even consider. It is very important to bear in mind that there is nothing simple in this world.
I wish to refer briefly to one other matter which I believe should be debated in this House at some time. Several noble Lords referred to transparency and how the regulators can be appointed. The report refers to this whole area of raising constitutional matters. It states:
"too little attention has been given to the implication of such changes for accountability and democratic control … Today, the role and powers of the regulators give rise to important constitutional questions".
The report is entirely right in that regard. It is not obvious to me that those of us who are either economists or business people are the right people to be discussing that issue. But some of our colleagues in this House might well take the opportunity to have a debate of their own examining the constitutional side. It is not a trivial matter to vest such great powers in people of this sort without considering what that means for the political process.
In conclusion, I congratulate all those who took part in the debate.
5.8 p.m.
Lord Fraser of Carmyllie: My Lords, I listened with interest to the debate introduced by the noble Lord, Lord Haskel, in place of the noble Lord, Lord Currie, on the report of the Commission on the Regulation of Privatised Utilities. I followed with keen interest the contributions made, ranging from a robust and expert knowledge of the way regulation has developed recently to a fascinating and, if I may say so, deeply unfashionable defence of the former nationalised industries—unfashionable particularly on the Benches opposite.
The debate has been very worth while. I join those noble Lords who complimented my noble friend Lord Inchcape on his maiden speech. I noted with interest all that he had to say in his short and forceful speech. I enjoyed in particular his timely reminder of how things were before many of the utilities were privatised. I recall most vividly that, when I was Member of Parliament for Arbroath—from whence my noble friend's famous family stems—the largest single file I had was for those who wished to be connected to the telephone system. If they had the impudence to ask of their Member of Parliament how they might move up the six-months queue, they received short shrift, as I did. Nowadays there will not be a single Member of Parliament in another place who has any file whatsoever dealing with those wishing to have a telephone installed.
I was gratified and interested to see that the report unambiguously acknowledges that the present arrangements work a great deal better than the old ones. I feel, like my noble friend Lady O'Cathain, that it would sound as though I had not read beyond the introduction if I take as my particular quotation a passage to be found at the bottom of page 1 and continuing at the top of page 2, but it is such an excellent executive summary that I make no serious apology for so doing. The report states:
"we concluded that the independence of economic regulation of privatised utilities from day-to-day political control is extremely important for the achievement of efficiency in the use of national resources and that the achievements, to date, of the present regimes are very substantial".
I am grateful for that very useful conclusion.
The commission was an independent body established in 1995 with a remit,
"to review the present regulatory regime for the privatised utilities and recommend changes in the light of experience and the evolving structure of the industries".
Its report, published last month, examined the procedural or "constitutional" aspects of the regulatory regimes for telecommunications, gas, electricity and water. It made some 24 detailed recommendations aimed at increasing,
"the transparency, effectiveness, accountability and legitimacy",
of the regulatory regime. I join others who have contributed to the debate in welcoming that examination and accept that this is a timely moment to undertake it, not least because it coincides with a number of other inquiries currently being undertaken into the regulatory regime.

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The present arrangements work a great deal better than the old ones. Indeed, following the speech of the noble Lord, Lord Haskel, it would seem that it is now a settled orthodoxy that these arrangements should be kept in place.
I join the noble Lords, Lord Ezra and Lord Dubs, and my noble friend Lady O'Cathain in recognising that regulation is not an end in itself. There will of course always be those who believe that some form of regulation is needed to protect vulnerable customers. There may be some argument about that. There will certainly always be a need for regulation in areas where natural monopoly is likely to remain; otherwise regulation is a proxy or a surrogate for the competitive forces which operate in a free market.
In our view, the key to future benefits does not lie in trying to find perfect regulation, a will-o'-the wisp that we do not consider could ever be wholly achieved and that could never be more than an imperfect proxy for the competitive forces which it seeks to replicate.
I entirely agree with the noble Viscount, Lord Hanworth, that there are dangers in having a preconceived ideology of regulators. Matters have evolved and will continue to do so. It has been extremely useful that the commission has considered ways in which the system might be amended.
I make no apology for emphasising that we wish to see the introduction of more competition. Indeed there has been more. Over 190 new telecoms licences have been issued since 1991. Large and medium sized gas and electricity users can already choose their supplier. Last April we began to open up the domestic gas market. It has now been extended to Dorset and the former county of Avon and next month it will be extended to 1 million consumers in Sussex and Kent. Full competition will be introduced into the domestic electricity market in 1998 and by the end of 1998 all gas and electricity consumers will have a choice of supplier. We are examining further proposals for extending competition in water and sewerage services, initially for the larger users.
The Government's immediate policy objective is to press ahead with the development of competitive markets to ensure continuing improvement in prices and services to customers and to reduce to a minimum the amount of regulation and substitute the workings of the market itself.
I was disappointed that the noble Lords, Lord Paul and Lord Haskel, considered that insufficient competition had been introduced into the electricity market. I do not pretend that it has yet reached a final stage. However, at the end of 1996 there were of the order of 17 new-entrant generator companies in England and Wales with a capacity of something like MW 12,000. I also accept that the electricity pool is not yet in a perfect form. A number of changes are being considered in terms of involving consumers. While it has perhaps not yet been taken forward as vigorously as I should like, I am interested that intensive energy users and others are clearly suggesting that some sort of demand-side bidding would be a desirable addition to the techniques whereby the pool might work.
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Competition has evolved but I recognise that the regulatory system is not perfect. We welcome practical suggestions for improvement. While I do not disagree with much of what my noble friend Lady O'Cathain said about the evolution of regulation, a further argument needs to be addressed. Even though we have received a number of good ideas for its improvement, it is clearly desirable to secure a stable regulatory environment. That is important because the investment decisions taken in this area are long term. Those who are proposing to invest should have the confidence to enter these markets and remain involved in them, thereby contributing to the further development of competition. The desire to tinker is one that I suppose many Ministers have. I am resisting it, though I want to see some change in an evolutionary way, because of that important consideration.
The Government have acknowledged that in due course there may be a case for bringing together the electricity and gas regulatory structures. It would be appropriate to look at this in about a year's time—not because that is the other side of a general election but because by that time the thrust towards full competition should have been secured in terms of both gas and electricity. We have said already that in the medium term the broadcasting and telecommunications regulatory regimes should be brought together to reflect convergence. The review in a year's time will be an opportunity to look at other aspects of the regulatory regime also, building on the strength of the existing system but maintaining its fundamentals. We should not, in the Government's view, embark lightly on any changes.
In his opening remarks the noble Lord, Lord Haskel, referred to the competition Bill. Let me assure him that we remain committed to reform. The curtailed nature of this final Session of the present Parliament meant that it was not possible to introduce a Bill in this Session. In relation to one of the recommendations made in the report we propose a prohibition on anti-competitive agreements based on Article 85 and are considering the feasibility of a prohibition of abuse of market power based on Article 86 for the economy as a whole in the context of the competition Bill. The Government have not ruled out a prohibition approach modelled on Article 86 and are promoting further debate on this issue, for example by talking to business and other interests.
Some noble Lords made reference to the formula that might be applied and whether RPI minus x might be appropriate. I was interested to hear that and even more interested to learn that in the course of a conference on competition policy last week the Opposition spokesman, Dr. Kim Howells, explained that the Opposition had concluded that the main beneficiaries of price regulation based on profit-sharing would be lawyers and accountants and that there was after all much to be said for RPI minus x. I am told that there are something like 50,000 lawyers in the United States engaged in regulatory matters. I see certain advantages in that which others may not see. But the RPI minus x formula is very much more preferable.
Let me take a moment to address in more detail the concerns of my noble friend Lord Crickhowell, particularly given his expert appreciation of the duties

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in relation to environmental matters. There is the recommendation by the commission that the industry directors general should not have duties for quality regulation, notably environmental duties. I understand that my noble friend strongly disputes that. The recommendation deals with the need to balance differing objectives when regulating an industry. The consumers' interest in value for money and the best possible service for the least payment cannot always be apparent. Other objectives may be just as important—for example, health and safety and environmental improvement. In some cases those other objectives are so important that there are indeed other public regulators charged with achieving them. In the case of water, the health objective is safeguarded by the Drinking Water Inspectorate and environmental protection is regulated by the Environment Agency.
The Government agree with the recommendation that in such cases it should not be for the industry director general to duplicate the work of quality regulators. In the Government's view there is already a clear separation of functions: the quality regulators set standards and police their implementation; the industry regulators consider their cost implications. We do not want to see any confusion. But I noticed with interest what my noble friend had to say about the value of having some tension in the relationship between the two.
Lord Crickhowell: My Lords, I am most grateful to my noble and learned friend for giving way. I did not suggest that the industry regulator should become the environmental regulator. But I believe that the balance arrived at in the Environment Act where he has to take account of those responsibilities is the right balance. I am worried about the suggestion in the report that we should move away from the balance that has been carefully debated and carefully considered.
Lord Fraser of Carmyllie: Perhaps I misunderstood my noble friend. I shall read carefully what he said. I certainly want to indicate that the recommendation made by the commission, as we saw it, seemed to us to have an appropriate balance.
The noble Lord, Lord Berkeley, observed correctly that the report does not cover rail. But I noticed his comments about the general utility regulation issues in relation to rail and also his reference to certain shortcomings. He may well have had in mind the action of South-West trains and the temporary cancelling of a number of planned peak services. Not only the Government but also the regulator share the disappointment at that action.
I conclude by saying how much this report is valued. Over the next year, indeed by the end of 1998, the area subject to the blunt instrument of detailed regulation will in many respects retreat as the area becomes subject to the rapier-like qualities of competition.
Your Lordships' House is establishing something of a tradition for high quality debates on various aspects of utility regulation. Like others to which many noble Lords have contributed, this debate has been wide-ranging, valuable and stimulating. We welcome
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the practical suggestions for improvement and will take account of them in the review—I look forward keenly to participating—proposed for next year. I give that unequivocal undertaking to the House. In doing so, I shall pay the keenest attention to this report and shall regard today's debate as a constructive contribution to the exercise.
5.26 p.m.
Lord Haskel: My Lords, I thank all noble Lords who have taken part in the debate. I particularly thank the Minister for his detailed response, from which few would believe that he did not get beyond page 2 of the report. All noble Lords welcome the report as an important contribution to the debate on regulation.
I also congratulate the noble Earl, Lord Inchcape, on his maiden speech. I do not agree with his view on competition and perhaps he should bear in mind the words of the noble Lord, Lord Ezra, and the phrase "surrogate competition". That has quite an important bearing on the subject.
Surprisingly, my noble friend Lord Hanworth reminded us forcefully of the success of nationalisation. He also mentioned the hazards of regulatory capture. We all welcome recent improvements in the services of the privatised utilities, due to a variety of reasons: competition, new technology, culture change—the noble Baroness, Lady O'Cathain, told us that that never stops—and price, due to the reduction of coal and gas prices, as my noble friend Lord Paul reminded us.
I am delighted that the Minister told us that more work is taking place on planning competition. But that is pointless unless there is some review of competition law. The two go hand in hand; the report makes that very clear.
All noble Lords welcomed more openness, consultation and debate. I liked the phrase of my noble friend Lord Dubs who called for a measure of public consent. We were all concerned about care for the customer. My noble friend Lord Berkeley was worried about regulators being beholden to the Treasury. The noble Baroness, Lady O'Cathain, raised the question of the windfall tax and I could not possibly improve on the explanation given by my noble friend Lord Peston. I thank the noble Lord, Lord Crickhowell, for raising the question of the relationship between regulation and the environment, which is a very important point.
Once again, I thank all noble Lords for participating in the debate. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

Welfare of Children
5.27 p.m.
Lord Eames Lord Eames rose to call attention to the welfare of children, and in particular to problems of child abuse and the effects of paedophilia; and to move for Papers.
The noble Lord said: My Lords, I am grateful for the opportunity to invite your Lordships to consider what I believe demands serious thought at this time. I believe

