Lords Sitting of 7 December 1998

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

European Defence Capability
Lord Wallace of Saltaire Lord Wallace of Saltaire asked Her Majesty's Government:
What steps they are taking to pursue the objective declared by the Prime Minister in his speech to the North Atlantic Assembly on 13th November, of "a stronger, more effective Europe in foreign policy and security" with "a European decision-making capacity and command structure".
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, the Government are committed to giving Europe a more authoritative voice in international affairs, with the will and capability to back that up. We want the EU's Common Foreign and Security Policy to work more effectively, getting the most out of the new provisions under the Amsterdam Treaty. We are also encouraging our partners to join in open-minded debate on strengthening Europe's defence capability. At the St. Malo Summit, the UK and France agreed broad principles for changes to European defence arrangements—a copy has been placed in the Library of the House. EU Foreign Ministers are considering today in Brussels how to take discussion forward.
Lord Wallace of Saltaire: My Lords, I congratulate the Minister and the Government on beginning to implement this part of the Liberal Democrat manifesto, which was strangely absent from the Labour manifesto. Can the Minister say how far the open debate is intended to go? For example, is it intended to include the move into the second pillar of the European Union of the military planning cell now within the Western European Union?
Baroness Symons of Vernham Dean: My Lords, the Prime Minister launched the debate at Pörtschach, as I am sure the noble Lord is aware. We have called on others to join us in thinking afresh about European defence structures and to enter into open-minded debate. That has now begun. However, detailed discussions of the kind described by the noble Lord, Lord Wallace of Saltaire, are still some way off. We do not want to see any changes which undermine NATO or to create any unnecessary duplication. We want control of armed forces to remain a matter for national governments. We do not believe that there is a place for a European standing army. Therefore, the debate will take place within those kinds of parameters.
Lord Judd: My Lords, does my noble friend agree that, while it is essential to do nothing to undermine
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NATO, any move towards greater coherence in European common foreign policy must, as a corollary, take seriously the defence issue? Does she agree also that if we are to move forward in this way it is essential, as we are doing in NATO, to ensure that inadvertently we do nothing to promote the forces of ultra-nationalism within Russia and elsewhere as a reaction to our own sensible developments?
Baroness Symons of Vernham Dean: My Lords, I can confirm to my noble friend Lord Judd that we will do nothing that undermines NATO and that Her Majesty's Government's foreign policy remains based on the cornerstone of NATO. But, as my original Answer indicated, if we are to have this kind of discussion it must have an effective means of backing-up foreign policy. That will include a military defence element. Nothing that we discuss should exacerbate difficulties elsewhere. The policy is designed to be a unifying force in Europe, not one which will create division.
Lord Beloff: My Lords, does the Minister agree that a prelude to further co-operation in Europe on matters of foreign policy might be for some of our European partners to give us support in dealing with Saddam Hussein and other menaces to world peace?
Baroness Symons of Vernham Dean: My Lords, I agree that Her Majesty's Government would be delighted to see a great deal of support in the policy which we believe we have rightly pursued in relation to Saddam Hussein. It is worth reminding the noble Lord, Lord Beloff, and others that in our most recent difficult encounter with Saddam Hussein we enjoyed a greater degree of responsiveness and support from our colleagues in Europe than we had seen earlier in the year.
Lord Chalfont: My Lords, does the Minister agree that, although she says rightly that we must seek to do everything to avoid undermining NATO, the idea of forming some kind of European defence identity is bound to have an impact on the United States—the only military super-power left in the world? Is not there a danger that, if that goes too far, whether or not we like it NATO will be undermined?
Baroness Symons of Vernham Dean: My Lords, I cannot agree with the noble Lord, Lord Chalfont, in such stark terms. On numerous occasions I have discussed these issues in relation to European defence with our colleagues in the United States. They impress upon me constantly their desire to see what they describe as "burden sharing" with our European colleagues. I hope and believe that the discussions we have already initiated with the United States, and which Her Majesty's Government will be continuing while other discussions are going on in Europe, will ensure that there is a proper degree of confidence there. I recommend that the noble Lord reads the copy of the declaration on European defence which is in your Lordships' Library. There he will see a clear statement of the position in relation to NATO.
Lord Dean of Beswick: My Lords, does the Minister recall that, since the Second World War, successive French governments have followed an independent line of defence policy which has not always been in accord with our own? Are the Government satisfied that the French have finally come to a definitive agreement that there needs to be a collective defence policy for Europe?
Baroness Symons of Vernham Dean: My Lords, I recommend that my noble friend Lord Dean looks at the copy of the statement in the Library of the House. We have agreed with the French Government a statement which can be described as the "broad principles". Our aim is to enhance the European defence capability so that Europe can take on more work as regards defence. We have had a useful start to that debate with France. We have got off the ground and, the groundwork having been done, I hope that we shall see some further interesting discussions taking place in Europe today among Foreign Ministers.
Lord Moynihan: My Lords, on the question of timing, does the Minister agree with the timetable set out by the German Government and quoted in the recent Declaration of Rome of the WEU Council of Ministers? That aims at finalising all essential elements necessary for the implementation of the European security and defence identity within the alliance by the time of the Washington summit. Does the Minister consider that to be sufficient time to reflect on what may be the greatest change in Britain's defence and security policy for at least 50 years?
Baroness Symons of Vernham Dean: My Lords, a number of countries have yet to ratify the Amsterdam Treaty. We shall, of course, have to wait for them to ratify the treaty before we see the CFSP put fully into place. We want to see that done as quickly as possible. However, I do not believe that we should confuse that issue with the debate which began in St. Malo last Friday which essentially will develop the core of that discussion over the coming months.
Baroness Williams of Crosby: My Lords, does the Minister agree that the United States has made plain on many occasions, particularly with regard to Bosnia and subsequently to Kosovo, how deeply it would welcome a European response which would enable it to see Europe carrying a full partnership in such areas of crisis? Does she also agree that the willingness of the French—at long last—to enter into a very close relationship with the United Kingdom, and therefore within the structures of NATO, is entirely to be welcomed and is a very long step forward?
Baroness Symons of Vernham Dean: Yes, my Lords. I agree with that. As I indicated to your Lordships, I have had a number of discussions with American politicians over the past 18 months in which they have made it clear that they would like to see greater capability within Europe. I met several Congressmen only last Friday after the St. Malo announcement had been made. It was clear to me then
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that there was a general welcome among those present for what we have in mind. I believe that this is an important step forward. However, it is one which needs to be discussed. We are essentially looking at policies. We should not rush into the detail prematurely, but should look sensibly at what the French and British Governments have been able to agree so far.
Lord Williams of Elvel: My Lords, will my noble friend give the House an assurance that our Trident nuclear force will continue to be assigned to NATO?
Baroness Symons of Vernham Dean: My Lords, I do not believe that anything that happened in St. Malo on Thursday or Friday of last week has any impact on the issue of Trident.