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that throughout the nation there is widespread concern and genuine interest in the situation of children who, for various reasons, are vulnerable to abuse. Never before have the media so drawn the attention of the general public to the tragic circumstances of children and young people who are vulnerable to abuse.
In those cases brought to the attention of the public through the courts, the details of such horrors have touched the conscience of our generation. But, sadly, we know that there are many cases in which children continue to suffer abuse of various kinds hidden behind the closed doors and windows of even their own family homes.
Such children are the silent victims of circumstances over which they have no control. In some such cases, as we know, it may take years for those details to be brought to public attention. Their experiences cast an evil shadow over the most precious years of their lives. Understanding of what is happening to them is shrouded in physical and, even at that early stage of their lives, mental torment. How could many of them understand what was happening to them in the so-called sanctity of a family home, a place where they have the right to find genuine love and security?
The establishment of help-lines; the encouragement in a responsible way through television for children to seek help and support; the investigation of complaints by the police and social services authorities; the knowledge of neighbours and friends or the suspicions of teachers in the schools—all are important avenues of amelioration. But they are all limited by the knowledge of the existence of the problem.
The courts have taken a strong line once cases are proved. The welfare authorities of the nation now have legislative backing for their outreach into the darkness of child abuse. But we can well ask in this House whether we have done all we can to understand and to address something which is too often a scar on our national life.
We are equally aware that child abuse does not occur only in the confines of a family home. The instances we have known where persons placed in positions of trust and responsibility through which they are brought into contact with vulnerable children and young people and have misused that fragile trust are particularly horrifying. Condemnation of such behaviour is widespread and wholly justified.
Trust is a fragile entity. When it is broken something of the deepest degradation has occurred. Surely this House and the conscience of Members of another place ought to prompt us to be constant in our provision of sufficient backing for the courts which permits the gravest yet most enlightened attitude to be adopted to those who have betrayed such trust granted to them by our society.
The Health Committee of the House of Commons is at present inquiring into children who are looked after by local authorities. We must welcome that inquiry. It is an area of particular importance. It concerns the appraisal of those who will be entrusted with special responsibility and care. It will involve the criteria that society expects in the selection of those who will have
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responsibility for the vulnerable. It is to be hoped that the committee will make recommendations which will demand the highest possible standards in the scrutiny of those who have the care of children.
It must be of concern that the recommendations of the Warner Report and the code of practice issued by the Department of Health have yet to be fully implemented. Week by week we all read of cases of sexual abuse of little children by those entrusted by the state with their care and protection. The stark reality is that there are still far too many opportunities for those who offend against children to place themselves in positions where they have access to them, either through work or leisure activities and, of course, through voluntary work.
The cost to the nation of abuse in financial terms is enormous. Apart from the legal costs, compensation, inquiries and support for victims, the damage to the economy of our country in terms of sickness, alcoholism, drug abuse and dysfunctional behaviour generally is astronomic. All that is in addition to the human misery to which I referred earlier.
I have to say within the privilege of this House that the influence of ring abusers is considerable. Recently I read the claim that a group of 34 men involved in that sinister activity had potential contact with 2,500 children—2,500 potential victims. The degree of protection afforded to abusers by their sympathisers can be considerable. A recent case gave considerable cause for concern. A person who had formerly been a most influential and trusted adviser in residential child care had access to the Secretary of State for Health and all the senior echelon of people involved in child care. He was a founder member of the Paedophilia Information Exchange. His co-conspirators included teachers, social workers and many others in caring professions. Until we have primary legislation which demands full and proper positive vetting, not alone of residential social workers but also of those who seek to have access to children, the problem and the danger will remain.
We must recognise that sexual abuse of little children is still quite minor in the overall picture of abuse. It has the highest media profile from the headlines and the attempts to make the headlines; but mental and physical abuse are still the most prevalent examples of this sinister illness. As a comparative example, back home in Northern Ireland we have 1,550 children on the at-risk register, and some 11 per cent. of those, I am told, would be at risk of sexual abuse.
There are many aspects of the approach to the investigation of those tragic cases. An Act of 1996 permits the admissibility of children's evidence by video recording, yet the discretion to adopt such methods lies with the individual judge, magistrate, social worker or parents. The Piggot Committee, which recommended that move, also suggested that cross-examination of children should be admissible by video. We still have much to do in the area of children and the courts.
This entire issue raises not alone questions of child protection but also the methods of rehabilitation of offenders and of civil liberties. In relation to offenders, more attention needs to be given to their readmission to society. While, sadly, the rates of re-offending are high, is it not possible for greater emphasis to be given to the supervision and care for that readmission?
The safety of offenders and of those who have contact with them must be of paramount importance. Greater co-operation is needed even now between the housing authorities and social services in that regard. Perhaps I may say also—I have heard the same thought expressed in conversations elsewhere in this building—that the proposed publication and distribution within the United Kingdom of a book containing photographs and descriptions of offenders will do little to address the problem. I am not alone in viewing that development with alarm.
I draw the attention of the House also to the role of pornographic material in the abuse of children. The Internet, as we all know, opened the door to material which is easily accessible to paedophile rings. The onus for the control of such material lies squarely on the providers. We must surely welcome the action by Her Majesty's Government to prosecute British citizens who procure children for sex in other countries.
What concerns me most is the need to remind the nation of the moral imperative to do all we can to safeguard the nurture of our children in safety. What should surely concern us this evening is the encouragement of those agencies in our community—there are many of them—which exist to safeguard children; of parents to understand and fulfil their responsibilities; and of the efforts being made to bring before the nation what constitutes the healthy, worthwhile and sacred strands of childhood.
In a debate like this it is easy to get things out of proportion. Normality, thank God, remains. We must acknowledge the invaluable work of organisations such as the NSPCC, the Children's Society, the Mothers' Union and the agencies of social concern such as the Salvation Army, the Church Army and many Church-based organisations. Such work is invaluable. Such work is essential. If we wish our country to live up truly to the label of a "caring society", then such work surely cannot be allowed to be dependent on only the occasional interest of Parliament. I suggest that there is now a pressing need for a Royal Commission which will take a new look at this entire question and report to Parliament as a matter of urgency. I believe that public opinion is demanding it and public conscience deserves it.
Children are not only the future adults of our society. They are a part of our society now. They are part of our responsibility now. Britain has long prided itself on the health and welfare of its young people. Thankfully, it is a claim which in the vast majority of cases can be justified. But such a fact is surely its own reason for concentrating on those instances when for various
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reasons there are those young people and children in our society who do not enjoy the full benefits of a safe and healthy upbringing. My Lords, I beg to move for Papers.
5.41 p.m.
Lord Wise: My Lords, we must all thank the noble Lord, Lord Eames, for initiating this very topical debate. He has vividly described the problems of paedophilia and the abuse of young children.
The issues of paedophilia are as wide as they are long. Paedophiles have in the past been thought to abuse only within the family. This may well be true and the child is frightened into silence by all manner of means. I need not go into all these now. The child is so threatened into silence that he is absolutely afraid to seek help. However, as the noble Lord, Lord Eames, has described, the abuse is widening. Children are now being used by their abusers for money or gain. They are used for pornography and prostitution. Paedophilia involves networking. This can be as extensive as from the corner shop, worldwide magazines to the Internet. Due to the rapid growth of technology, we need to be aware of the problems ahead and be working now to deal with them.
One of the issues to be addressed is how perpetrators find and entice their victims: how they target the victims they abuse; how they recruit victims with some form of baiting, using drugs, money and even alcohol or the child's need to feel wanted and loved and not recognising the abuse that follows. Abusers do not look any different from anyone else. Therefore, it is essential that documented information is kept and used to protect our children.
I understand that the social services and police register of children at risk has around 10,000 names. It follows that there must be several thousand paedophiles, the vast majority of whom are unconvicted. Mr. David Niven, director of Action Against Child Exploitation, estimates that only about 5 per cent. of the paedophile population are convicted. That is a frightening thought. We have to acknowledge that paedophilia is a world problem and we must work internationally to combat it.
However, perhaps I may spend a few moments concentrating on problems closer to hand. I am especially grateful to the noble Lord, Lord Eames, for this debate gives me an opportunity to inform your Lordships of a charity that some friends and I are in the process of starting up in Wales. The name of the charity is The Welsh Trust for Prevention of Abuse and we have now just become officially registered. The objects are: to protect children from paedophiles, and the aged and mentally handicapped from sexual and physical abuse. That is our main priority. We also hope to educate carers and employers of those who work in this field and to give counselling and help to those who have been abused.
We would hope to protect children from paedophiles, and the aged and handicapped from abuse by detecting the potential offender before the abuse takes place, rather than after conviction. That would be done by improving recruiting procedures, advising local authorities on that and, where necessary, making in-depth assessments of the suitability of applicants to

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work in this field. Some authorities are satisfied that the present arrangements for checking potential employees through the police are entirely satisfactory. However, the police have records only of convictions and it follows that a conviction is far too late for goodness only knows how many unfortunate youngsters. As the noble Lord said, nearly every week cases of sexual abuse by people who care for children are reported in the national press.
We have been fortunate that Mr. Jack Jones, late of the obscene publications department of Scotland Yard and one of the small band of highly specialised officers dealing solely with paedophilia, is helping us. He is an expert at this type of assessment and will be involved in all the assessments for the time being. But of course we shall need qualified people to assist him as our workload increases, and we have other highly qualified people in mind. We shall offer our assessments to the Churches, to the authorities in the public sector and to persons starting up such projects as nursery schools, children's homes and so on.
The education of employers and carers is a high priority of the project. Lectures are to be given by Mr. Jones, who is, as I said, an authority on the subject of paedophilia. Lectures and seminars will also be given by leading psychologists and psychiatrists who specialise in the field of abuse. It is to be hoped that as the trust grows we shall operate on a larger scale lecturing to children in schools as to what to do if they are approached and also to their parents. We shall need to recruit employees and volunteers and train them where necessary.
The counselling of victims is of vital importance. The healing for a victim can take a lifetime. The repercussions of their traumatic experience may show in many different ways, affecting their family and intimate relationships, the misuse of drugs and alcohol, eating disorders and self-harming, to name but a few. I understand that one of the misconceptions of the past has been that those who have been abused go on to abuse. We know that there are a small proportion who do, but the majority do not. These survivors instead become protective of others around them, especially children. If they have children of their own, they are very protective and supportive. Early help and counselling for them in the initial stages is a vital necessity. And that is what we hope to be able to give them.
We would hope to give assistance to abused persons to alleviate their distress and perhaps provide holidays for abused children, provide a mini-bus and a volunteer driver to take them on outings, to Christmas pantomimes and the like. For the abused elderly and handicapped we should try rehabilitation by counselling, putting them in touch with others with similar disabilities in order that they have an opportunity of making friends, helping each other and, it is to be hoped, learning certain skills. For the abused elderly, we would visit them, organise outings, provide for them in some ways if necessary, and generally watch over them. For all this we obviously need employees and volunteers whom we can train accordingly.
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Many of the unitary authorities are showing a great deal of interest in our proposals and we are arranging a number of meetings with officers and leading members of these authorities. The chief constables of all the police authorities are also interested and we are arranging discussions with their relevant officers.
The Churches of all denominations are most supportive. We are indeed honoured that the most reverend Primate the Archbishop of Wales has become a vice-patron, as has the Reverend Dr. Peter Graves, the Methodist Central Minister, and I might add that among other notable vice-patrons are the noble Lord, Lord Geraint, and the noble Lord, Lord Blyth. I am not certain whether I am strictly in order in speaking as I have regarding the charity, but I make no apology and thank your Lordships for your indulgence. It is a good project and even if it only saves a few youngsters or other vulnerable people from abuse, then it will all have been well worth while.
5.50 p.m.
Lord Murray of Epping Forest: My Lords, in the 1970s people found it hard to believe that adults would batter children. In the 1980s allegations of widespread sexual abuse of children were met with disbelief and often with mistrust of the children making such accusations. In the 1990s the police and other professionals working in the field have increasingly encountered a form of abuse which almost challenges our existing beliefs—children and young people sexually abusing other children. I want to concentrate on this issue and also on the point raised by the noble Lord, Lord Wise, about what happens to the victims of sexual abuse after the court has reached a verdict.
We tend to think of a child abuser as a furtive, middle-aged male paedophile, but often that is not so. Accurate figures are obviously hard to come by in this field, particularly those involving a child or a young person as the abuser. Denial and minimisation of abuse perpetrated by children and young people is common among parents, police officers and other professionals. Even so, a variety of research studies suggests, with a striking degree of consistency, that as many as one in three sexual abusers is under the age of 18 years—often brothers, sisters, baby-sitters or fellow pupils.
Childcare agencies over recent years have become increasingly concerned about children and young people who sexually abuse other children. So much so that the National Children's Home's Action for Children, in which I declare an interest, set up an independent committee of inquiry, with members from all the relevant professions and from the police and with observers from the Department of Health and the Home Office, to look into it. Its report, which to some extent overlaps that of the commission chaired by my noble friend Lord Williams of Mostyn on behalf of the NSPCC, spells out the need for a comprehensive strategy for dealing with such cases within the child protection system and, like that commission, it emphasises the need to integrate the health, police, probation, education and social services, as the noble Lord, Lord Eames, to whom we are most indebted for this afternoon's debate, has emphasised. The

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commission emphasises that the role of the police is crucial and critical and urges that the police should never take "NFA"—no further action—in the case of a young person who is believed to have sexually abused another child.
Sexually abusive acts by children or young people are too often ignored, or put down to child experimentation, or to "boys will be boys". The reality is that young sexual offenders are likely to continue to sexually abuse into adulthood. While most juvenile offenders grow out of offending behaviour, there is strong evidence that abusing adolescents grow into a pattern of sexual abuse. The NCH report refers to one reputable research study which found that nearly three-fifths—nearly 60 per cent.—of adult sex offenders started during adolescence.
It is also clear that a cycle of abusive behaviour is common. A child or young person is very likely to abuse another young person as a consequence of being abused—not that all abusers have been sexually abused themselves. The committee of inquiry found that the ease with which pornographic material can be obtained is also implicated in the development of sexually abusive behaviour by young people.
An overall, systematic approach to dealing with a child or a young person who has sexually abused another child is essential. It should be based on the provision of a continuum of care, offering a range of services, from child guidance clinics at one end to secure accommodation at the other, and bringing together all the relevant agencies—social services, police, probation, education and health. It is critically important that intensive treatment must be provided for all young sexual offenders serving custodial sentences—as indeed for all adults. I echo what the noble Lord, Lord Wise, said about the need for education and training.
Finally, we should ask what happens to the children who have been abused, whether by other children or by adults. Their trauma and suffering, so graphically described by the noble Lord, Lord Eames, do not come to an end when the perpetrator has been identified and dealt with. That process itself is invariably deeply traumatic for the victim, as the noble Lord has emphasised. Where the perpetrator was an older sibling or a parent who as a result of the victim's accusation or evidence has been punished, removed from the family or taken into custody, the victim is likely to be accused by other members of the family of causing the breakdown of the family. In this fraught situation both the victim and the rest of the family need counselling and support.
Recognition of this largely unmet need has led NCH Action for Children to set aside £4 million from its reserves to open an innovatory system of treatment centres for sexually abused children. The centres will provide counselling and treatment for child victims and for non-abusing parents and brothers and sisters to help them to face and come to terms with the feelings of profound anger, guilt and confusion that the disclosure of abuse causes and to help the abused child to recover.
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It parallels the initiative, which I very much welcome, being taken in Wales by the noble Lord, Lord Wise, and his friends.
Some 15 such centres have been established. For example, one such centre in Glasgow, which has been funded out of the initiative, together with support from the Scottish Office, has in the past two years helped over 70 children and young people aged from two years to 20 years from 30 families. I hope that, as experience grows and new models of care and support are developed, based on our own initiatives and those such as the one developed in Wales by the noble Lord, Lord Wise, and his friends, and in the light of the lessons that are learnt, local authorities and government departments will take further initiatives in this field themselves.
Responding to the cries for help from what the noble Lord has described as physically and mentally tormented children involves preventive measures, actions to deal with the offenders and support for victims and their families. The report of the NSPCC commission, chaired by my noble friend, has chartered the way forward and, to the same end, NCH Action for Children is helping to demonstrate that the tragic cycle of abuse that leads to ruined lives, to prison and to suicide can and must be broken.
6 p.m.
The Earl of Mar and Kellie: My Lords, I am grateful to the noble Lord, Lord Eames, for initiating this debate. It concerns a vital area of social policy and I hope that we shall continue to accumulate a useful consensus of knowledge and ideas about how the welfare of children can be better secured.
I should like to concentrate on the more everyday welfare of children. Today, it is popular to record an increasing lawlessness among children and adolescents. This is easily observable and every noble Lord can give examples from his own experience. What interest me are the causes of that lawlessness. I define it as being a state of being brought up without reference to the law and hence in ignorance of the law. I need to broaden the concept of the law into being an accepted body of wisdom and convention about social living and living in the community. Therefore, I now assert that children are frequently being brought up without adequate training in community living or citizenship or communitarianism, to give it its political name.
I have now identified my first evidence of low-grade but significant child abuse. The failure of parents to bring up their children in a community-minded way (or sometimes in any way at all), both individually and collectively, needs analysis, starting with its origins.
Perhaps I may quickly dispose of a political point. I refer to the "Sermon on the Mound" given in Edinburgh by the noble Baroness, Lady Thatcher, who said that there is no such thing as society. I shall excuse the noble Baroness on the grounds that she believed that to be the case and because she may have been reflecting a view which may be popular in her home area. I hope that in soft, social democrat Scotland we do not

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recognise the merit of the approach taken by the noble Baroness towards communal living. Many people reject it with the rhetorical question, "Where does it get us?" It suggests that individuals should be regulated by laws about living in close proximity to others, rather than being brought up with beneficial and benevolent attitudes towards everyone else. That individualistic, "Look after No. 1 only" approach is tempting and has been adopted by many—to our long-term detriment. I recognise that that position has been reached by many not by desire, but out of exasperation. It is easier to be self-oriented than to be community-minded—therein lies the challenge—and, when surrounded by evidence of self-centredness, it is easy to give up trying.
This is a problem for adults today, and it is being inherited by today's children. The difference may be that today's adults have some experience of living in more communitarian times; today's children do not. They are starting out at the nadir, whereas I think I started on the descent from the zenith.
I want now to move on to another origin in my search for the causes of today's lawlessness—more evidence of low-grade child abuse—and that is poor quality upbringing. As a teenager in the late 1960s and as someone involved subsequently in a career in social work, I recognise how weak moral teaching has become. That is a problem to be recognised by today's grandparents and their children, today's parents.
That breakdown or reluctance to give strong, definite, moral guidance (in the broadest sense of the word "moral"), I attribute to the welcome ending of a highly structured society after the immediate post-war era. Despite the unfairness and inefficiency of that class system, I believe that there was more knowledge and confidence among adults, and hence parents, about acceptable behaviour, albeit along class lines. That confidence collapsed, along with the structured society, and has yet to be regained. Attempts to remedy it have faltered because teaching in "citizenship" (or whatever else it might be called) seemed to be too culture-laden or critical of the many subcultures in our society. To this day, teachers are careful to avoid saying anything that might be seen as critical of the way in which a parent conducts his or her family life. I lay that malaise at the feet of my generation—and our ideas of social policy.
At that time, I was very aware of how dangerous it was to put forward ideas that stemmed from my own very extreme family background and personal experience. For years, I was averse to imposing what I saw as class values on others. Now, among many others, I am reaping the harvest of that reluctance to allow distinct moral teaching. At college, we were taught to be non-directive. We were so wishy-washy that nobody knew we were even suggesting anything. I hereby repent!
So, how do we proceed from here? Now that we are reaching the bottom of the trough of social control—there is hardly any left or any that is recognisable as such—the time is now ripe for a campaign to empower parents and all those involved with children. That empowerment involves the public discussion of what is
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right and wrong with society, the selection of stronger and more definite attitudes and the development of greater confidence in the distinctive way that families are run. Parental confidence has to be boosted. Okay, it is easy to say that, but I rarely find adults to be disinterested in heavy conversations. Many complain about the lack of opportunity in their lives to discuss real issues and to form opinions and attitudes about them.
I conclude by reviewing some of the common low-level forms of child abuse—that is, behaviour that is likely to be unhelpful to the child's upbringing and life in society. I mention first a lack of parental time and energy. Children need at least one parent who is there for them. Secondly, I refer to a lack of consistency in standards in the home. Inconsistent parenting confuses the child and usually teaches him or her that the same behaviour can be acceptable or unacceptable depending on the mood of the parent.
Thirdly, I refer to the lack of a fixed bed-time. Tiredness and persistent lack of sleep definitely affect the performance of our children. Fourthly, I mention the failure to regulate the consumption of television programmes and videos and to monitor their contents. Despite what the producers say about only mirroring what is going on somewhere—heaven knows where sometimes—far too many ideas about destructive and unhelpful behaviour are broadcast into our homes.
Fifthly, I refer to parental selfishness—of time, of personal priorities and of financial resources. In its worst form, in spite of our social security system, there are children who grow up in primary poverty due to the parents spending all the money on themselves. At the same time, I am not bashing parents for both working to provide a better house in which to live with their family. What I am enthusiastic for them to do is to find pleasure in family-centred activities after the necessities of life have been met.
I have not yet mentioned the appalling issues of heavy child abuse and the effects of paedophilia. I am sure that others will do so with greater wisdom.
6.9 p.m.
The Lord Bishop of Southwark: My Lords, I am grateful to the noble Lord, the Archbishop of Armagh, for opening this debate on a subject which I know causes us all great pain. The reality of child abuse and the effects of paedophilia are becoming more widely known and acknowledged, but I believe that I am not alone in continuing to be shocked as reports emerge revealing the extent of this sort of crime in society.
One of the clear benefits of the opening up of the discussion of child abuse is that children themselves have now been given the opportunity to speak up and to be taken seriously. We are indebted to organisations such as ChildLine which provide a safe and confidential means by which children can begin the painful but necessary process of disclosure by which the horror of their abuse can be brought into the open. I therefore welcome the opportunity of taking part in this debate. This subject, although painful, distressing and distasteful, must be kept on the nation's agenda.

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There are many aspects to this question that I hope will be raised during the course of the debate, including the tragic problem in our country of children who are involved in prostitution, criminalised by the system, and hence are locked into a devastating way of life. I support bodies like The Children's Society that call for central and local government to provide resources to help children out of this dreadful situation and for the police and Crown Prosecution Service to track down and prosecute adults who keep children trapped in this lifestyle.
Revelations in recent years have shown that large institutions in which the care of children is undertaken are places to which those who seek paedophile opportunities endeavour to gain entry. The Church has not been immune to this tendency. Throughout Christian history the Church has taken seriously the nurture and care of children. This continues to be so in parishes throughout the land in social, spiritual and educational settings. Yet the Church enters the debate in great humility knowing of the shame and pain in its own history and that of other denominations.
In 1995 the Church of England, through the House of Bishops, looked at the whole issue of how best to protect children placed in our care, be it during Sunday School, the church choir, the youth club or many other varied activities that make up parish life. Guidelines were issued to all dioceses to enable churches to put in place procedures to help identify those people who should not be given unsupervised access to children and to eliminate the possibility of others being given such access.
In line with this policy, the diocese of Southwark, of which I am Bishop, has introduced procedures for child protection which are currently being implemented. Our procedures are in line with recognised good practice in agencies outside the Church which work with children, and local social services departments have welcomed and approved them. All clergy and lay people who hold my licence are now required to complete a declaration form concerning all prior convictions. This declaration is checked against the index of the Department of Health Consultancy Service. Those already in post have gone through a similar process. In addition I have asked each parish to take simple steps to protect children which are designed to minimise the possibility of harm occurring and ensure that volunteers and paid workers who have regular direct contact with children are appropriately screened.
I am delighted to be able to say that in most parishes the procedures have been welcomed as necessary for ensuring the safety of children. Clergy and lay people have been very co-operative. In practice, the vast majority of activities undertaken in churches for children, both within our worship and in the community, will continue and churches' significant contribution to work with children will not be reduced. It will, however, be improved by systematic procedures which safeguard both children and workers.
This has been our experience. I wish to encourage all voluntary organisations to take seriously the duty of care which is theirs in relation to children and to grasp this
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particular nettle. Any procedure will not guarantee the protection of a child from abuse but it does make life for the potential offender that much more difficult.
I have spoken of our responsibility towards children, but I hope that in this debate we do not forget our responsibility towards those who offend against children. As a parent and grandparent I am filled with revulsion at the crimes that are committed against children. Yet as a Christian leader I have to believe in the possibility of restitution and reconciliation. Those guilty of paedophile crimes must be brought to justice and punished for their crimes but they have to be given the chance to live again and to learn from their past errors. If I did not believe that I would be betraying my faith, which teaches universal reconciliation of fallen humanity with a just yet gracious God. We have a duty to protect our children but a duty also to protect every individual in our society; and that includes the offender as much as the offended against. The popular perception, often fuelled by exaggerated and alarmist media reporting, is that all sex offenders pose a threat and if not locked up should be publicly identified.
The Government issued a consultative document in June 1996 proposing enhanced measures for the monitoring and supervision of all convicted sex offenders. Though such measures are a positive indication of a need to grapple with this emotive issue, there is a danger that they can provide a false sense of security to parents. Certainly any persistent offender would have little difficulty in circumventing many of the proposals. My concern is that more attention should be given to the long-term treatment of offenders and an adequate risk assessment should be undertaken prior to their return to the community.
In the Church we would not wish to allow an ex-offender of this nature to have unsupervised access to children, and in the diocese of Southwark this would not now be possible. I stand fully behind that policy. Yet I would want to work with ex-offenders to help them back into the Church—even, with all due caution, into appropriate positions of responsibility.
As the noble Lord who initiated the debate said, children are not just the future; they are equal members of the society of which we are all a part. They have every right to be protected to live lives free from the trauma of abuse and to look to a future that does not bear the scars caused by the wickedness of others. We must all continue to work with energy and vigilance to create a safe environment in which our children can grow to reach their potential and in which the offender finds a real opportunity to change. I support the call of the noble Lord, Lord Eames, for a Royal Commission.
6.18 p.m.
Baroness Masham of Ilton: My Lords, I thank the noble Lord, Lord Eames, for instigating this debate on a most important, difficult and disturbing subject. It must be discussed to try to find ways to help alleviate the terrible burdens with which some children have to contend. When I learned that a debate had been tabled on the subject of the welfare of children, the problems of child abuse and the effects of paedophilia I thought

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of the late Lady Faithfull. Were she still alive she would have taken part in this debate. Lady Faithfull did so much in dealing with the problems of child abuse and sex offenders. She has a centre named after her for the rehabilitation of sex offenders, many of whom have been involved in paedophilia.
One day at a reception in the Cholmondeley Room Lady Faithfull and other noble Baronesses from your Lordships' House were discussing the problems of children who had been abused. It came to light that several noble Baronesses had themselves suffered some form of child abuse when young, very often perpetrated by a relative or friend of the family.
Child abuse in various degrees seems to be more common across the social structure than one might think. But it is hidden behind a bank of silence because both the child and the abuser often feel guilt as they know they are doing something wrong. On the other hand, there may be some children who are abused by their fathers, step-fathers, uncles or family friends and who grow up thinking that it is a normal situation.
For well over 20 years I served on the board of visitors of a young offenders' institution. During that time I heard harrowing accounts from some of the young people, especially when interviewed in the evening. I give two true examples which I am sure could be repeated a thousand times over. One young man, the father of a baby, told me that he was desperately worried because when he came back from the pub and the baby was crying he became so irritated that he would pick the baby up and shake it. The other example is still as vivid today as when the young 17 year-old told me about it. His family had moved from one part of the country to another to be near the grandparents, but, unfortunately, the mother had died. He said that his sister had been taken into care because his father had abused her. He then said to me, "What's more, he's now doing it with my two young brothers aged 10 and 12." The young man was classified as homeless because he refused to go anywhere near his father. He was full of resentment.
For years I have been saying it is very important that good skills for life—including childcare and good parenting, the problems of drug and alcohol abuse and all the other important issues which make up health promotion—are taught to these very vulnerable young people, many of whom have not had good examples, or any examples, to follow. It is patchy throughout the prison system. Sometimes some of those skills are taught, but many of the young people are drop-outs from school who have missed out on all educational benefits.
The age of people in prison is becoming younger, and there are going to be child gaols. It is vital that people receive good, clear messages of good practice. We must try hard to break the very real cycle of deprivation.
I was disappointed when some years ago I moved an amendment to an education Bill with all-party support that life skills should be part of the core curriculum. The Government would not support it. I still believe that it is of vital importance that all children have a good grounding in what is right and wrong. Too many children have been torn apart by parents breaking up. Often those who have been abused as children grow up to do the same thing to the next generation.
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Last week the Daily Express highlighted the case of a young girl of 11 who had been on heroin since she was eight. Drug addiction has become a slur on society, as has the horrific problem of child prostitution. The problem of children of drug addicts has to be handled very carefully. If the family believe that the children will be taken away they may well not come forward for treatment and help. The children may suffer in terrible conditions behind closed doors. Can the Minister say how much research is being done into the problem of children and drug abuse?
I know that for some years Phoenix House has had a property at Hove which helps families with drug rehabilitation. But its work is only a drop in the ocean. It is most disturbing to hear of children who may have been abused by their families being taken into care and placed in foster homes or children's homes and then being abused again. It is a double insult. Not being listened to must be one of the hardest things to accept in later life. ChildLine must sometimes seem like a lifeline.
Does the Minister agree with me that there should be more safeguards and better screening of staff in children's homes? Would it not be possible to have a friendly body of responsible people who would go into homes and befriend the children and keep a watching eye? Surely, such a body could be organised by local magistrates and the NSPCC near to where the homes are situated.
We hear with horror about children in Thailand who have been used as child prostitutes by the sex industry, often promoted by the drinks industry, which targets European groups. But should we not put our house in order? I quote from the Guardian of 21st August 1996:
"The charity, Barnardo's, went public yesterday on the extent of child abuse, child rape and assaults based on case studies of girls aged 12 to 17 forced to work as prostitutes in Bradford. Save The Children warned of a world-wide expansion of the child sex industry, be it Bradford, Leeds, Manchester or Birmingham".
If that is free enterprise and deregulation I hope very much that there will be some strict regulations to curb this debasing trade in which young girls are brutally treated while the pimps swan around in smart cars.
As the debate is being answered by the health Minister, perhaps I may ask how the Portman and Tavistock clinics, which deal with the abused and the abusers, are coping with the new contract culture in the National Health Service. Furthermore, will she comment on the child sexual abuse team which is based at Lewisham Park and used to be the special unit at Guy's Hospital?
Does the Minister believe that training of social workers and probation officers is expert enough to deal with some of the very difficult situations? There have been problems in the Orkney Islands, in rural North Yorkshire where very handicapped children in a special school were abused, and across most parts of the country. Is the co-operation between the Department of Health, the social services, the police, the education service, the Probation Service and voluntary agencies good enough? Are the Churches well informed and able to cope with situations when they arise both in priests and ministers and in members of their flock when dealing with the abused and the abuser?

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This is a problem which involves both the body and soul of children. I hope that this debate does something to motivate action to correct this deteriorating situation.
6.28 p.m.
Baroness Dean of Thornton-le-Fylde: My Lords, I too thank the noble Lord, Lord Eames, for giving us the opportunity to discuss what is a scar on the whole of our community. It is an issue which shames us all. Like the noble Baroness, Lady Masham of Ilton, when I was preparing for the debate my mind went to Lady Faithfull—or Lucy, as we all regarded her. She was a stout fighter for children and their rights and I suggest that she left us with a tremendous responsibility to carry on the work to which she dedicated her life.
At the end of last year, after two years' work, the National Commission of Inquiry into the Prevention of Child Abuse published its report. The commission was set up by the National Society for the Prevention of Cruelty to Children and chaired by my noble friend Lord Williams of Mostyn. It conducted what must have been the most wide-ranging inquiry that has ever been carried out into this subject. It received submissions from more than 450 organisations and professionals. Nearly 50 hearings took place at which evidence was taken. There were visits and conferences.
The report opens with the statement:
"Most of today's 13 million children in the UK are brought up healthily and happily. That is what we want for all our children".
There is a consensus on that. The majority of our children are happy and healthy, but there is a minority whose treatment causes that dreadful scar on our society.
Unfortunately, as we all know, that happy picture of childhood which most of us in this privileged Chamber probably experienced is to too many of our young children a dream. It is a childhood that they will never enjoy. So often that childhood is stolen from them by those from whom they should expect the most protection. This debate concentrates in particular on child sexual abuse and paedophilia.
One of the basic responsibilities of any society must be to nurture and protect its young. And yet when we read in the press the reports of sexual abuse by individuals or, increasingly, organised groups of paedophiles, I conclude that as a society we have failed abysmally so many of our young children. To read the reports is bad enough but to talk to those in the child protection agencies is horrendous. I suggest that some children in our society are subjected to brutality which is of heinous dimensions. Despite the fact that the press reveals to the public domain much of the abuse that takes place, sometimes it is badly dealt with.
In this country we have many first-class voluntary organisations which have made a major contribution to child protection. ChildLine has already been mentioned. It is so well known and yet it is only 10 years old. In those years over the telephone ChildLine has counselled nearly 78,000 children who have called, with sex abuse as their main problem. The reports of sex abuse are
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sometimes so distressing that the telephone counsellors themselves need counselling when they finish their shift on the telephone.
In 1986, when ChildLine was set up, 80 per cent. of the children on the telephone said that they had told no one about the abuse that they were suffering. By 1996, that number had reduced to 47 per cent. That is progress and we should recognise that. But there is still a long way to go.
The noble Lord, Lord Eames, was right to talk about the issue of children in court. ChildLine has produced a video for children going to court as witnesses in order to give them support. But more needs to be done. It is an horrific and traumatic experience for an adult but it is even more so for a child.
The National Children's Home does wonderful work in support of children, and its report was referred to by my noble friend Lord Murray. The Children's Society does a very good job, and its work was referred to by the right reverend Prelate the Bishop of Southwark. It published The Game's Up in 1995 which dealt with child prostitution. There are many other national and local support agencies for children. There is Barnardo's, and we must welcome the new organisation being set up in Wales to which the noble Lord, Lord Wise, referred. Therefore, we are not short of research or knowledge on the issue and we are certainly not short of experience and ideas as to what should be done.
I cannot believe that anyone in the community, political barriers apart, would wish to do anything other than the right thing by our young people. So what is lacking? I regret to say that the Government must take responsibility for the inadequacy of their action in protecting the many thousands of vulnerable children in our community. Perhaps the Minister can tell me what action the Government have taken to deal with those who have forced children, boys and girls, into child prostitution here and abroad?
A report was referred to earlier by the Children's Society which called for a change of emphasis to protect young people, as provided under the Children Act. It suggested that there should be a moving away from the criminal law being used to caution and convict young people involved in prostitution. Young people in that situation need protection and support. They do not need to be sentenced and stigmatised for the rest of their lives. It is our responsibility to help them. The measure called for by the Children's Society, which is supported by the national commission, would assist in that.
There is a consensus among the children's protection agencies that there needs to be a general strategy, which has been referred to already in this debate, from central government. It should be applied across all departments, the police and social services. We need child protection with no barriers. That is what is needed to protect the children in our community. I include in that the Department of Health and the Home Office, which must come together to develop that national strategy.
In London, the NSPCC has developed a pilot London protection scheme which goes across all those agencies and has them working together. It crosses the geographical boundaries between local councils, social