Ministry of Defence: Freight by Rail
2.45 p.m.
Lord Berkeley Lord Berkeley asked Her Majesty's Government:
Whether any planned reductions in the Ministry of Defence's use of rail freight would be in accordance with the Government's model environmental policy statement, launched in January 1998.
The Minister of State, Ministry of Defence (Lord Gilbert): My Lords, following a review of our operational rail freight movement requirements in the light of the Strategic Defence Review, the Ministry of Defence has no current plans to reduce the present level of the use of rail for the movement of its freight.
Lord Berkeley: My Lords, I declare an interest as chairman of the Rail Freight Group. I thank the Minister for that positive statement. He will, of course, be aware that the MoD is one of the departments taking part in the Government's green initiative. May I ask him, therefore, whether he has any plans as to how the MoD might play the greatest part in that initiative? Will the MoD investigate a means of increasing the proportion of freight carried by rail in the future?
Lord Gilbert: My Lords, on the green initiative, my noble friend is quite right; the Ministry of Defence has plans in that direction. I am glad to say that the Department of the Environment, Transport and the Regions has been very understanding of some of our temporary difficulties, in so far as we do not know precisely how many buildings we will be retaining in, for example, central Europe, as a result of property disposals consequent upon the defence review.
As regards increasing our shipments by rail, my noble friend will no doubt take pleasure from the fact that in 1998 alone we opened a new railhead at East Dereham in Norfolk and revived four existing railheads. We are expecting to reduce the number of depots. We are undertaking studies to ensure that any future depots are linked with the rail network.
Lord Gladwyn: My Lords, the Ministry of Defence is clearly committed to a number of green policies in

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respect of the environment. Several involve added costs to achieve high standards. Will the Minister concede that, in respect of carriage of freight by transhipment between rail and road, added costs should likewise be acceptable?
Lord Gilbert: My Lords, the noble Lord is quite right that there are additional costs from time to time when carrying goods by rail. That is not always the case but, as with all our other procurement decisions, we strive to give the taxpayer value for money.
Lord Wallace of Saltaire: My Lords, I declare an interest as a member of the Wensleydale Railway Association. I hope that the Minister is aware that the Ministry of Defence railhead into Wensleydale is crucial to the reopening of that railway line. I trust that the MoD will take such local considerations into account in its current discussions.
Lord Gilbert: My Lords, I have no difficulty in giving the noble Lord the assurance that he seeks.
Lord Stallard: My Lords, is my noble friend aware of the concern of citizens throughout London about the transport of nuclear waste by rail through heavily populated areas, particularly Camden, Stratford, Cricklewood and Kilburn, and about the fact that such trains are "parked", apparently unguarded, over weekends and for longer periods? Can the Minister do something to offer some consolation to residents of those areas, who are extremely worried?
Lord Gilbert: My Lords, I discussed that precise question this morning in the MoD. I can tell my noble friend that one of the reasons we ensure that the transfer of nuclear warheads between points in this country is conducted by road is precisely to attend to the matters that he has raised. We make sure that those loads do not go through built-up areas. However, where we are talking about nuclear waste, I can tell the House that the risk to the public is very much diminished. As I am sure my noble friend is aware, the amount for which the MoD is responsible is a very small proportion of the nuclear waste transported generally within this country.

Kosovo
2.50 p.m.
Lord Moynihan Lord Moynihan asked Her Majesty's Government:
What progress has been made in implementing the Holbrooke package in Kosovo and in facilitating talks between President Milosevic, the ethnic Albanian leadership and the Kosovo Liberation Army (KLA).
Baroness Symons of Vernham Dean: My Lords, the OSCE is continuing its work to establish a ground verification mission in Kosovo. An HQ is being established in Pristina and there are already about 100 mission staff in Kosovo, in addition to the approximately 300 international monitors already on
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the ground as part of the Kosovo Diplomatic Observer Mission. These will be folded into the OSCE mission. Since 17th October NATO's Air Verification Mission has made regular overflights of Kosovo. The UK continues actively to support efforts led by US Envoy Hill and EU Special Envoy Petritsch to secure agreement on an interim accord for Kosovo.
Lord Moynihan: My Lords, given that the Holbrooke package was agreed in mid-October, can the Minister say why some seven weeks later only a fraction—indeed, the Minister said some 300?—of the 2,000 strong OSCE verification mission has been deployed? Further, can she say what assessment the Government have made of fears that the Balkan winter has helped to check violence in the province for the time being but that it could well break out again in the spring? If more monitors are not on the ground soon, it may not be possible to contain the violence sufficiently for the parallel negotiations on the future of Kosovo to succeed.
Baroness Symons of Vernham Dean: My Lords, we believe that we are making steady and proper progress. There are already some 500 international personnel in Kosovo, including the 300 monitors who were attached to the Kosovo Diplomatic Observer Mission. It is important for us to realise that this is an unprecedented task for the OSCE, but the establishment of the headquarters in Pristina and the fact that the first contingent of verifiers is being put in there—some 23 of whom are from the UK—are important steps forward. In view of the urgency, the UK put in over 50 additional personnel in November to boost the additional Kosovo diplomatic mission. Those people have to be trained in their task, which is a serious and important one. However, we believe that steady progress is being made.
As to the difficulties over the Balkan winter, although a few months ago there were about 50,000 people without shelter in Kosovo, I am happy to say that I believe all people who have been looking for shelter have now found it. It is to be hoped that the devastation of the Kosovo winter will not be so tragic in its effect.
The Earl of Lauderdale: My Lords, can the Minister tell the House whether the Government are keeping a wary eye on the behaviour or Prince Leka—the claimant to the Albanian throne—who, although resident in this country at one stage, has also been resident in South Africa and is now believed to be in Albania. Is he helping the KLA? Do the Government have any information about his present whereabouts and behaviour?
Baroness Symons of Vernham Dean: My Lords, I do not have any information about that particular individual. However, in relation to the KLA in general, the Government's position is quite clear; namely, that the basis of the Holbrooke agreement applies to all parties in Kosovo and not just to some of them.
Baroness Williams of Crosby: My Lords, does the Minister agree that, in the agreement reached by