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services departments and police authorities. What support will the government give to extending that pilot as a model throughout the rest of the country?
One of the many legacies which Lady Faithfull left us includes the Faithfull Foundation. I must declare an interest in that I am a trustee of the foundation. The majority of child abuse occurs in the home. Innocent young children know that the implication of telling and seeking support may be the break-up of the family and they do not want that to happen. They want to stay together, despite the nightmare that they have been through. Therapy and counselling have their place in dealing with the problem. They will not work for all but they could work for many. That is one reason why the Faithfull Foundation was set up and needs support. It is not unique. There are other initiatives elsewhere in the country. But it needs ongoing support and I am delighted, as a trustee, to know that the noble Baroness, Lady Blatch, from the Home Office helped to get some of the initial pump-priming funding for the foundation.
I was interested to read a study, which has not yet been published, conducted at Grendon Prison in Buckinghamshire on therapeutic intervention. It has shown significantly lower reconviction rates among sex offenders who have received treatment. Why should that not be spread further?
Finally, I return to the valuable report from the NSPCC Commission, chaired so ably by my noble friend Lord Williams of Mostyn. Why do the Government not prepare a considered, in-depth report linked with a national strategy in connection with the 85 recommendations which the commission put forward? The implementation of those 85 recommendations, coupled with the work of the other child protection agencies, would mean that the talking could stop and we could do something about the problem.
6.39 p.m.
The Earl of Sandwich: My Lords, I too thank the noble Lord, Lord Eames, for giving us this welcome opportunity for debate. I thank him also for his robust contribution.
As noble Lords have said, children who have suffered abuse in their own families are a category apart. They deserve a very careful response from the community. In the first instance, such children may need a safe haven away from home but, at the same time, they need constant help from wherever possible to rebuild a relationship with the family and society.
One safe haven was St. Francis School at Hooke in Dorset where I was a governor until recently. It was started by Brother Owen in 1945 and was managed by the Society of St. Francis on behalf of the Church of England. Over 45 years, more than 500 boys aged seven to 16 from urban homes all around the West Country received a remarkable blend of professional care, special education and commonsense parenting. It was an acknowledged centre of excellence and for many years was supported by a partnership between the Church, the then DES and the local authorities.
In the 1980s, as local authorities were squeezed for
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funds, the school gradually lost pupils one by one and in 1992 we were forced to close it. Five special schools of Church, Quaker or Rudolph Steiner origins were closed in one year. Why? Because quality had to be sacrificed in the name of good economic housekeeping. It is unfortunate that this quality in our special schools has been lost in the general criticism of discredited children's homes.
There were some amazing stories at Hooke of children who had suffered. Their case studies were no better and no worse, in my view, than those of children on a Calcutta railway station. One boy, physically and sexually abused by his mother's successive boyfriends, arrived as a tiny, stunted child smoking 35 cigarettes a day as his only way of coping with family life. A few years at Hooke and the child was eventually able to go back home, stand up to his mother and her friends and help to reunite his family. Now aged 23, he works for an automobile company which wants him to represent it in Germany.
Another boy had terrible psychological problems after being abused by his mother. When he came to Hooke he could not go to the toilet and told the teachers that this was because "Every time I went she hit me or interfered with me". He was seen regularly by a psychiatrist and, after a period of regular care and attention, grew up a normal child, able to return to the family. Another boy ran away from home and was brought to Hooke aged 12, unable to read or write because of child abuse. He is now an Army instructor in Wiltshire. There are many similar positive stories. I take the opportunity to congratulate the Society of St. Francis, which has an outstanding record of child care. I asked one of the Franciscans this week what were the qualities which made Hooke special. A secure environment and a regular routine, he said. There had always been a need, he added, for some children to be removed from their family setting. It was amazing how many children were able to open up and feel safe and to grow again in the new surroundings.
What has happened to the children in special schools who became the victims of the new economic disciplines of the 1980s? Where are the boys who, in the name of savings, had to be sent back from Hooke and the other special schools for the educationally and behaviourally disturbed? These are hard questions and I can only begin to provide an answer. My guess is that they went back to the streets of Bristol, Bournemouth, Southampton, Exeter and other urban centres to join their friends and the untold numbers of young offenders who have been before the courts ever since, often for crimes of sexual exploitation, abuse and prostitution. I welcome the contribution of the noble Baroness, Lady Masham of Ilton, for making the connection between abused children and young offenders.
I asked a magistrate in Bournemouth this week what was the solution to the apparent rise in juvenile crime and the number of teenagers who come before the courts again and again. Her answer sounded somehow familiar. She said that what was needed in the absence of good parenting was some form of more regular supervision,

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counselling and follow-up for these young people, especially the younger ones, who desperately needed care and education.
One answer in Bournemouth was found through the Probation Service setting up a pilot bail support scheme three years ago with help from the voluntary organisations whose officers keep in regular contact with the young offenders and their families, reinforcing the over-stretched Probation Service. Research by Southampton University shows that an average of 30 per cent. of reoffending had come down to 8 to 10 per cent. under the scheme. I welcome what the noble Baroness, Lady Dean, said on the subject. In the absence of family life or school, or any special education, the scheme is essential. But even that is threatened by a 10 per cent. cut in probation services in the coming financial year. It could mean the end of the whole hail support scheme. An approach is being made to charities and other sources of funds. It seems that even where quality has been proven, the Government, or perhaps society—is it us?—are allowing such schemes to die or be left in the hands of the voluntary sector.
The economics of savings whereby money is wasted on processing the same young offenders time after time while society is penalised by unnecessary crime is either wrong headed or immoral, possibly both. Perhaps it is unfair to blame the Home Office, but it is certainly not good government when the best is ignored and the worst is put in its place at even greater cost to the taxpayer.
I read the Minister's reply to a previous debate on the subject of secure training for persistent young offenders. She said:
"those juvenile offenders will be those for whom community supervision has failed".—[Official Report. 1/2/95: cols. 1523–24.].
I ask whether the number of offenders since then has been going up precisely because the community has failed them.
The received wisdom today, as we have heard, is that the family must be re-educated to look after their children. Behavioural support, according to current fashion, depends on parents ensuring that their young offenders stay at home. But for persistent offenders who have suffered abuse this may be a prison sentence, even if they receive some form of home tuition which would be for a mere four to five hours a week.
In conclusion, on the subject of paedophiles, which is of great popular concern, I can only repeat what others have said. The abused so often become the abusers, predisposed to crime and vulnerable to paedophilia and prostitution. However, instead of hanging labels around their necks, a practice which only reflects our own fear, distrust and failure, we need to re-examine the complex process which turns young abused children into offenders and try to put back the subtle mix of professional care and parental affection in a secure environment which I believe society can afford.
6.48 p.m.
Lord Blease: My Lords, I join with other noble Lords in expressing my thanks to the noble Lord, Lord Eames,
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for introducing this challenging debate on these ugly, difficult issues concerning the welfare of children, the problem of child abuse and the effects of paedophilia. What we have heard today in this debate and seen from the evidence that has been recorded in the press, media and official reports is an awful indictment on the governance of any community or nation. That is especially the case when the issues are evident in countries and communities that extol the virtues of moral values and also pronounce loudly the influence of Christian principles and teaching in childcare and in family love and relationships. Is there not an ever-widening gap between the precept and the practice?
It has a tremendously disillusioning effect on people as a whole that this should happen in a society which attempts to hold up its general welfare to the rest of the world. These issues reveal the depths of human frailty and a lack of vision and commitment in the body politic. The issues require concerted political action, but I hold that the issues and action transcend party political rancour or internal disputes. Indeed, I believe that within Northern Ireland's deeply divided political situation these issues of childcare present a critical moral challenge, especially to all elected public representatives, a challenge to join in constructive democratic action to promote, within the tenets of justice, the welfare and care of all our children. I refer to all our children—the rich, the poor and the 47 different varieties of political and religious elements that we have in Northern Ireland. Should not these issues of childcare be urgent and worthwhile matters for early debate in the Northern Ireland Elected Forum for Political Dialogue which meets weekly in Belfast? I believe that to put children first in those debates would encourage a tremendous healing spirit within the community.
The cornerstone of legislation for the welfare of children in the United Kingdom is the Children Act 1989, together with the Northern Ireland Children Order. This has been described as the most comprehensive and far-reaching reform of child law in these islands. It provides a new legal framework and a new language of child law and practice, and represents a marked change in attitudes towards children and their families. The legislation is about parental responsibility and partnership with the various professionals who are charged with the role of overseeing the education and the overall welfare of children. However, as we know only too well from what we have heard during this debate, there are ever wider gaps in the administrative and regulatory systems—hence the need for this debate. If the legislation had been fully implemented, we might be in a better position today.
We are drawing near to the end of this term of government. We look forward to a new government and we have certain expectations. I feel it is appropriate that this unelected House should indicate our continuing concern for the welfare of children, particularly our concern about child abuse and paedophilia. Of course one would expect that all parents, public representatives, clergy, educationalists, nurses, social workers, and indeed all thinking citizens, would publicly express their concern about those issues.

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The truth of the matter is that child sex abuse and paedophilia are not always as we perceive them. We have heard a good deal about that in this debate. There has been a perception—it is perhaps now disappearing—that child abuse and paedophilia are carried out by dirty old men in raincoats standing around public lavatories. The truth is far removed from that. Court cases that come to our attention involve those who often hold positions of support and trust with regard to vulnerable children. As I have said, we have heard much about that already in this debate.
In addition to parliamentary scrutiny of these issues, a number of organisations have expressed concern about them in reports and have created public awareness and understanding of this issue. They have also raised alarm about disturbing events which occur within our communities. The noble Lord, Lord Eames, has already said that there are many organisations which promote a greater awareness of this matter and which promote remedies and efforts to tackle the situation. One of these organisations has already been mentioned; I happen to be a nominal member of the all-party parliamentary group on children. I pay tribute to what has been achieved by that group and in particular to the leadership given by Lady Faithfull. I refer also to the National Society for the Prevention of Cruelty to Children, Child Right, Child Care Forum, and the Gulbenkian Foundation, which has also produced a report on this matter.
I wish also to mention the commission of inquiry into the prevention of child abuse. I believe I am not alone in thinking that that body has produced an outstanding report which—it has been mentioned in this House—deserves much more public attention than it has had. Apart from the public attention aspect, I should be happy if I felt that the Government were responding to that report in a constructive way. I understand that report has been sent to the Government. It would be helpful if the Minister could indicate whether the Government have had any thoughts or discussion on it, or even whether she has any personal views on the report's recommendations. The noble Lord, Lord Eames, and the right reverend Prelate dealt with this matter in an understanding and detailed way. I hope that this kind of debate will never have to be repeated in this House.
6.56 p.m.
Lord Fitt: My Lords, there are times when I feel proud of the Northern Ireland voices which I hear in debates in this House, and today is one of those occasions. The Archbishop of Armagh has brought before the House one of the great tragedies of our time. He has done it in such a way that he has engaged support from all sides of the House, which proves that this issue transcends all political boundaries. One of the most significant points that he made this evening was that it is only through the occasional interest shown in this matter by Parliament that the country becomes aware of the enormous size of the problem of children's welfare and child sex abuse. Today is one of those rare parliamentary occasions when we can all direct our minds to the awful problem of child abuse.
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When I first noted the debate introduced by Robert Eames today I realised that I was not aware to any great extent of the problem which exists. Coming from Northern Ireland as I do, and having been a representative of that community for many years, I decided to get in touch with Northern Ireland to find out the extent of the problem in that small community of 1½ million people. Yesterday morning I got in touch with many authorities and in particular with the RUC. The horrifying news which I received made me ashamed to be an Irishman and an Ulsterman and a former resident of the city of Belfast. Today the House has been told of the problem, but as yet are we aware of the extent of the problem which exists among the 55 million people in this United Kingdom? I do not think we are.
The noble Lord, Lord Eames, said we are only made aware of this matter by the occasional interest that is shown in the subject. Yesterday morning was such an occasion when I contacted the RUC in Northern Ireland to be given some horrifying details. I shall refer to some of those details now knowing that the population in Northern Ireland is totally unaware of what has been happening in this area. Everyone throughout the United Kingdom, and indeed further afield, will be aware that the Northern Ireland community has had to deal with the problem of terrorist violence over this past quarter of a century. Perhaps in trying to deal with that problem we have been inclined to deflect our attention away from all the other problems that exist within that community.
When I spoke to the police yesterday morning, they told me that they have a special unit in Northern Ireland to deal with sex abuse and the abuse of women. That child welfare unit has 55 detectives, six inspectors and 11 sergeants who are engaged full time in trying to apprehend and bring before the courts those who are guilty of abuse of children, in particular sex abuse.
I keep trying to find words to describe the figures that I was given yesterday. I can only repeat that they are horrifying. In Northern Ireland in 1995 there were 229 rapes; in 1996, 264 rapes; in 1995, 20 young males, boys under 14 years of age, and 50 young girls under 14 years of age were raped. In 1996, 45 young girls under the age of 14 years were raped in Northern Ireland. In 1995, 692 women had been abused. Of those 692, 157 were young girls between the ages of six and 10 years. Am I not justified in feeling shame that this could happen in my homeland? In 1996 there were 764 reported cases of abuse, and 199 were committed against young girls between the ages of six and 10 years.
I know that those figures are correct. I know of the dedication and compassion shown by the RUC and the police in their endeavour to find those responsible for that abuse. The RUC is to be congratulated on its endeavours. Those figures relate to a small population of 1.5 million. Think what must be happening throughout all the other regions of the United Kingdom. Has any attempt been made to obtain the information from those various regions? We could then see how many hundreds of thousands of young people have been abused, sometimes by their parents and sometimes by others. One of the other sad figures which the police

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gave me yesterday relates to 12 incest cases in 1995—fathers and daughters. In 1996 there were again 12 incest cases.
I do not believe that Northern Ireland is an unusual society. I know that it has lived through the terrible trauma of terrorist violence over the past 25 years. Perhaps that has had some effect on the moral and Christian outlook of everyone in Northern Ireland. I hope that the figures I have cited will show that the RUC and the police force in Northern Ireland, while having to deal with terrorist violence, are also committed to detection of a greater type of violence: violence against young, defenceless boys and girls.
The noble Lord, Lord Blease, suggested that an attempt should be made by the elected representative to the forum which now exists in Northern Ireland to discuss this problem. There is no more important issue facing the people of Northern Ireland than the problem of child abuse and paedophilia. I hope that the noble Lord's recommendation will be listened to.
I hope that the sentiments, concern and compassion expressed in the debate initiated by the noble Lord, the former Archbishop of Armagh, will be listened to not only by the dozen or so Members sitting in this House, but will be made readily available to all those in authority throughout the United Kingdom, perhaps forcing them in their endeavours to take whatever dramatic steps are necessary to grapple with this awful problem in our society.
7.5 p.m.
Lord Prys-Davies: My Lords, I thank the noble Lord, the Archbishop of Armagh, for having initiated the debate. I thank him for the breadth of his speech, which provides a sound framework for future action.
I want to emphasise the concern expressed by the noble Baroness, Lady Masham of Ilton, and by the voluntary organisations with a special interest in the child, about child prostitution. That aspect is absolutely relevant to the subject of this evening's debate.
The tables in the report, The Game's Up: Redefining Child Prostitution, recently published by the Children's Society confirms that the problem of child prostitution exists in this country. It is not merely a problem for a foreign land. It indicates that in 1993 there were 296 police cautions in respect of young girls aged under 18, and 105 convictions of such young girls for prostitution-related offences. I note from one table that one 10 year-old girl also received a police caution. Of course one acknowledges that the cautions and convictions could be of the same person. On the other hand, there are no doubt many hidden cases of child prostitution. Therefore, by definition, it is very difficult to measure the size of the problem—a point made by my noble friend Lord Fitt. Nevertheless, there is sufficient evidence to show that action is required.
I have inquired for statistics of sexual offences against children for the years 1994–1996 in order to update the figures in the report from the Children's Society. I am grateful to the Home Office research directorate for the
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information it sent me this afternoon. I have not had time to digest it fully but I wish to refer later to one of the statistics.
Most of the children and young people under 18 who are the subject of our concern in the debate are especially vulnerable, for the reasons given by almost every previous speaker. They are described in paragraph 11 of the consultation paper, Sex Offenders: A Ban on Working with Children. I shall not repeat the paragraph. I believe that the primary concern should be for the welfare of such young people. If the response of the Government, and our response, is not aimed at their welfare it achieves nothing.
There is growing concern that a young girl on the street accused of a prostitution-related offence should be debased further by being brought before a youth court. The voluntary organisations do not believe that that is appropriate or helpful. The point was made by my noble friend Lady Dean. It has been pointed out that a conviction for a sexual offence goes on the young person's record and that will be damaging when she seeks a job. Again, a fine for the offence can merely lead a young person back on to the street to secure enough money to pay the fine. If all that occurs, what has been achieved?
On the other hand, are the adults, the clients, the customers who sexually abuse children and young people being successfully prosecuted? It is a pretty shameful fact that Home Office statistics that I received this afternoon, if I properly understood them, show that in 1995, by the age of 40, 0.7 per cent. of men had a conviction for a sexual offence that had a child victim. In other words, in 1995 110,000 men had, by the age of 40, been convicted of an offence against a child aged under 16. That is some indication of the size of the problem. But there is concern that the rate of successful convictions for sexual offences against children has declined in recent years. Will the Minister tell the House whether that concern is well-founded?
Noble Lords spoke specifically and thoroughly about paedophiles. I very much welcome the recent consultation paper, Sex Offenders: A Ban on Working with Children, issued by the Home Office and the Scottish Office. I support the proposed new offence. However, I tend to think that there should be a right of appeal, even in such cases.
Clearly, the proposed new offence will not, and cannot, prevent paedophiles from having access to children on the street. On the contrary, it is very obvious that there is a significant risk that more paedophiles will prey on children on the street if they are debarred from the work areas set out in paragraph 15 of the consultation paper. If that risk were to materialise, no doubt the position of which we complain would worsen. It is therefore important that the police should be vigilant and should take whatever action is available to crack down and prosecute the adults involved.
Given the freedom of movement enjoyed by Community citizens, I recognise that there is also an important European Union dimension to this subject. The Local Government International Bureau and the NSPCC recently jointly produced a very helpful