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Mr. Richard Holbrooke, there was a date of 2nd November for the commencement of discussion about the future autonomous status of Kosovo and that it was suggested that talks between Mr. Milosevic and the Kosovan authorities should begin? Can the Minister give the House any information about where, if anywhere, those talks now stand?
Baroness Symons of Vernham Dean: My Lords, the noble Baroness is quite right. Belgrade has committed itself to seek agreement on a framework document for an interim settlement based on the Contact Group-endorsed proposals. We fully intend to hold them to their word. Therefore, we are continuing actively to support the ongoing diplomatic efforts which are being spearheaded by US Envoy Hill and EU Special Envoy Petritsch to try to bring the two sides together in agreement. This is certainly a very long, difficult and drawn-out business. However, both envoys are actively engaged in discussions with both sides. Her Majesty's Government are supporting them in their endeavours.
Lord Judd: My Lords, does my noble friend agree that, while many of those who have been seeking shelter have now found shelter of a sort, the situation which confronts them is pretty bleak? Does she also agree that there is a tremendous need to ensure adequate medical and food supplies? Further, as winter takes a grip on the area, can my noble friend say anything reassuring to the House about the supply of humanitarian relief and access to it?
Baroness Symons of Vernham Dean: My Lords, as I reported to your Lordships a few moments ago, UNHCR has reported that all displaced people previously living in the open now have access to adequate shelter. I believe that that is a tribute to the very hard work of UNHCR in that respect. Much assistance continues to go into Kosovo directly from Her Majesty's Government. Moreover, the Department for International Development announced a £2 million contribution for humanitarian assistance to Kosovo, in addition to £1 million provided earlier this year and a further £1.5 million allocated for longer-term peace-building activities. Indeed, that is in addition to the European Union assistance which amounted to some £13 million over the period. We believe that the humanitarian assistance is getting through. Of course, there have been reports of some difficulties in particular areas but, on the whole, the reports now coming through are mostly positive in that the assistance is getting to where it is needed.
Lord Avebury: My Lords, can the Minister say on what day the first report of the monitoring mission will be published and at what intervals it will publish further reports thereafter?
Baroness Symons of Vernham Dean: My Lords, I do not believe that a particular date has been established for the first monitoring report. However, if I am wrong in that respect, I shall write to the noble
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Lord and ensure that a copy of my letter is placed in the Library of the House. As I said to the noble Lord, Lord Moynihan, earlier, it is important that the training of the observers is done properly and that we receive the kind of reports that will be genuinely useful. I should also remind your Lordships that the overflights have already begun and we are beginning to receive some very useful information from them.
The Earl of Lauderdale: My Lords, can the Minister confirm whether it is still the policy of the British Government not to give refuge in this country to foreigners who are plotting troubles elsewhere? Indeed. Prince Leka—of whom the Minister has not apparently heard and about whom I shall say more some other time—is a great hefty fellow with a couple of guns to his belt who was in South Africa at one stage and has recently been in Britain. Can the Minister say whether he is known to be helping and backing the KLA?
Baroness Symons of Vernham Dean: My Lords, I regret that I do not know any more about Prince Leka now than I did a few moments ago when I hoped that I had indicated to the noble Earl that that was a significant gap in my knowledge, though clearly not in his. I shall certainly do what I can to find out about him and write to the noble Earl. Moreover, as I can see that this is of general interest to your Lordships, I shall also put a copy of that letter in the Library of the House.

Education Committees: Church Representation
2.57 p.m.
Lord Pilkington of Oxenford Lord Pilkington of Oxenford asked Her Majesty's Government:
What proposals they have which would affect the place of Church representatives on local authority education committees.
The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty): My Lords, as we made clear in our White Paper, Modern Local Government—In Touch with the People, under our proposals for new political structures Church and parent representatives will continue to be full voting members of any council committees concerned with education. This will safeguard and maintain the ability of Church representatives to contribute to decisions about the planning and provision of education services.
With the indulgence of the House and recalling that, for much of last year, the noble Lord, Lord Pilkington, was my opposite number on some lengthy education legislation, perhaps I may record my personal regret that he has departed from that position. I wish him the very best in his future career as a loose cannon on the Back-Benches.
Lord Pilkington of Oxenford: My Lords, I thank the Minister for his kind words and for his courteous reply.

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Yes, indeed, I feel rather free. However, can the Minister say what the position of Church representatives would be if a local authority embarked upon an executive Cabinet-style of government? Would Church representatives be members of that cabinet and would they have voting rights?
Lord Whitty: My Lords, I think that the noble Lord and perhaps others in the House misunderstand our proposals on local government. We would separate out the executive function in committee structures from the scrutiny function. However, the scrutiny function would remain of great importance. The Church representatives would have a vote on that. As the noble Lord will be aware, under the legislation passed last year, they will be equal partners in the school organising committees.
The Lord Bishop of Birmingham: My Lords, is the Minister aware how much the Churches—I speak not only for the Church of England—have valued the place which they have had, not merely in the scrutinising and oversight of decisions in the field of education but in their formation and execution? Will he accept that something of what he said just now fills me with some alarm as to whether the new proposals make provision for the same involvement in the formation and execution of policy as Church representatives have hitherto had?
Lord Whitty: My Lords, the change in local government structure will ensure that Church representation on education committees, or whatever committees now cover education, will be at least as strong as it has been in the past. As I said, the legislation passed in the previous Session will ensure that the Churches will be represented in the school organising committees and, therefore, will act as true partners with local authorities in relation to school provision in their local authority areas.
Lord Tope: My Lords, is the Minister aware that, if local authorities adopt either of the cabinet models outlined in the White Paper to which he referred, there will not be any education committees for the Church or parent governors to be represented on? Does he envisage that parent representatives and Church representatives will be members of the cabinet? If so, what responsibility will they have as members of that cabinet?
Lord Whitty: No, my Lords, they will not be members of that cabinet. There will be successor committees which will scrutinise education. We will not have the committee structure as it currently exists. Precisely how they do it will vary from local authority to local authority; but those new committees which replace the current structure will be strong scrutiny committees. Church representatives from the Church of England and the Roman Catholic Church will be strong and voting members of the committees.
Lord Elton: My Lords, will the noble Lord perhaps go a little further in describing the difference between scrutiny and executive action? As I hear what he is saying, the Churches, and, incidentally, parents, will be
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driven out of the executive function altogether and be reduced to making comments. That will cause alarm right around the House.
Lord Whitty: No, my Lords, the noble Lord misunderstands the proposition. The executive will require the agreement of the committees to most of its functions. The executive will propose courses of action to the committees and to the full council in a rather similar way to the way the Executive propose action to this House and to another place.
Lord Dormand of Easington: My Lords, can my noble friend say whether there is any statutory provision for members of local education committees to sit on, for example, Church school governing bodies? If not, do the Government have any proposals to do something about that? Does he agree that some kind of cross-fertilisation between school governing bodies would be educationally very sound?
Lord Whitty: My Lords, we are all in favour of cross-fertilisation in this area. Indeed, the new partnership signalled by the legislation passed in the previous Session will provide for that. My noble friend asked a specific question about representation on Church school governing bodies. There may well be experiments in that area. I shall consult my colleagues in the Department for Education and write to my noble friend.
Lord Avebury: My Lords, where there is a cabinet system, what proposals will the Government make for the presence of non-Christian representatives on scrutiny committees?
Lord Whitty: My Lords, in terms of representation, the current position is that primary legislation provides for Roman Catholic and Church of England representation where those Churches provide education in the area. In relation to other schools which come within the local authority system, that would require special direction by the Secretary of State. That would apply to non-Christian schools as it would to other Christian denominations.

Business
3.3 p.m.
Lord Carter: My Lords, at a convenient moment after 3.30 p.m., my noble friend Lord Sainsbury of Turville will, with the leave of the House, repeat a Statement that is being made in another place on the Post Office.

Business of the House: Motions, 8th December
The Lord Privy Seal (Baroness Jay of Paddington): My Lords, I beg to move the Motion standing in my name on the Order Paper.

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Moved, That Standing Order 38 (Arrangement of the Order Paper) be dispensed with tomorrow so far as is necessary to allow the Motion standing in the name of the Lord Gilbert to be taken before the two draft orders standing in the name of the Lord Williams of Mostyn.—(Baroness Jay of Paddington.)
On Question, Motion agreed to.

Monetary Policy Committee of the Bank of England: Select Committee
The Chairman of Committees (Lord Boston of Faversham): My Lords, I beg to move the first Motion standing in my name on the Order Paper.
Moved, That, as proposed by the Committee of Selection, the following Lords be named of the Committee:

L. Barnett,

L. Burns,

L. Ezra,

L. Newby,

B. O' Cathain,

L. Paul,

L. Peston (Chairman),

L. Tebbit,

L. Thomas of Macclesfield,

L. Vinson,

V. Weir;

That the Committee have power to adjourn from place to place;
That the Committee have power to appoint specialist advisers;
That the Committee do meet on Wednesday 9th December at half-past ten o'clock.—(The Chairman of Committees.)
Lord Tebbit: My Lords, perhaps I may speak at this stage. I find it slightly embarrassing because the Motion lists me as a member of the committee. I have given formal notice that, unfortunately, much as I would like to serve upon it, I am not able so to do.
The Chairman of Committees: My Lords, I am grateful to the noble Lord, Lord Tebbit, for mentioning that point. I was informed this morning, too late to alter the terms of the Motion itself I regret to say, that it was not possible for the noble Lord to serve on the committee. I can give him an assurance that steps are in hand to ensure that his name no longer appears as a member of the committee and that in due course his name will be replaced by the name of another noble Lord.
On Question, Motion agreed to.