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document, Child Abuse Prevention in the European Union, identifying developments which they believe are necessary to ensure co-operation between member states in child protection measures. For example, it includes measures such as a European missing children's register, and a European Union child sexual offenders register, and suggests an agreed definition of the term "child abuse". The report was the subject of a one-day conference in Swansea last November.
Have the Government had the opportunity to reach a view about that report? Whatever their position, I very much hope that the incoming Labour government will press for many of these changes. Meanwhile, I trust that this short debate initiated by the former Archbishop of Armagh will help in a small way to focus attention on the need for greater protection for young children who are at risk from paedophiles and pimps and greater support for those who have been sexually abused and assaulted.
7.13 p.m.
Baroness Hayman: My Lords, my noble friend Lord Prys-Davies rightly pointed out the breadth of this debate provoked by the Motion in the name of the noble Lord, Lord Eames. The whole House will be grateful to him, both for the opportunity to debate very serious matters regarding the welfare of children and the manner in which he introduced the debate. It has been enormously wide-ranging. As the contribution of the noble Earl, Lord Mar and Kellie, showed, it is possible to deal, if not with all human life, certainly with the quality of parenting in our society. I am tempted to follow him along the lines of his speech; however, that could form the subject of a separate debate, so I shall restrain myself. Even within the narrower context of the awful abuse of children within our society, as was pointed out, we are dealing with a whole range of issues.
It was rightly mentioned that most of the abuse of children is not sexual abuse. A great deal of physical and emotional abuse takes place. It is extremely difficult for us to face what is going on, both in terms of physical and emotional abuse and in terms of sexual abuse. That point was made by my noble friend Lord Murray of Epping Forest. The very powerful contribution of my noble friend Lord Fitt also illustrated how shocking is the extent of the misery and, as the noble Lord, Lord Eames, said, the "darkness" that there is in child abuse.
However, it is important that we analyse the problem. It is important to be aware that the majority of child abuse that takes place is, sadly, by those to whom children have the right to look for protection, either within their own family, or, as the right reverend Prelate pointed out, when in the care of people in whom they and their parents have trust and that trust has been abused. It is a difficult situation for us to deal with.
There is also the sometimes separate and important problem of organised criminal paedophilia. Although, thankfully, we are dealing with a small number of offenders, the evidence is that they are very serious, recidivist offenders who may affect the lives of many, many children across a range of situations and
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geographical locations both in this country and internationally. In that context, the report to which my noble friend Lord Prys-Davies referred about how we can tackle some of these problems—particularly that of organised rings of abusers on an international scale and what can be done within the European Union—is highly important. My noble friend Lady Dean talked about the need for a national strategy. She is absolutely right. However, we have to be aware that in this context we are dealing with international problems as well as national ones. In that sense we should be pleased to see the progress that has been made on the Sex Offenders Bill, which gives us an opportunity to deal with the problem of the "exportation" of criminality against children. It is a very important measure.
It is also important that our debate centred on the children themselves—on the victims rather than the perpetrators. We have to concentrate on the perpetrators in the sense of trying to prevent a recurrence of offences. But if we focus on the children, and on proposals in terms of whether they will protect children who are at risk of abuse, support the victims of abuse and prevent offenders from re-offending, we are likely to have a more positive attitude. I suggest that our reactions have sometimes come from a feeling of "shrinking from vicarious pain", of "not wanting to know" what is going on. That has led to our looking only at hugely punitive approaches to offenders. The noble Lord, Lord Wise, spoke about schemes that can both help in prevention and support victims. The right reverend Prelate the Bishop of Southwark talked about what can be done if an organisation in a position of responsibility faces up to the fact that that responsibility has sometimes been abused by people who have been trusted and then coherently attacks the problem. There are measures that can be taken.
The noble Earl, Lord Sandwich, talked about measures that can be taken to protect children and to change their lives. We all recognise that in most situations the interests of the child and those of the family do not diverge. It is important to support the child and its family if we are to help that family, to improve the child's life and to cut the risk of abuse. However, there is a minority of families in which the interests of the child and those of the parents or those who care for the child diverge. It is possible that in such a case a residential setting can break into the cycle of deprivation and change the life of a child. As the noble Earl pointed out, those kinds of measures can be very effective and cost-effective.
It is also important to examine the possibility of intervention with young offenders. My noble friend Lord Murray of Epping Forest pointed out that one of the difficult areas to face up to is the abuse of children by other children and young people. Encouragingly, some of the research into intervention with offenders indicates that it is with young offenders that therapeutic interventions have the greatest chance of success. It is extremely important that we learn from that research, put it into practice and take action to break into the cycle of deprivation. We should not adopt a counsel of despair. Evidence exists that many offenders themselves suffered from abuse, but we should not generalise from

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that and assume that all those who have been abused will turn into offenders or that their lives will necessarily be blighted.
Reference was made to Lady Faithfull, whom we all miss today. It is perhaps not a phrase that would fall from her lips but I think the sentiment is there: I feel that she would be saying to us, "Don't mourn, organise". Today's debate could have been extremely depressing, but in fact many ways of moving forward have been suggested. It is our responsibility to take those measures forward.
The noble Lord, Lord Blease, referred to two recent reports, one from the NSPCC and one from the Gulbenkian Foundation, about structures of government in connection with support for children within our society.
We should consider what can be done within the court system to improve the experience of justice after abuse has occurred, which is for many victims of abuse an additional source of pain and distress and an unproductive exercise. We all have a responsibility to improve that experience for those children. However, while we consider that matter and the counselling which can be given to the victims of abuse and ensure that the court process does not stand in the way of that counselling, we should also look at the way in which children are represented in our society. They do not have a vote. We have in some ways been talking about them today as victims. Sometimes looking at children in that way and not according them the rights to which they are entitled leads to their welfare not being a priority and their not receiving proper attention.
As my noble friend Lady Dean pointed out, the government departments whose work involves children are numerous and disparate. I believe that we could do better as a society in terms of the political structures in which the interests of children are brought to the top of the agenda. I very much hope that that is something that will gain support from all sides of your Lordships' House.
7.26 p.m.
The Parliamentary Under-Secretary of State, Department of Health (Baroness Cumberlege): My Lords, there can be no more important subject than the welfare of the nation's children. Our children are our future. I know that that is a hackneyed phrase; nevertheless I believe it is so true.
I should therefore like to congratulate the noble Lord, Lord Eames, on initiating this very broad and thoughtful debate. With his vast knowledge of young people—not only as a select preacher at the universities of Oxford, Cambridge and Edinburgh but also from his practical experience as a governor of the Church Army, a school governor and a parent of two sons—there could be no one better suited to know about children.
We know that to grow and develop into healthy and rounded adults, children need large amounts of love, care and attention, ideally from loving families. The primary responsibility for nurturing and bringing up children has always lain with families. Any parent
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knows that this is one of the most difficult tasks in the world. It requires love, patience, fairness, discipline, teaching by example and long-term commitment. I say long term. Perhaps I should say a lifetime's commitment, for my experience is that children never quite leave home, and I have to say that I rejoice in the fact.
It is the role of government and of public agencies—primarily education, health and social services—to provide support in a way which reinforces rather than undermines the primacy of parental responsibility. But we know that not all families function well. Some families fail to provide the secure and stable environment which children need. As the noble Baroness, Lady Hayman, said, abuse most frequently occurs within the family. That is one of the very tricky dimensions we have to watch.
We know that in the past child abuse went largely unrecognised. Sexual abuse in particular was a taboo subject and seldom acknowledged. It could not be openly discussed. It is only relatively recently that these taboos have been broken and we are able to recognise the long-term damage that can be caused not only to children's health but also to their long-term development. In the worst, and most tragic cases it can of course even end in death.
The Government's responsibility is to ensure that children at risk are provided with the protection they need. That is why we are committed to combating child abuse and why we constantly strive to improve practice and procedures to minimise the risk to vulnerable children.
If I may add a personal note, just before I was elected to East Sussex County Council the case of Maria Colwell came to light. It was the most tragic affair. The noble Lord referred to the knowledge of neighbours, teachers and others in these cases. The Maria Colwell case was a classic example of that. It was like a jigsaw puzzle: many people had the pieces but nobody put it all together to make the picture. After that case everyone involved was traumatised, but I believe it triggered a range of procedures—area protection committees and so on—which over the years has protected a large number of children from similar horrifying events country-wide. I believe that East Sussex now has policies and procedures which are second to none. But it is unrealistic to hope that professional interventions, however skilled and sensitive, will put an end to child abuse.
All we can do is seek professional involvement, involvement with the right blend of judgment, common sense, intuition, management and training which will ensure hurt to a child or damage to a family is less likely, which spots and remedies problems before they become crises, and which has the rigour to cope with a crisis when it does occur.
When things do go wrong we have in place tried and tested procedures for examining the actions of relevant agencies. I am sure noble Lords will say that it is then too late. But it is necessary that we learn the lessons and improve professional practice.

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The noble Earl, Lord Sandwich, told us of the need to re-examine the issue of children who had been abused going on to become abusers. As part of the Department of Health's research programme, a major project is under way looking at the characteristics of young boys, their families and the communities in which they live. It seeks to identify circumstances where boys who have been abused go on to abuse or why they do not and also situations where boys who may not have been abused become abusers. Part one of that project will be completed this year and part two in two years' time. The initial findings suggest that it will be a very significant study, adding to our knowledge in this area.
The right reverend Prelate the Bishop of Southwark asked what more could be done to support the treatment of child abusers. I am grateful to the noble Baroness, Lady Masham, and other Members of your Lordships' House for reminding us of our friend Lady Faithfull. She is remembered in this House with great respect and affection. She has a lasting memorial through the foundation. The foundation is a child protection agency and is committed to reducing the risk of children being sexually abused by, first, preventing known offenders from reoffending, training police officers, and specialist profiling of offenders; secondly, training child protection workers and colleagues in the criminal justice and penal system; and thirdly, working therapeutically with the victims of sexual abuse and providing a national consultancy service and resource centre. I am delighted that the noble Baroness, Lady Dean, is a trustee of the foundation. It is breaking new ground. The department has provided funding for it continually since 1993.
The noble Lord, Lord Murray, asked what was being done for children who had been sexually abused and mentioned the importance of providing treatment for them. We agree that that is a very important point. The Department of Health has funded a number of projects, including research at the Tavistock Clinic. It has given funding, as I said, not only for the Faithfull Foundation but also for St. Christopher's Fellowship.
However, not all children who have been abused will need specific intervention from specialists such as child psychiatrists or clinical child psychologists. For many, the support from trusted adults who can listen and take the child's experience seriously may be sufficient. That is where ChildLine plays such a crucial role. But for other children we know that more specific help is needed: specialist workers with social services and voluntary organisations offer help individually or to small groups of children. If the problems are much more complex, child mental health professionals are involved: child psychiatrists, clinical child psychologists and others from the multidisciplinary specialist services offer assessments, consultation with other agencies or specific treatments such as individual child psychotherapy, group psychotherapy and family therapy.
As the noble Lord, Lord Blease, said—I am very grateful to him—one of the key strengths of our child protection system lies in the Children Act 1989. I remember my friend Lady Faithfull telling me that she felt that the Act was a landmark piece of legislation. It
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is that legislation which has led to a substantial change in the way in which services are delivered to vulnerable children and their families. In its provisions, the welfare of the child is paramount. Its emphasis on partnership with families, on taking action only where it is likely to produce a better outcome and of avoiding delay are all important and valuable principles. The guidance accompanying the Act provided, for the first time, a coherent and consistent framework for children's services.
The noble Baroness, Lady Hayman, mentioned research. That is important. I have mentioned one piece of research. But other research shows that there is much good about our child protection system. Indeed, as the noble Baroness, Lady Dean, said, children generally are well protected. The noble Baroness, Lady Masham, asked about a key part of the Act and the guidance Working Together under the Children Act. That is the Government's guidance on arrangements for inter-agency co-operation which is widely regarded as having been successful in promoting joint working by social services, health, education and the police. All agencies, and I include those in the voluntary sector—I too pay a tribute to them—have a vital role to play in identifying problems and offering support to families, while recognising that further action may sometimes be needed.
The noble Baroness, Lady Dean, asked about the specialist NSPCC and police project on child abuse in London. The department is aware of that project and awaits with interest the results of a research study which is evaluating it. We shall consider its findings as part of the revision of our guidance Working Together planned for 1997–98.
The noble Baronesses, Lady Masham and Lady Dean, were deeply concerned about children becoming involved in sexual exploitation for commercial reasons, as was the noble Lord, Lord Prys-Davies. I can assure both the noble Baronesses and the noble Lord that the Government are not in the least complacent about the problems of child prostitution. In the first place, there is a wide range of criminal sanctions to deter and punish those who exploit child prostitutes. The Government are also committed to what they can do to prevent children becoming involved in those harmful activities. Again, the Children Act provides a framework of powers and responsibilities to ensure that children receive the care and protection they deserve. Local authority social services also have a duty to make inquiries where they have reasonable cause to suspect that a child in their area is suffering or is likely to suffer significant harm. That would include information suggesting that a child may need protection from child prostitution.
Perhaps I may return to research. In 1995 the department published Messages from Research, a compilation of 20 studies covering the child protection system. It indicates that results for children and families are generally better and the social work task easier when parents are genuinely involved.
The research has also shown that where there are concerns about the possibility of abuse, the full rigours of the child protection system may not always be