Deputy Chairmen of Committees
The Chairman of Committees: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
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Moved, That, as proposed by the Committee of Selection, the following Lords be appointed as the panel of Lords to act as Deputy Chairmen of Committees for this Session:

L. Aberdare,

V. Allenby of Megiddo,

L. Ampthill,

L. Brougham and Vaux,

L. Burnham,

L. Carter,

L. Chesham,

L. Cocks of Hartcliffe,

B. Cox,

L. Dean of Harptree,

L. Elliott of Morpeth,

L. Elton,

L. Graham of Edmonton,

B. Hooper,

B. Lockwood,

L. Lyell,

L. McColl of Dulwich,

L. McIntosh of Haringey,

C. Mar,

L. Murton of Lindisfarne,

B. Nicol,

V. Oxfuird,

V. St. Davids,

B. Serota,

V. Simon,

L. Skelmersdale,

L. Strabolgi,

L. Strathclyde,

B. Turner of Camden.—(The Chairman of Committees.)

On Question, Motion agreed to.

Commonwealth Development Corporation Bill [H.L.]
3.6 p.m.
Lord McIntosh of Haringey: My Lords, I beg to move that this Bill be now read a second time. In introducing the Bill perhaps I may express my gratitude to those noble Lords who have indicated their willingness to speak in the debate and, in particular, to the noble Earl, Lord Cairns, who is the Chairman of the Commonwealth Development Corporation. Perhaps I may also express, on her behalf, the regret of the noble Baroness, Lady Chalker, that unfortunately she is not able to speak in today's debate, as she would have wished to have done as she is in South Africa.
Nearly one in four people in the world live on less than one dollar a day. That is both morally repugnant and a threat to world security and stability. The Government have committed themselves, in the first White Paper on development for nearly 20 years, to reducing the number of people in the world in extreme poverty.
We can reduce world poverty but it can be done only if economic growth benefits the poor and through measures which provide education and health care. It is

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only possible if economic growth is substantially higher than population growth. We can achieve that rate of growth. Many countries will need increased domestic savings and investment but they will also need capital from wealthier countries.
The Department for International Development aims to encourage these private flows to the poorer countries. We can do this by helping partner governments to establish sound economic policies, a well regulated environment for business and transparent, accountable, government. We also work with UK based companies to promote responsible business and ethical codes of conduct. It is also crucial for developing countries to mobilise private capital flows because, in volume terms, they are vastly more significant than official flows. But most private investment goes to the wealthier developing countries and excludes most countries in sub-Saharan Africa.
The Commonwealth Development Corporation is the Government's main instrument for directly mobilising investment in the poorer countries. This year it has celebrated its 50th anniversary. During those 50 years it has made a substantial contribution to development. It now has an investment portfolio which totals some £1.6 billion, with investments in more than 400 enterprises in 55 countries. It invests in a wide range of sectors including infrastructure, agri-business, manufacturing and financial services. Its long-standing expertise in developing countries and its ability to identify and manage good quality investments in difficult operating environments have given it credibility among governments, financial institutions and international investors.
But CDC is an under-utilised asset. As long as it remains in the public sector, CDC cannot expand significantly. Like other public sector bodies, it is bound by public sector financial controls. Even with a growing development assistance programme, financing CDC exclusively from public funds would always face firm limits, since more for CDC would automatically mean less in other areas.
The Government therefore considered how to enable CDC to make an even greater contribution to the sustainable development of the poorer countries and to help to mobilise other private capital. A dynamic CDC, successfully investing and mobilising private capital into the poorer countries, could have not only a direct effect on growth but also a strong demonstration effect, by showing that it is possible for investors to achieve attractive returns from investing in poorer countries.
The challenge is to ensure that CDC continues to focus on the poorer countries. Current levels of foreign investment show that the market perceives these countries as high risk. In 1996, less than 2 per cent. of total direct foreign investment was in least developed countries. We considered that a continuing government stake would ensure that CDC's development role is secured; and this link with the UK Government benefits CDC by helping provide access to local governments and by providing co-financiers with some comfort on country risk issues.
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We decided, therefore, that a public/private partnership, which benefits both from its association with government and from the participation of private capital, is the right way forward. CDC's opportunities are improving as more developing country governments improve the operating environment for business and increasingly seek private investment for industry. We believe that CDC is well placed to demonstrate that attractive returns can be made in these markets.
We see this as a long-term partnership. We intend to retain a substantial minority holding in CDC for the foreseeable future. In this way the Government will have a long-term stake in the success of CDC. The emphasis of the partnership will be on CDC continuing to do what it does best. The partnership's purpose can be summarised as: maximising the creation and long-term growth of viable businesses in developing countries, especially the poorer countries, achieving attractive returns for shareholders and implementing ethical best practice.
As well as its ordinary shareholding, government will have a "golden share", through which CDC's development role will be protected. This golden share will be of indefinite duration and will exist so long as government have a meaningful share in the partnership. I will return to that point later.
It is essential to ensure that all the provisions necessary to fulfil CDC's development role are clearly set out from the start in the partnership framework and the company's constitution. Those provisions will then be an essential part of the company's identity and will be known to potential investors, who, if they choose to invest, will do so in full knowledge of CDC's objectives, principles and methods.
The golden share rights will protect CDC's investment and ethical policies. The draft investment policy and a progress report on the development of CDC's business principles have been deposited in the Library of the House, along with the draft memorandum and articles of association for CDC plc, which set out the golden share rights.
The investment policy secures CDC's focus on the poorer countries. It sets out a "universe" of developing countries for whose benefit CDC may invest and requires that at least 70 per cent. of CDC's investments—over a rolling five-year period—are for the benefit of the poorer of those countries, defined as those falling below the weighted average of GNP per capita of lower middle income countries as defined in turn by the World Bank. The latest (1996) figures give a cut off point of 1,740 dollars per head. It also says that CDC will aim to ensure that 50 per cent. of its investments each year will be for the benefit of sub-Saharan African or south Asian countries, and it notes a number of sectors (such as manufacture of equipment for military purposes) in which CDC may not invest. The investment policy will be put in place before private participation is invited and the partnership established, and any subsequent changes to it will require the agreement of both a majority of ordinary shareholders and the golden shareholder. These business principles and policies will reflect international best practice in responsible business.