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appropriate. It found that, for the 160,000 or so children referred each year, inquiries in almost three-quarters of cases went no further than interviewing parents. The research suggests that agencies would be better to avoid concentrating too narrowly on alleged incidents of neglect or abuse. Instead, they should focus on the needs of the most vulnerable children and their families. In the light of these findings, we have been working in partnership with the Association of Directors of Social Services to encourage social services to "refocus" their services in just this way. Even before child protection is an issue, if we can target resources better we can prevent some children ever being victims of child abuse by supporting their families when they need some help.
The Government are committed to underpinning families without undermining parental responsibility. My noble friend Lord Wise mentioned the emerging Welsh Trust. I too wish it great success. We support voluntary organisations. We ourselves have also funded a number of initiatives. Last year, we set up the £700,000 Refocusing Initiative, which is funding 41 projects aimed at supporting families with young children. The Supporting Parents Research Initiative has just started. It will run for five years at a cost of £2.5 million. The Child Care Circles Initiative has been a great success. That shows how small amounts of resource can be used by voluntary organisations in partnership with social services departments. Those circles encourage couples and lone parents in deprived areas to offer reciprocal child care and mutual support.
I thank the noble Earl, Lord Mar and Kellie, for his thoughtful and knowledgeable speech. With his distinguished career in social work it is perhaps not surprising that he should have such a practical approach, having dealt with some of these problems on a first-hand basis. I will draw the attention of Sir Herbert Laming and the Social Services Inspectorate to his suggestions, including those in relation to training. I agree with the noble Earl that we must do all we can to help parents rear children satisfactorily in the first place and to bring up children to be law abiding. That is why the Home Secretary set up a new ministerial group to help identify new strategies for early intervention with young children most at risk of offending and their families, to help divert them from crime. The group will be publishing a Green Paper soon.
The right reverend Prelate the Bishop of Southwark referred to the diocese screening all people—lay people and clergy—who work with children, to ensure that they are safe to do so. I am not sure if the right reverend Prelate is aware, but the Department of Health will be providing funding to the Churches' child protection advisory services for three years starting in 1997–98 for their work in helping leaders of Churches and children's organisations on the issues of child protection and abuse.
A number of noble Lords mentioned abuse in residential care, not least the noble Baroness, Lady Masham. I share the anxiety and indeed horror of the House that in recent years we have seen some tragic examples of systematic abuse of children. Initially, those
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allegations were met with scepticism and denial; but later they were confirmed through prosecution in the courts.
Clear and robust steps have been taken to prevent abuse in residential care with the introduction of the Children Act, the implementation of the Warner Report—referred to by some noble Lords—and the endeavours of the support force for children's residential care. However, we are not complacent for, sadly, it appears that the scale of abuse and the risk to children living away from home was higher than we appreciated. It is for that reason that Sir William Utting has been asked to undertake a review of the safeguards for children living away from home in residential and foster care. Sir William has started his review. He is consulting with a wide range of organisations in the statutory and independent sectors and, most importantly, with young people themselves. His report is due later in the year.
My noble friend Lord Wise stressed the importance of understanding the way in which paedophiles target and trap the children they are planning to abuse. Our knowledge about the activities of sex offenders and the highly manipulative tactics they use to gain access to children is increasing. As a consequence, we have a strategy for the protection of the public against sex offenders, and particularly those who abuse children.
The noble Lord, Lord Eames, gave a ringing call for effective legislation. It is therefore appropriate that I should detail what is before your Lordships' House or about to come to the House during this parliamentary Session. The Government have introduced two Bills: the Crime (Sentences) Bill, if passed, will provide an automatic life sentence for those convicted a second time of a very serious sex offence—rape, attempted rape or unlawful sex with a girl under 13. Such people will not be released from prison until it is judged safe to do so. The Bill also provides for all sex offenders to receive extended supervision after release from prison—a measure suggested by the noble Lord, Lord Eames.
The Sex Offenders Bill will require all those convicted of a sex offence against children or another serious sex offence, or who accept a caution for one, to notify the police of their name and address and of any subsequent changes. As my noble friend Lord Wise said, abusers do not look any different. He is right, and we hope that that measure will address some of the problems associated with anonymity.
The Bill will make it an offence for UK residents to commit sex acts against children abroad. Other measures supported by the Government include two important Private Member's Bills: the Sexual Offences (Protected Material) Bill will restrict access to victims' statements in sex offence cases and so prevent their being used for pornographic purposes; and the Criminal Evidence (Amendment) Bill will extend the power to take DNA samples to serious sex offenders already in prison.
In addition to those important measures, the Government are also undertaking a review of the penalties for all sex offences and have issued a consultation paper on banning sex offenders from seeking work with children. Parents and young people all need to be aware of the dangers. But we must get the risks in perspective.

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We do not want to frighten children unnecessarily with nightmarish images of the "world out there." Children are our society's future and it is only right that they feel able to play and take an active part in life, participating to the full in community activities. It is therefore vital that, as part of our response to child abuse, we teach children strategies to protect themselves.
Organisations such as Kidscape, which is funded by the department, have carried out invaluable work campaigning for children's safety. They produce practical and non-sensational advice for parents on what children may need to know to stay safe from a variety of dangers, including the abuser.
The noble Lord, Lord Eames, also mentioned the implementation of the Piggot recommendations on child video evidence. The Government have made huge strides in improving the situation for child witnesses. All but one of Judge Piggot's recommendations on video evidence have been implemented.
Lastly, I should like to address the question of a Royal Commission, which was called for during the debate. Many of your Lordships mentioned the fundamental report that was produced calling for such a commission. We thought a great deal about this. I am grateful to all noble Lords for identifying some of the important and far-reaching concerns which need careful consideration. But I am doubtful that a Royal Commission is the right way forward.
We already have legislation in hand to address many of the concerns about sex offenders; others need practical and urgent action by agencies at local level in line with government guidance. Royal Commissions are notoriously slow; they are extremely cumbersome; they do not always solve problems. This is a subject that cannot wait for all that.
A number of other points were raised by your Lordships. I am aware that I have not answered the barrage of questions that came from the noble Baroness, Lady Masham, and various other Members of your Lordships' House. I intend to do that in writing. Perhaps I can say finally that I was deeply saddened by the statistics that were reiterated, not least by the noble Lord, Lord Fitt. We are horrified at some of the evidence that is coming to light, not only in Northern Ireland, but also in this country.
Perhaps I can reassure the noble Lord, Lord Prys-Davies, that the Government are concerned about the low success rate of prosecutions of sex offenders. The Home Office research and statistics department is undertaking a study of rape cases—the most serious sex offence of all—to see why such cases may not come to court and, if they do, why they may not result in a prosecution.
On a positive note, despite all that we have been debating we should not lose sight of the gains that have been made for the welfare of children. Overall our children are healthier; their educational attainment is better; and their horizons are certainly wider. No one seeks to minimise the seriousness of the problems that we face, but I believe that we have a sound framework for tackling them.
7.49 p.m.
Lord Eames: My Lords, it is not my intention to tax the patience of the House by dealing in detail with the various points that have been made, except to express sincere appreciation to all who have taken part in the debate which I introduced some time ago. Perhaps I may mention three points in conclusion.
First, we have indicated in this debate how we can, as a House, address and approach a matter of immense social importance—hurt—with compassion, understanding and with no reliance on purely party political lines. As at least two speakers have said, that is a tribute to the way in which we have faced up to this great social need. I am most grateful for the response I have received from Her Majesty's Government.
Secondly, perhaps I may suggest to the noble Baroness that when she mentions the financial assistance that will be offered to a Church-based attempt in England and, I presume, Wales and Scotland to provide guidelines and research, the Government do not forget that part of the United Kingdom called Northern Ireland.
Thirdly, perhaps I may suggest to the House that over the past few hours we have been looking at a mirror of our society. The images that have been expressed with compassion, with a sense, at times, of injustice but chiefly with a sense of frustration, as was reflected by my noble friend Lord Fitt, urge us to take this whole debate further. It has not ended today. We have not necessarily solved anything today.
Outside this Chamber, even at this moment, little children are being abused, little children are being led into prostitution and families are beginning to see the first signs themselves of the tragedy of the broken home. I believe that underlying the debate, irrespective of detail, irrespective of example and irrespective of emotion—and there has been great emotion this evening—has been the recognition that this problem will not go away. It would be my prayer and my hope that what we have said will be listened to by many outside the House and that the expertise that it has been a privilege to listen to in so many of the speeches will not be lost when we plan a social charter for the way ahead for our children; for they are not just the citizens of tomorrow but a part of this generation. I beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

European Convergence Criteria: Deficit Assessment
7.53 p.m.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish) rose to move, That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, Her Majesty's Government's assessment as set out yin the Financial Statement and Budget Report 1997–98.
The noble Lord said: My Lords, this is an annual debate. The cast does not seem to vary. It is small in number but high in quality, although I notice that when my noble friend Lord Henley led on the debate some three years ago he managed to attract a slightly bigger cast than I have managed to do in the two years I have done it. But there we are.
Section 5 is about sending information to the Commission on economic matters. It asks the Government to submit to Parliament for its approval a report which assesses the United Kingdom's medium-term economic and budgetary position. It also says that this report shall form the basis of any submission of information to the Council and Commission which may be required under Articles 103 and 104c of the Maastricht Treaty. These articles relate to the broad economic guidelines and excessive deficits procedure respectively.
The Financial Statement and Budget Report 1997–98, the so called Red Book, provides that assessment. It describes the Government's tax and spending plans and explains how they are related to the Government's economic and political objectives. The front cover of the Red Book states that it forms the basis of submissions to the European Commission for the purposes of multilateral surveillance of economic policies.
In sending information from this report, the Government are simply continuing to co-operate in the long-standing practice of sharing information on economic matters with our partners in the Community. Formal surveillance mechanisms have been established at Community level for more than 20 years now. We have also signed up to the independent examination of our economic performance by other international bodies such as the IMF, the OECD and the G7.
The information which approval under Section 5 allows us to submit to the Commission is already available from the Financial Statement and Budget Report, a publicly available document. This information is simply repackaged to make it more accessible. Indeed in some ways it is strange that approval has to be sought in order to do this.
Surveillance carries no policy control from the Commission or the Council. The broad economic guidelines are non-binding recommendations, although it is interesting that the recommendations made to all member states increasingly reflect the successful economic strategy of the present Government, focusing on maintaining low inflation, consolidating the public finances, eliminating labour market rigidities and introducing more competition. The excessive deficits procedure aims to support sound public finances further by promoting prudent budgetary policies throughout the Community, helping to keep interest rates low. That is clearly in the United Kingdom's interests, as a healthy European economy is crucial to the health of the British economy as I have said on a fair number of occasions from this Dispatch Box.
Surveillance also helps promote the convergence process. The convergence criteria are desirable objectives in their own right. They contribute to
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economic success and the British Government would be pursuing these objectives whether or not the Maastricht Treaty existed. In the UK, inflation remains low and has been below 4 per cent. for over four years, the longest time for over half a century. The public finances are under tight control, allowing taxes to be cut in the last two Budgets, with government borrowing on a clear downward trend. Interest rates also remain at historically low levels. As a result, the United Kingdom economy is now approaching its sixth year of sustained expansion and the UK has had the longest, strongest and steadiest recovery since 1992 of any major European economy.
Structural convergence is also important, including labour market flexibility. Community level surveillance exercises such as the broad economic guidelines have proved extremely helpful in publicising to other member states the UK's successful approach in this area. We have in this country one of the most flexible and least regulated labour markets in the Community, with more of our people in work and a lower unemployment rate than any major European country.
This debate is not about the Government's economic strategy. It is simply about fulfilling our treaty obligations. Our economic strategy has been fully debated not long since in another place and also in this House in the debate held after the Budget Statement. This debate is about the much narrower objective of transmitting the information contained in the Financial Statement and Budget Report to the European Commission in order to comply with our treaty obligations. I beg to move.
Moved, That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, Her Majesty's Government's assessment as set out in the Financial Statement and Budget Report 1997–98.—(Lord Mackay of Ardbrecknish.)
7.58 p.m.
Lord McNally: My Lords, as the Minister rightly said, this is a small, perfectly formed debate. We can perhaps take comfort in what our American cousins sometimes say—there has not been so much talent gathered together in one place since Thomas Jefferson dined alone.
The debate also has a little nostalgia for me. I have been a Member of the House for just over a year. I remember the nervousness with which I came to the previous debate realising that the noble Lord, Lord Eatwell, would have read every single line of the Red Book and would be ready to dissect it and tear it apart. Noble Lords can imagine what I have been doing for the past few weeks. I also realise that it is a debate about mood and approach. Last year I made the perhaps naïve suggestion that the Government should produce a White Paper on the fulfilling of the Maastricht criteria rather than toss the Red Book to the Commission saying, "Pick the bones out of that".
The problem is that the whole approach to Maastricht and EMU is now for the Government an exercise not in government but in political damage limitation within the Conservative Party, so this debate is tucked away. I have to say to your Lordships that that is perhaps done with

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some wisdom if the debate that we held on 31st January is an example of the quality of the House of Lords when it debates Europe. I suggest that people read that debate in the cold light of day and see it as a kind of xenophobes' convention. When it was not Germany planning world domination, it was the French or the Italians fiddling and defrauding us. It was a very disturbing picture of the view that some noble Lords have of the world.
The problem that the Government have with the Maastricht criteria—and the Minister hinted at it a little in his speech—is that for domestic general election reasons they have to play up economic success and proclaim how good performance has been against the Maastricht criteria. That implies, certainly on economic grounds, that there should be no reason at all why Britain should not be in a position of leadership in the debate about EMU and the single currency. The truth is that of course we are in a strong position in terms of making a decision. The weakness is a political one on the part of the Government in taking a decision.
My worry is that what we are seeing now is the same problem that has beset Britain in relation to Europe for over 50 years. We have always been chasing the game. We did not join the Iron and Steel Community and we did not attend the Messina Conference. In fact, the only time when Britain has been ahead of the game and playing a role at the heart of Europe was in the mid-1980s when the noble Baroness, Lady Thatcher, as she now is, signed the Single European Act and the noble Lord, Lord Cockfield, as he now is, was given the backing to initiate the single market.
But at the moment I see in the Government a dangerous self-delusion. It reminds me of an earlier period in my life when I was a young Labour Party official. I was told that we were socialists and that what we were pursuing was in the real interests of the workers. I was told that in Europe there were social democrats and that those milksops could not really defend the interests of the workers. Then the Labour Party actually paid for me to go to those European countries. I found that the workers there were doing a darn sight better under social democracy and Christian democracy than seemed to be achieved by all the Clause 4 rhetoric of the Labour Party.
Thankfully, I believe that the Labour Party has emerged from that ideological cul-de-sac. But just as it has emerged, lo and behold, the Conservative Party decides to walk into one of its own. Its delusion is that somehow the British economy, which we are all pleased to see is recovering, is now the envy of Europe; that there is a whole range of European countries which are looking with envy across the Channel to this Utopia of economic success.
The truth is that the facts do not add up. In 1996 the UK Government deficit was the highest in the European Union apart from Greece and Italy. Inflation in the United Kingdom was higher than in every EU country apart from Greece, Italy and Spain. Our interest rates were higher than in every other EU country apart from Portugal, Greece, Italy and Spain. Only Austria and Greece had worse current account balances. Real
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income in nine other EU states rose faster than in the United Kingdom. It is really just self-delusion to pretend that the British economic recovery from a government-inflicted recession somehow now makes us the envy of Europe.
The Minister is one of the more robustly realistic Europeans on the Government Benches—
Lord Graham of Edmonton: My Lords, steady on there. That is a bit thick!
Lord McNally: My Lords, if that does not do for the Minister, nothing will. But from other Members of the Back Benches on both sides of the House we get the most ludicrous idea that somehow there is a world outside Europe in which we can prosper. The figures do not add up. The average German spends three times as much on British goods as the average American. France spends as much on British goods as almost the entire Commonwealth. Holland, with only 15 million people, takes up exports greater in total than exports to the six Asian tigers, China, Indonesia and the Philippines together. We sell more to Sweden than to the whole of Latin America, from Mexico to Cape Horn. I could go on. I point these facts out not in a claim for a Fortress Europe, but simply to say that the idea of "Out of Europe to the open sea" is really "Stop the world, I want to get off'. We have got to make Europe work; that is where the prospects lie for the British economy.
The Minister was quite right. We have a vested national interest in making Europe work efficiently. Quite frankly, unless the Government begin to take notice of the voices that are beginning to assemble elsewhere in our society and take some leadership action, then they are going to do extreme damage. The encouraging factor about what is happening now is that, perhaps belatedly, the City and industry, and those who control inward investment, are beginning to raise their voices about the need for leadership on these matters. For example, the assessment of the respected law firm Wilde Sapte is:
"What has become very clear is that the single currency will become a reality and that it will start on 1st January 1999. Fog in the Channel really does seem to have cut the Continent off from Britain. On this side of the Channel we seem to have been under the mistaken impression that the whole idea of the single currency would come apart at the seams before it ever saw the light of day, with the result that neither Major nor Blair would ever have to decide whether to take Britain in or exercise the Maastricht opt-out and stay out. What has only recently dawned on us is that most European governments and peoples are, enthusiastically or not, committed to the single currency".
Are we never going to learn the lessons of Europe? Wilde Sapte goes on to say,
"It is likely that those countries not in at the start will try to get in soon after. Even Denmark is not going to stay out if the only 'out' is the UK".
Does that sound familiar? Even I am old enough to remember, after we stayed out of the Messina Conference, the attempts to form EFTA. We are not going to be able to form some EFTA currency as a rival to the euro. Our fate will be beggar-my-neighbour devaluations, constantly high interest rates and a status which will not long be tolerated as an off-shore

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sweatshop. That is why we are now getting warnings from the captains of British industry such as Unilever, BP and the rest. That is why some of the much-vaunted inward investors Ministers are so proud of are sending up distress signals.
Perhaps I may now give a quote from the City. Michael Cassidy, writing in the Financial Times says,
"There is a much bigger prize to be won from being at the heart of Europe under a unified currency. As the financial centre of a market of almost 400 million people, London could overtake New York and Tokyo to become the world's number one international financial centre, an asset to Europe and an asset to Britain".
The message is clear. The country has no further time for drift. It is time that our political leaders faced up to the realities and the responsibilities. The decision on EMU and the single currency is a political decision with political implications. My party has never flinched from that. The truth is that British industry, British inward investors, our financial institutions and our trade unions all see the value of an early decision on the single currency. But what do we find? What is the reality? What is the background to tonight's debate? One only has to read tonight's headline in the Evening Standard which states:
"Ritkind v Ken: now it's war".
That is what is said about our Foreign Secretary and our Chancellor of the Exchequer and what is probably the single most important decision that this country has to take.
The reality behind that headline and so much obfuscation at the Dispatch Box both here and in another place is that this Government are riven from top to bottom on Europe. They are incapable of taking the decisions that this country needs on EMU and the single currency. It is inevitable now that the key decisions will have to be taken by a new Parliament. The strength of my party, with its clear commitment to Britain, is that every vote for a Liberal Democrat and every Liberal Democrat returned to Parliament will argue for that strong leadership which is now so lacking. We shall support a British Government who are willing to provide that leadership. That is why I await with interest, and shall listen with great care, to the clarion call that I now expect from the noble Lord, Lord Eatwell.
8.12 p.m.
Lord Graham of Edmonton: Follow that!
Lord Eatwell: My Lords, annual rituals are often fun. The annual Budget debate, for example, is always exciting, even if, as was the case this year, nothing happens. We look forward to it every year in the hope and belief that revisiting familiar territory will bring something old and something new.
Last weekend when I was contemplating this evening's debate, I thought rather sadly that this particular annual ritual would bring nothing new. Incidentally, I am delighted to see the Government's two leading participants in this annual ritual present on the Government Front Bench. Once again, despite
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the protests which have been made for the past four years from all sides of the House, the Government have shown their contempt for Parliament and for Section 5 of the European Communities Act by regurgitating the Red Book for debate rather than providing a report in the form required by the Act. Once again, despite annual criticism, the Government have stated in paragraph 2.09 of the Red Book:
"The Government's fiscal objective is to bring the PSBR back towards balance"—
that is, to borrow nothing—while at the same time ensuring,
"that when the economy is on trend the public sector borrows no more than is required to finance its … capital spending"—
that is, to borrow something. The Government say that they will borrow nothing and borrow something in the same sentence.
Last year the noble Lord, Lord Mackay, sought to answer my criticism of an identical statement by simply repeating it, but no amount of repetition will make a false statement true. No amount of repetition will remove the fact that that fundamental statement of the Government's fiscal objectives is internally contradictory.
Anyone who has concern for Britain's reputation abroad must be worried by the fact that a document that fails to contain a clear, logically consistent statement of the Government's economic policy should be forwarded as a report to the European Commission. There are many inconsistencies in the document. First, it is not a piece of sober, technical economic analysis but an overtly political and partisan document. As well as the customary fudging of the figures, there are paragraphs of self-congratulatory puffs of selective quotations from distinguished international bodies. It is all rather like the selective quotations on posters for second-rate theatrical shows.
Secondly, there is a distressing number of economic errors—technical errors and inconsistencies—which it would be advisable to remove from the document if it is to be subject to scrutiny in Brussels. Central to that scrutiny is the level of the government deficit, yet it is extraordinary that on that vital issue there is serious confusion in the document in the discussion of the decline in the PSBR. In paragraph 2.11 of the Red Book we are told:
"The projected improvement in the PSBR is largely driven by the Government's tax and spending policies".
However, if we turn to paragraph 3.48 we are told that,
"the continuing fall in the public sector deficit is mirrored by a decline in the private sector … financial surplus from 5 per cent. of GDP in 1995 to … 2 per cent. in the first half of 1998".
Moreover, paragraph 3.26 tells us that the behaviour of that private sector financial balance is driven primarily by the decline in the personal sector savings ratio. Which is it? Is the public sector balance the outcome of changed spending patterns in the personal sector or the outcome of changed tax and spending policies? The Government do not seem to know. The answer to that question is vital in assessing the true health of the Government's finances and the true health of the British

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economy. Are we repeating the errors of the Lawson "boom and bust" when consumer spending created an illusory financial health and an illusory government surplus? The Government do not seem to know. They just face both ways.
However, the report contains one very clear statement with respect to the Maastricht criteria. It is the statement that the UK will in 1997 satisfy the Maastricht criteria on public deficits and debt required for entry into economic and monetary union. It is a positive statement. It is made several times in the report. It is a statement about the ability of the UK to enter the single currency.
At last we have something real to celebrate, for today there has been a significant restatement of government policy on the single currency. Indeed, there have been several restatements—all contradicting each other. This evening the Minister has a unique opportunity to clarify government policy. He is the only Minister in the entire Government who will be standing at the Dispatch Box today answering questions on government policy towards the Maastricht criteria and the single currency. Some are born great, some grow to greatness, some have greatness thrust upon them—the Minister has had this moment thrust upon him, so will he tell us clearly and simply this evening, when the Foreign Secretary said on the radio this morning,
"On balance we are hostile to the single currency",
was he stating government policy—yes or no? When the Chancellor of the Exchequer said today that the Foreign Secretary's statement was a "slip of the tongue", was he stating government policy—yes or no? Both cannot be right. Are the Government "on balance … hostile" or was the use of the word "hostile" a "slip of the tongue"? Given the importance of this matter, I give way to the Minister so that he can answer those questions.
Lord Mackay of Ardbrecknish: My Lords, I can assure the noble Lord that I shall deal with those points in my summing up.
Lord Eatwell: My Lords, if the Minister cannot answer that question, can he clarify something else that Mr. Rifkind said today? On "The World at One" Mr. Rifkind said, referring to the single currency:
"We are very much against joining in 1999".
However, the noble Lord, Lord Mackay, told this House on Monday that the Government's policy was,
"we will … enter EMU only if we believe that it is in our national interest".—[Official Report, 17/2/97; col. 455.]
Which is it? Are we keeping the issue open?
Lord Mackay of Ardbrecknish: Yes.
Lord Eatwell: I hear the Minister saying "Yes". We are keeping the issue open. But the Foreign Secretary says that we are very much against joining in 1999. The Minister appears to be reluctant to answer these questions. Perhaps he is trying to decide which side he is on.
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At five o'clock this evening the BBC reported that at least three Cabinet Ministers, including Mr. Brian Mawhinney, had lined up behind Mr. Ritkind. It did not tell us how much support the Chancellor enjoyed. Perhaps the Minister will support the lonely Chancellor. I am sure that the officials in the Box would be ready to provide a sign-up list for those on the Government Benches who wish to do so.
After all, to his credit the Chancellor has maintained a consistent argument in support of the Government's refusal to say whether or not they will enter the single currency. He has argued that by refusing to say yes or no at this stage he has preserved Britain's bargaining position. He has played his cards close to his chest. The Foreign Secretary has totally destroyed the Chancellor's bargaining position. The Chancellor can no longer claim in negotiations that Britain is neutral on the issue.
The Foreign Secretary has said that Britain is very much against joining in 1999. The Chancellor can no longer claim that Britain has the right to be fully consulted on the organisation of the European Central Bank and the future of ECOFIN; no longer can he claim that Britain has an equal voice in discussions on the stability pact. The Foreign Secretary has kicked away the chair on which the Chancellor has been sitting. No longer is he sitting at the conference table; he is sprawled on the floor.
What has the Prime Minister had to say about it all? Has he supported his Foreign Secretary or his Chancellor? When asked to comment on the statement of the Foreign Secretary, did the Prime Minister use the word "hostile"? No. Did he say that it was a slip of the tongue? No. Did he say that he was very much against joining in 1999? No. The Prime Minister said that in his view we should enter the single currency only if it were "positively beneficial" for Britain. Let us consider that statement. Can one imagine the Prime Minister saying that Britain should enter the single currency if it were not positively beneficial? Can one imagine Mr. Major saying that, although he knows it is harmful, we should enter the single currency all the same? Of course not. Everyone on all sides of the debate agrees that if something positively beneficial can be done for the British economy it should be done. If it is not positively beneficial it should not be done.
The statement of the Prime Minister is meaningless. It is the statement of a Prime Minister with no policy other than procrastination. He is the Micawber Prime Minister, hoping for something to turn up to rescue him from the Conservative Party. At a time when his Foreign Secretary and the Chancellor of the Exchequer violently disagree with each other—or are at war, as the noble Lord, Lord McNally, said—on the most vital issue facing the country since the Second World War and his government are in total confusion, the Prime Minister is incapable of providing the leadership that the nation deserves.
All that the country can be sure of is that the Prime Minister will follow wherever his party leads. He is a weak man, with no policy other than procrastination.

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He is terrified of his own party and incapable of providing leadership on the most vital economic issue facing this country. The Prime Minister has today demonstrated beyond all reasonable doubt that he is incapable of leading his party, let alone the country. His party has today shown beyond all reasonable doubt that it is incapable of providing this country with the government that it deserves. It should go—now.
8.24 p.m.
Lord Mackay of Ardbrecknish: My Lords, we have certainly had a debate this evening which is different from the one that we normally have on these matters. I welcome it because it allows us to cover new ground. I am more than happy, as will be obvious in a few minutes, to lead from this Dispatch Box, if indeed I am the only Government Minister who speaks about such matters from such a platform this evening. Whether or not that is greatness being thrust upon me I am not entirely sure.
I start with the comments of the noble Lord, Lord McNally. There have been a number of extremely good debates in this House on the European issue and the single currency. I was not present at the debate one or two Fridays ago. That may have been a little below par. Perhaps it was because the Liberal Party made the mistake of calling a Division, which, if I remember rightly, it failed to win. I say to the noble Lord, Lord McNally, that among those very good debates there have been some interesting observations by his noble friend, Lord Owen—if indeed the noble Lord, Lord Owen, can still be counted as his noble friend. The noble Lord, Lord Owen, made a very interesting speech, as did the noble Lord, Lord Dahrendorf, in a debate last summer in which he expressed very considerable doubt about the single currency. Only on Wednesday 5th February the noble Lord, Lord Ezra, came to his feet in one of the many question and answer sessions on these matters. He accused me of misrepresenting the views of the Liberal Democrats when I suggested that it would sign up for anything in Europe and whether it was good or bad for Britain did not much matter. The noble Lord, Lord Ezra, said that it was his party's view that we should keep an open mind, which he believed was also the Government's view, and if the situation was such that it could join it would do so. I welcome the noble Lord, Lord Ezra, and his party to my train in this regard. I believe that it is a change of stance that more closely resembles the position I have taken from this Dispatch Box for the past two or three years on these important matters.
The noble Lord, Lord McNally, was critical of Britain's economic performance. He aired before us some statistics which he believed showed us in a bad light. If one looks at the Commission's 1997 annual economic report, which was written as a result of submissions last year by the United Kingdom and other countries, it states that the UK recovery was of longer duration than that in the rest of the EU and was sustainable with inflationary pressures subdued. It
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cites the United Kingdom Government's policies as the cause of this favourable outcome, in particular the macro-economic policy setting and the supply side reforms. It notes that fiscal consolidation resulted in a significant turnaround in the public finances and that, post-Budget, the deficit was expected to meet the 3 per cent. criterion in 1997. Further, it expresses the view that the Government should meet their target of 2.5 per cent. underlying inflation.
The report also notes that the UK labour market continued to strengthen. It states that this strong performance could be attributed to the Government's deregulatory labour market measures. The Commission further recognises that the UK's unemployment rate of 7.9 per cent. was much lower than the EU average of 10.9 per cent. More recent figures for November 1996, using Eurostat and OECD bases for collecting those statistics, put the UK at 7.5 per cent., whereas Germany is at 9.3 per cent., Italy at 12.2 per cent., France at 12.5 per cent. and Spain at 22.3 per cent.
While I do not believe that all economic indicators can show a green light at the same time, unemployment is a serious economic measure because it affects the wellbeing of lots and lots of our fellow citizens. I believe that our success in reducing unemployment over the past four years is very significant. It is interesting that the Commission has drawn particular attention to that.
I was delighted to hear the noble Lord, Lord McNally, express appreciation of the amount of trade that the UK did with the European Union. He is absolutely right. But we also do a lot of trade with the world. One cannot forget that aspect. To a certain extent, in trading matters we look both ways. As I have said on a number of occasions, it is not an either/or operation, which is why it is so important that fellow members of the European Union are economically successful and prosperous. We depend upon them to sell a lot of our goods and services. Equally, we depend on the rest of the world. We are a very big player in international trade. I do not believe that the noble Lord, Lord McNally, would disagree if I said that we should not allow Europe to become inward-looking and forget that it must trade with the rest of the world. That is very important.
The noble Lord, Lord McNally, made some remarks about inward investors. But, by Jove, they are still coming in significant numbers. We continue to see announcements of significant inward investment coming not only from other parts of the world but from Europe. Companies such as Siemens, which I have previously mentioned at the Dispatch Box, are coming to this country and setting up in north east England, where they are very welcome. They are deciding that Britain is the place to manufacture.
As regards the international aspect of the City, London handles more international currency business than all the other EU countries put together. London will continue as a major international financial centre whether or not we are in EMU and whether or not EMU comes into existence. The noble Lord said that we were indulging in wishful thinking if we thought