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I have described the key elements of the partnership framework which is proposed. I will now say a few words about who the partners might be, and about other issues related to the sale of a majority holding. Before the Prime Minister announced the proposed partnership in October 1997, the Government had commissioned and received external advice that, provided the partnership was designed satisfactorily, there was likely to be private sector interest in participating. Satisfactory design refers to matters such as setting a clear framework, as I have described, so that there is no fear of unpredictable government interference, and setting an appropriate capital structure for CDC.
We wish to encourage the widest possible participation in CDC, and this would ultimately mean a listing. Interest could be expected to come from those already targeting emerging markets and interested in moving into poorer frontier markets, or investors attracted by CDC's ethical stance. However, it will take time to prepare for listing and for CDC to establish a financial track record attractive to the market. Because of this, listing may not be possible at the time when other conditions are right for the creation of the partnership. In that case we would look at alternatives for a transitional period. Decisions will be taken on these matters in the light of advice nearer the time. The important thing will be to secure the greatest overall development impact and to ensure that capital is introduced at the right time for the business.
That timing depends on a number of factors, including market perceptions of pre-emerging markets and of CDC's track record and forecast performance. The Asian crisis, for example, has had a serious impact on current market perceptions of emerging markets. But as Asia recovers, appetite for investing in emerging markets is likely to return, although perhaps with more concern about the type of investment. Financial track record is also key. The Government's target for CDC's return on capital employed has been a three year average of 8 per cent. Adverse market conditions in 1997, which have continued into 1998, have had an adverse impact on returns but, in general, CDC has achieved the target with profitability levels comparable to or above those of other development finance institutions. But we are aware that returns at this level will be too low to attract private funds, and CDC will be seeking to increase profitability. This will come partly from continuing the shift to equity investments which provide a better balance between risk and reward than long-term loans, as well as doing more to help create and develop long-term sustainable business. CDC's method of working, which relies on close management of equity positions, puts it in a strong position to identify and pursue good investments.
The Bill is the first stage in the creation of this partnership. The text is in itself largely technical. The policy issues which I have outlined—other than entrenchment of the Government's shareholding—do not appear on the face of the Bill (though many of them are covered in the background papers which have been deposited in the Library).
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The Bill covers three main areas. First, there are the provisions needed to turn CDC into a public limited company. Initially the Government will hold all the shares. The intention is to proceed with this conversion soon after any Act resulting from the Bill becomes law, even though, as I have explained, the timing of the eventual sale of the majority holding will depend on a number of factors including market conditions.
Although the conversion of CDC is a technical issue, it is an important one that I should explain a little further. At the moment CDC is a statutory corporation which is not a suitable legal vehicle for the partnership. It cannot issue shares, for example. That is not like privatisations where, typically, legislation would transfer the assets of the public corporation to a newly formed "successor company". This Bill transforms CDC directly into a public limited company without creating a new legal entity. No transfers of assets are involved, because CDC retains the same legal identity, and remains in being, both before and after the transformation.
This legal route is being used because many of CDC's assets are inevitably held abroad. We were advised that, had the "successor company" method been used it would have been necessary also to make sure that all CDC's individual assets were successfully transferred under local laws applying in all the countries in which CDC operates. That could have been a costly and time-consuming exercise which would have diverted CDC's staff around the world from getting on with the real business of the corporation.
The second area of the Bill contains provisions needed to restructure CDC's balance sheet, to give it a financial structure that suits the needs of the partnership. This area of the Bill also makes provision for the continuation of government financial assistance in the period while CDC plc is wholly owned by government.
Thirdly, Clause 18 of the Bill entrenches the Government's role in CDC plc. The Bill is being presented on the basis that it will be used to create a partnership between the Government and the private sector, involving a substantial and long-term government interest. It is not a privatisation. We believe it would be right that, if a future Secretary of State wished to dissolve the partnership, he or she should be required to seek Parliament's approval before doing so.
Clause 18 of the Bill does this by entrenching the two key aspects of the Government's side of the partnership: first, a substantial economic interest and, secondly, the golden share, with the important rights it reserves to the Secretary of State. Clause 18 requires the Government to hold at least 25 per cent. of CDC's ordinary share capital and to continue to hold the golden share. The clause cannot be amended or repealed without the consent of Parliament. The clause also prevents a Secretary of State from agreeing to changes in CDC's constitution which would diminish their rights as holder of the golden share, except with the approval of Parliament.
Together the provisions of Clause 18 will ensure that the fundamental nature of the partnership as it is being presented to your Lordships' House today cannot be altered without Parliament's consent.