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that EMU would not happen. We have always made it clear that we understand the strong commitment to EMU in other member states. But we believe that the decision as to whether to join should be for us to make in the interests of the British economy.
One of the problems about today's debate was well illustrated in a report for the Economic Intelligence Unit written by the noble Lord, Lord Currie. I am sorry that he is not present, but I shall not quote anything that he will find embarrassing. One of the many interesting comments he made was:
"It ought to be clear at least that issues as big as these"—
that is, joining a single currency—
"require the most careful consideration. The questions involved are complex and reasonable people may well disagree about them. Yet all too often the debate on EMU is conducted in terms of headlines and slogans from entrenched and unalterable positions, often without regard to the facts".
While the noble Lord, Lord McNally, may point a finger at some Members who normally sit behind me, I can also point a finger to some of the Euro-fanatical friends by whom he is surrounded. The matter requires a great deal of serious consideration.
From the point of view of the British economy, it is interesting that the noble Lord, Lord Currie, states elsewhere in the article:
"Labour market flexibility will greatly help with the implementation of EMU, but is necessary with or without EMU for a successful and dynamic European economy".
That is a message that my right honourable friend the Prime Minister took to the Continent recently in his speech and it is a message that my right honourable friend the Foreign Secretary is taking to the capitals of Europe as he makes his speeches. The noble Lord, Lord Currie, goes on to state:
"EMU could hinder business: for instance, by encouraging Europe-wide comparisons in wage negotiations, or by promoting further social legislation as part of a broader trend towards federalism. These dangers need to be guarded against".
I could not have put it any better myself.
I turn to the comments made by the noble Lord, Lord Eatwell, who seems to have had an interesting day reading the press. I too had an interesting day reading the press. I found of considerable interest the article by the noble Lord, Lord Desai, which was published in the Sun—
Lord Eatwell: My Lords, does the Minister read the Sun?
Lord Mackay of Ardbrecknish: My Lords, of course I read all the newspapers. One must not read only the serious newspapers giving political points of view and other articles of news with which one agrees. The noble Lord, Lord Eatwell, probably gets no further than the Guardian or the Financial Times, but I try to read a broad spectrum of the British press.
On Monday I was being tempted to join, to adjudicate or to be the umpire or referee in the "Ken and Eddie Show". I resisted the temptation. Interestingly enough, unbeknown to me, down the corridor the Governor of the Bank of England was saying to a Select Committee of the other place much
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the same as I was saying at this Dispatch Box. I must say to the noble Lord, Lord Eatwell, that tonight I shall resist the temptation to intervene in what I might call the "Ken and Malky Show". As I am a little sceptical about what I read in the newspapers, I shall attempt to explain to the noble Lord, Lord Eatwell, exactly what the Government's position is and has been for some time on the single currency and whether we should join.
We have made it perfectly clear, and reaffirmed it time and again, that we believe in continuing to negotiate and to be in all the discussions on policy so that when the time comes we will take the decision in the best interests of Britain. I thought that that was now the policy of the Labour Party, having changed from its previous policy. On many occasions its Members mocked me at the Dispatch Box when I produced the policy with which it now seems to agree; that we should take a decision later and do so in the interests of Britain.
We take the firm view that the single currency will affect us whether or not we are members. Therefore, even if we were not in it, it is necessary that we help to secure a stable single currency over the long term, if that occurs. That is very important. We believe that when we take that decision it must be clear that the necessary economic convergence has taken place. If it has not taken place we believe that it will be better for Europe as a whole to delay and to get it right rather than to rush ahead.
Our conclusion, on the information that is now available, is that the convergence criteria are very unlikely, although not impossible, to be met in order to allow EMU to proceed safely on 1st January 1999. On that basis, there is a strong argument for delay by the European Union as a whole. If it proceeded without reliable convergence we would not of course be part of that and we have made that clear for some considerable time.
On 2nd February last year, my right honourable friend the Chancellor of the Exchequer said:
"We will only agree to take part in a single currency if it is in our national interest to do so, given the circumstances at the time".
He went on to say:
"Any decision will be based on a hard-headed assessment of British national interest in terms of jobs, capital investment and our ability to sell goods and services in the world market."
In evidence to the Treasury Select Committee in another place, the Chancellor made it clear that a starting point would be whether it was going to work, whether it was going to last and whether it was going to achieve the advantages which the architects intended. Those would be the criteria. He said:
"I would decide whether in the circumstances of the British economy at the time, it seemed likely to be in the British interest to participate or not".

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That makes clear the Government's position in regard to the single currency. It has been a position about which we have been clear for some considerable time. I hope that that helps the noble Lord, Lord Eatwell, to understand clearly our position—
Lord Eatwell: My Lords, the Minister provided a most interesting tour d'horizon but he has failed to answer the questions which I asked. Simply, when the Foreign Secretary says, "On balance, we are hostile to a single currency", not in 1999 or at any particular time, was he stating government policy—yes or no—or was that, as the Chancellor of the Exchequer said, a slip of the tongue?
Lord Mackay of Ardbrecknish: My Lords, I thought that I had made the position perfectly clear. The balance of the argument would have to show very clearly that it would be to our benefit to change our system and go into the single monetary system. That is what Malcolm Rifkind was saying too. As I said earlier and as we have said for some time, we believe that it is very unlikely that the circumstances will be right by 1st January 1999, not just for us but right across Europe. In those circumstances, it would not be wise not just for us to join but for an attempt to be made to start the single currency if those convergence criteria have not been clearly met.
Lord Eatwell: My Lords, with all due respect, that is not what the Foreign Secretary said. He did not say that there was a balance to be struck. He did not say that we shall consider the circumstances at the time or even that we might consider the circumstances in the second round. He said:
"We are hostile to the single currency".
That is not an issue of balance. Is that Government policy?
Lord Mackay of Ardbrecknish: My Lords, I have just explained what Government policy is. I have not had an opportunity to see what the Foreign Secretary actually said but in the context of what I have said, I believe that what he said, if it has been quoted to me correctly, is totally consistent. It depends on what happens this year, next year and in 1999 as to whether it can be started on 1st January 1999. As I made perfectly clear, at present we are very sceptical as to whether the convergence criteria will be met sufficiently well by most of our fellow Europeans in order to get the single currency off to a stable start. If it does not do that, I suspect that it would be a very dangerous voyage not just for us to start out on but for all our friends to start out on.
I go back to the speech made by the noble Lord, Lord Dahrendorf, last summer. The worst thing that could happen to us all would be to have an unstable single currency which would cause huge damage and internal pressures on the European Union. I should not wish to see that at all. Despite the efforts of the noble Lord, Lord Eatwell, I do not believe that there is quite the contradiction between the policy that I have outlined and what I suspect, when one sees the proper text of it, the
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Foreign Secretary was saying and the context in which he was saying it. That will be found when tomorrow morning dawns and the reports are seen in greater detail.
As regards being on track to meet some of the convergence criteria, it is extremely interesting to note that in the Red Book it is quite clear that we show there a projection to get the PSBR down below the 3 per cent. level in 1997–98 and in fact to get it to zero towards the end of the century. That is the position which is projected in the Red Book.
Indeed, the PSBR figures for January give us every confidence that that will be achieved, because the PSBR in January showed a repayment of £5.8 billion, a larger payment by £2.2 billion than was made in January of last year. Indeed, in the year to January, the PSBR was £9 billion lower than the equivalent period last year. Therefore, January was an excellent month for the public finances. Those figures are further confirmation that borrowing is on a clear downward path. We are now comfortably on track to meet the budget forecast and we may do even better than that. Some commentators in the City whom I read this morning in the financial pages of some of the newspapers other than the Sun seem to believe that also. I found the article by the noble Lord, Lord Desai, quite interesting enough for the Sun without having to turn any more pages of that newspaper. But I read in other newspapers the financial comment from the City that the position looks very encouraging.
The noble Lord, Lord Eatwell, asked me what is driving down public sector borrowing. Strangely enough, public sector borrowing is a subtraction sum of two very large figures, as I said before. One is the Government's income from taxes and so on and the other is government spending. What is driving down public sector borrowing is that we are controlling government spending extremely tightly. We have recently had an endorsement from Mr. Gordon Brown, no less, in relation to government spending over the next two years. He seems to be perfectly content with our spending plans across government. We have had to keep very tight control over our spending and we shall continue to do that. As I say, the PSBR is the difference between that tightly controlled figure and the amount of money that comes in in VAT, income tax and so on.
Therefore, I believe that we are in an encouraging position. I was not sure what the noble Lord, Lord Eatwell, was implying when he asked me about entering a single currency if it was not positively beneficial. Of course this Government have no intention of entering a single currency if it is not positively beneficial to this country. I wonder whether his right honourable friend Mr. Blair envisages that if he were ever in a position to make those decisions, he would enter the single European currency if it was not positively beneficial. That would be the most amazing statement and any policy statement of any kind, even a negative statement, would be amazing from the Leader of the Opposition who seems to want to try only, if he possibly can, to echo our policies. As far as I understand it, he too thinks we should make a decision when it is right and proper to do so. After a bit, he decided that we were right as regards the referendum and that he too should promise a referendum before we enter a single currency. I shall not

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go into the other fields of government where the party opposite appears to be trying to pretend that it believes in some of the same things we believe in. If the public believes that, it will be better with the original—that is, ourselves—rather than a copy. But there is no point in electioneering in this House because, as I should point out to the noble Lord, Lord McNally, none of us has a vote in the forthcoming election so there is not much point in trying to persuade us as to how we should cast our non-existent votes.
The convergence criteria and the report that we are sending to the Commission are extremely important. I refer not just to the convergence criteria to reach that point but I refer also to the stability pact to make sure that any country which gets beneath the wire of the convergence criteria can keep its economy underneath the wire. There is no point in just getting in to get a tick in the box in the year of entry and then going out of it again. That would be absolutely pointless. I am sure that everybody, except perhaps a few fanatics, will agree with that position.
We are fully in favour of reporting to the Commission. We believe that the convergence criteria are sensible and that they are absolutely necessary, along with some other qualifications, if the single currency is to start on time. As I said in answer to the noble Lord, Lord Eatwell, we are sceptical as to whether our friends in Europe will meet the convergence criteria. There is now even doubt about Germany meeting one of the important convergence criteria in relation to its public sector borrowing. I believe, as do the Government, that it would be a foolish proposition for us all in Europe to start out on this enterprise, either some of us or all of us, if there was inside the system so much instability that it was likely not to work and not to be to the advantage of Europe.
As usual, we have had an interesting debate. I thank the two noble Lords who have spoken. I look forward to a repeat performance with us in exactly the same positions next year. I commend the Motion to the House.
On Question, Motion agreed to.

European Communities (Definition of Treaties) (Euro-Mediterranean Agreement establishing an Association between the European Communities and their Member States and the State of Israel) Order 1997
8.48 p.m.
Lord Chesham Lord Chesham rose to move, That the draft order laid before the House on 10th February be approved [12th Report from the Joint Committee].
The noble Lord said: My Lords, the Barcelona process, which was launched in 1995, aims to promote co-operation between the EU and the Mediterranean region. Euro-Med association agreements, of which the EU/Israel agreement is one, are an important part of this process. The trade liberalisation provisions of those agreements, and the long-term goal of a Euro-Med free
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trade area by 2010, will enhance the economic prosperity of the region. By doing so, they will also improve the conditions for political stability.
This agreement should be seen in the context of the other Euro-Med agreements, in particular, of course, with the PLO (on behalf of the Palestinian authority). That interim agreement is due to be signed at the General Affairs Council on 24th February. Meanwhile, the UK has ratified the Tunisia agreement, the Morocco agreement should come before the House this summer, and we hope that agreements with Egypt, Jordan, Lebanon and Algeria can be concluded soon.
The agreement covers mainly trade and investment issues. It also provides for enhanced political dialogue and co-operation in the economic, social and financial fields. The close relationship between our two countries, symbolised by the state visit of President Weizman next week, is a strong reason for the UK's support of this agreement.
The consideration of the EU/Israel Association Agreement by this House comes at significant time. The Government of Mr. Netanyahu signed up to the Oslo process in last month's agreement on Hebron. That agreement re-affirmed both sides' commitment to the Israeli-Palestinian Interim Agreement of 1995. We now hope to see momentum maintained by timely further redeployment of Israeli forces on the West Bank as envisaged in that agreement and progress in negotiations on other outstanding issues. The Palestinian side, for its part, must continue to do all it can to suppress terrorism and help ensure Israel's security from attack.
We believe that the EU' s agreements with both Israel and the PLO will help to increase prosperity in the region. Prosperity is an important contribution to peace. For that reason we are concerned by the restrictions that remain on the Palestinian economy. While recognising Israel's right to impose measures that are necessary for its security, we believe that the damage done to the economy of the West Bank and Gaza strip since 1993 by restrictions on movement of people and goods is itself a threat to the peace process. The Palestinian economy must be allowed to realise its potential if popular support for the peace process is to be maintained.
We have urged the Israeli Government to make rapid progress in a number of areas: easing restrictions on the passage of goods across the Jordanian and Egyptian borders; making arrangements for free passage between Palestinian areas; allowing the opening of Gaza airport and the construction of Gaza port; and tackling a range of other outstanding economic issues. We welcome the easing of these restrictions over recent months, and the recent encouraging agreement on the payment of outstanding debts between Israel and the Palestinian authority. But there is still a long way to go.
By entering into this agreement with Israel, we intensify its political dialogue with the EU and the scope for discussing issues such as these in a practical manner. The agreement will be a positive step in bringing Israel closer to our thinking on a range of subjects, and encouraging the Israeli Government to follow the policies which we believe are essential to the peace process. We will continue to do all we can to support the peace process.

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The EU/Israel Agreement and other Euro-Med agreements can help to underpin that process. UK ratification of the agreement will be timely, as the peace process recovers momentum after a slow period. It will also demonstrate our close relationship with Israel and our determination to use that to support progress towards lasting peace and prosperity in the Middle East.
Lord Graham of Edmonton: My Lords, I rise to make a very brief intervention, first of all to apologise for the absence of my noble friend Lady Blackstone, who is unable to be here. She has asked me to say that she gives a very warm welcome to this initiative, not least to the fact that the Government welcome an initiative from the European Union. That is a pleasure and a joy, and one that will go on the record.
The background is very timely. The Minister was kind enough to indicate that this is set against the background of the forthcoming visit of the President of Israel who, as we know, is not only an important man in his own country but a great friend of this country. He was a pilot in the RAF during the war and that in itself, especially to someone like myself, as an ex-serviceman in the same war, counts for a great deal.
What the Minister has told us is: so far, so good; we are making progress but there is a very long way to go. We on this side certainly recognise that in the Middle East one very often takes one step forward, one step sidewards and two steps backwards, so we are not under any illusion that this is of enormous significance. However, it is satisfactory in the context of the fact that the Government and the European Community intend, as far as they are able, to treat the Israeli Government and the Arabs and the PLO with as even a hand as possible.
There is no doubt that the stability and prosperity that could flow from this initiative is desperately needed by both protagonists in what at times must appear to Ministers in this House and in another place to be a very great burden indeed. What we have is the fulfilment of certain steps. I recognise that. As Ministers and Shadow Ministers we have five minutes of glory at the Dispatch Box, but I realise that in order to get to this stage an enormous amount of work is done in the Foreign Office by Foreign Office Ministers. We on this side of the House
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wish to pay full tribute to the Ministers who have been steering this matter so far; they deserve to receive our commendation.
There is only one question on which I would be grateful for the Minister's help. In the documents which I received from the department in relation to the EU-Mediterranean partnership and the Barcelona conference there is a sub-heading relating to British initiatives on investment barriers. Here it talks about Mr. Rifkind announcing a joint British-European Commission study into barriers to investment in the southern Mediterranean area. It says that the study will begin in the summer of 1996 with pilot studies in two countries and that the results will be presented to a conference in London early in 1997. Perhaps the Minister could tell us how early in 1997 is "early". In other words, has the conference taken place? When will it take place and, if it has taken place, what was the outcome? I appreciate that the Minister may not be able to be precise but, having asked the question, which is a genuine one, I am sure that the Minister will be helpful to the House and those outside the House. Otherwise, as far as we are concerned, we believe this initiative to be timely and welcome. The Government are to be commended for their actions in relation to it.
Lord Chesham: My Lords, I thank the noble Lord, Lord Graham of Edmonton, for the way he has received this order. It makes it very much easier, even if we are not exactly in a crowded House, when things can go through like this.
The answer to his question is that the meeting will take place on 6th and 7th March, next month. We are well on the way for that to happen.
On Question, Motion agreed to.

Firearms (Amendment) Bill
Returned from the Commons with certain amendments disagreed to with reasons for such disagreement; certain amendments disagreed to but with amendments proposed in lieu thereof; amendments agreed to with amendments and with consequential amendments to the Bill; and the remaining amendments agreed to; the Commons amendments and reasons ordered to be printed.
House adjourned at three minutes before nine o'clock.