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This Bill has been well heralded in public policy statements for more than a year. I am very pleased to be able to commend the Bill and to present it to the House.
Moved, That the Bill be now read a second time.—(Lord McIntosh of Haringey.)
3.23 p.m.
Lord Howell of Guildford: My Lords, I am very pleased to have the opportunity to take part in this debate. I have been a passionate supporter of the Commonwealth Development Corporation for many years, going back to the time when it was called the Colonial Development Corporation. I remember discussing its aims and objectives with the marvellous Evelyn Baring, later Lord Howick, over 35 years ago. Even in those days it seemed to me the ideal instrument of the future, in terms of promoting development and enterprise, with qualities which, in the end, would prove superior to those of government-to-government aid, direct budgetary aid or donor aid which 35 years ago was in its high noon. It struck me that one day we should see much greater expansion of aid instruments, combined with private enterprise flows, which promoted private enterprise at a less spectacular level, namely, that of the small agricultural business, as the noble Lord, Lord McIntosh, mentioned, all over the developing world. I thought that it would work much closer to the roots of development without being caught up in the machinations of huge bureaucracies and vast infrastructure schemes where much of the finance often disappears in dubious directions. I have therefore been a passionate supporter for many years. I am delighted that we have an opportunity to discuss the next stage.
I have no specific interest to declare, but I declare a general interest in all matters that may lead to privatisation (although we are told that this is not a privatisation) or which involve flotations. These matters interest the financial sector in which I work.
Thirty-five years ago, indeed 20 or 10 years ago, the main instrument for promoting development was seen to be overseas aid. A huge industry had been built up on the back of it, and a number of institutions had developed whose job was to transfer resources to the developing countries in the hope that that would promote development. Over the past decade we have seen the picture change completely, with private direct investment and portfolio investment (although it is less related to development) growing by leaps and bounds. The figure I have for the developing countries for 1996 is 120 billion dollars. That is about 40 per cent. of the total foreign and direct investment flows throughout the world. In 1998, of course, the figure will look much worse. There will be a dip, as in 1992; however, I hope that the figure will revive again. Admittedly, the lion's share goes to the not necessarily richer but the bigger developing countries, with China taking the largest proportion. It is a country with a low per capita income but since changing its policies towards foreign investment it has become much more attractive to such investment. That figure of 120 billion dollars now dwarfs anything in the way of official aid, which runs at about a quarter of that level, maybe even less.
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So we have seen an enormous shift in the world's financial involvement in the development process from overseas aid to a position where private capital is now the driving engine. Somewhere in the middle of it all I had always hoped that the Commonwealth Development Corporation would emerge as a brilliantly conceived instrument for carrying forward the process. It has had its comparators. The International Finance Corporation is in effect an international version of the CDC, although it operates on a bigger scale. It has slightly different aims and missions but it too is concerned with promoting private enterprise through joint ventures and direct investment in projects around the world.
It is no surprise and no worry to me that the CDC appears to have a slightly ambiguous future. It is not to be fully privatised; nor is it to remain a statutory corporation. The absolute key is that it should have a strong balance sheet, one that is not undermined when the going gets rough again, as inevitably it will. There will be projects and big investments that go wrong; countries will close down; and capital controls will be slapped on by countries where there has been substantial CDC investment. All that will make for a bumpy ride. Investing in emerging markets is a risky business. I therefore hope that the balance sheet will be strong from the start. I hope that the support of the Government, who, to begin with, will he the only shareholder, and even after some time probably the biggest single shareholder, will be unwavering and that there will not be a sudden change of policy and view when matters turn difficult, as they will.
I am very interested in the concept of public private partnership. I wish to ask one or two questions about how it will work in this case. The noble Lord, Lord McIntosh, said that that is for the longer term. The idea is that there should first be a wholly owned equitised corporation and that the shareholding by the Government will eventually be wound down to 25 per cent., with 75 per cent. being held by investors. What happens to the guarantee regime? The guarantees in Clauses 10 and 11 are to underpin various projects and undertakings into which the CDC has entered. Is it right that, when CDC ceases to be a wholly-owned Crown corporation and the shares start being sold in the open market to other investors, all guarantees will be off? How will that affect the operations of CDC? The same question applies to the very large National Loans Fund interest-free loan commitment of £755 million already available to CDC. Presumably that can no longer be interest-free once CDC becomes a corporation, with risk equity available, and invites private investment.
There is a dilemma here. The idea of having the best of the public and private sectors combining in areas where the market will not necessarily deliver the goods is not a new one. It is a very old idea, with which people have wrestled for generations. There was always an intellectual conundrum; namely, how could a semi-public body be at the same time a private risk capital operation? Either it was backed by the Government in the last resort and could not go bust, or it was out on its own and could go bust in which case all

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the undertakings, guarantees and backing of government were off and the public purpose for which the body was created in the first place could no longer be fulfilled. It is interesting that those with ingenuity at the Treasury who for years sent messages to people such as myself saying that this could not be done now find that it can be done. I seem to remember someone—I think it was Sidney Webb—saying a long time ago when Britain left the gold standard, "They never told us we could do that".
I do not know whether someone has discovered some new voodoo or magic to make for a stable situation where 25 per cent. of the shares of CDC will be owned by the Government in due course, where there will still be some kind of concessionary finance, where there will still be some kind of guarantees, and where there will be a golden share. CDC is known to be a valuable instrument of public policy. Yet investors will be invited to put their money in. Investors will either lick their lips and say, "This is a bonanza because it cannot go wrong and we cannot lose; it is not risk capital at all but debt capital with a soupçon added", or they will put their money in and lose it, and a valuable instrument, if things go wrong, as they often do in business, particularly in emerging markets, will he lost.
I therefore have some queries as to how the corporation will run in the difficult grey area between being public and being private. I do not see how it can do so, but I hope that it can. As I said, I greatly treasure the role that the corporation has played over the years. It is very well run by excellent and extremely knowledgeable staff. I have visited many of its projects around the world. The corporation realised that in order to get development going it was necessary to support small projects and private enterprise at the humblest level rather than grand, vacuous and vague schemes by governments involving huge infrastructure development or massive programmes of education and social improvement which sounded very good but somehow never worked. The corporation always backed the small platoons, the smaller endeavours, and did so very well.
Private investment has its place; the CDC has its place; and straightforward aid still has a place in backing unfinanceable and non-market social projects, social infrastructure and public and political infrastructure, without which no investment or development can take place. I hope that the corporation will continue to have a powerful and effective place, that it will be well financed and that it will be able to live with this slightly strange, ambiguous role. Perhaps it will work in practice, but I confess that I remain puzzled as to the theory.
3.35 p.m.
Earl Cairns: My Lords, I have an interest to declare in that, as the noble Lord, Lord McIntosh, mentioned, I have been the chairman of CDC for some three-and-a-half years, a fact of which I am very proud. I am privileged to hold that office in an organisation with a record of endeavour in the field of development which is, I believe, second to none. CDC has played a major role in nurturing sustainable development in many
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countries and many industries over the past 50 years. It currently brings much needed wealth and employment to individuals and much needed revenue to governments in some 55 of the poorest countries in the world. In many of them we are the largest official investor and therefore provide an important lead to others. Perhaps as many as a million people depend directly or indirectly for their livelihood on the jobs that are created in the businesses in which we are currently invested. I am grateful to the noble Lord, Lord Howell, for his commendation of the quality of our management, with which, of course, I fully concur.
It may seem paradoxical that, at a time when private sector flows to the developing world are substantially reduced, the Bill should seek to increase private sector disciplines upon CDC. However, it is clear that most governments have come to recognise that the creation of commercial value is most effectively achieved by the use of the private sector financial markets via investing institutions which are prepared to take measured risk and appropriate rewards. It is against this background that I, with the support of the whole board of CDC, welcome the Bill.
CDC has been constrained from supporting as much development as it has the potential to do by the limits of government expenditure and the inability to raise further capital by virtue of the "least cost rule". In addition, many co-venturers from the private sector have perceived CDC as insufficiently financially motivated to make CDC a welcomed partner. I hope that the passing of the Bill will enable CDC to fulfil the Prime Minister's stated objective, when he first announced the public-private partnership, that CDC should play a much greater role in mobilising private finance for poor countries by giving CDC access to financial markets and by ensuring that it is a more attractive partner for others from the private sector. If that is achieved, this will be the acid test of success.
Until now CDC has been financed by loans from government and retained surplus derived from our own activities. These involve no servicing cost, although UK corporation tax is paid upon the profits that we repatriate. Much of our investment is in the form of loans. CDC has also applied an "additionality" test to investments, whereby we have left the private sector to operate where it could, leaving the most attractive opportunities to it. For these reasons, we have not achieved a full market return on our investments, nor have we been required to do so.
CDC derives considerable benefit from its close relationship with the British Government. The effective development contribution of successive governments is widely recognised, and the constructive relations which CDC enjoys in many countries crucially depend on that linkage. It is therefore an important plank in the future success that this association continues and is seen to continue.
The commitment to development is as fundamental to these parts of CDC as it is to the Department for International Development, although ours has a particular focus. It is enshrined in our investment policy and will remain as key to the future of CDC as it has in the past.

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CDC has also encodified its policy of fair business and high social standards, making explicit what has been implicit in our business practices in past years. I do not claim we have any monopoly of best practice, but I hope that we can act as a standard bearer for the way in which international investors behave in developing countries.
The challenge that will face CDC in the years to come is whether it can fully meet the requirements of the development objectives that have been the hallmark of its activities over the past 50 years while at the same time satisfying the requirements of the financial markets. CDC is determined to do so, but I cannot disguise that it is a challenge without a large margin for error. Nonetheless, I believe it is possible. The greatest contribution to development is in encouraging the most perspective and most profitable enterprises, which build on the comparative advantages of each economy. In this way we can enable sustainable businesses to compete successfully in an increasingly integrated international market place.
CDC will have to ensure that it can capture the rewards of success, perhaps more keenly than we have attempted to do in the past. It will involve a major shift in style and technique. The equity content of the portfolio will rise, as we seek to share more fully in successful ventures, even though that will mean more certain losses if businesses fail. It will require a much closer relationship with the businesses in which we invest, since we shall not merely be looking to ensure that our loans are repaid. That change is starting to take place. CDC will have to become more focussed and more demanding of itself. That should ensure that CDC's contribution grows in step with greater returns, in creating value and employment opportunities in poorer countries.
CDC has formidable competitive advantages. Its experience and knowledge of many developing countries are highly significant. Its reputation and its relationships, hard earned over the past 50 years, mean that it is a welcomed investor wherever it operates. Its continuing constructive relationship with the Department for International Development will be a major advantage and must remain a vibrant one. We operate in countries which have, on average, high long-term growth rates and scarcities of capital and skills that we at CDC can introduce. CDC will have to build on those advantages. It will not be an easy task to fulfil both the developmental and financial criteria. The challenge is a considerable one, but the prize is also considerable. My colleagues at CDC share with me the wish to accept the challenge because of our commitment to better and more development. For that reason I commend this Bill to the House.
3.43 p.m.
Lord Sandberg: My Lords, one only needs to speak briefly because all the previous speakers, and those who will follow, are great admirers of CDC and what it has done in the past. Perhaps I may say how pleased I am that the Government are pushing the activities of CDC which I consider has, and does, a vital job.
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As a banker I have followed the activities of CDC over the years and I have never found it advancing monies just because it sounded like a good cause. I have always found it to be pragmatic and sensible. It advances money to entities at rates and conditions which banks might not. I suppose it reaches parts of the world which others do not or cannot reach. On my investigation it has only become involved after proper due diligence. It is certainly no instrument of pure charity. I found only a sensible form of pragmatism when it has been involved.
CDC has spread its wings in recent years and is now serving countries which, when it was originally formed, it would not have gone into. I hope that that continues. As a longtime admirer I was pleased to hear the Minister say that it will continue in that vein. He was absolutely right in saying that for the poorer countries and poorer economies it will have to look more carefully, but there is absolutely no reason why we cannot advance monies and assistance to them and to find it profitable both to them and to the lenders. However, I hope that CDC will not concentrate too much on the sub-Saharan economies and south Asia. I should like to feel that there are other parts of the world where its help is much needed.
When we were discussing CDC last week in the debate on the gracious Speech, I said that I had seen activities in central America which are very necessary. We have had awful hurricanes that have affected Nicaragua and Honduras. That area of the world has such storms and it requires help. That applies not only to Central America, Latin America and the Caribbean, but specifically those places which have been hard hit such as Haiti, which one might consider to be a "no-no" area. One can advance money there and democracy as well as profit is helped by so doing. A special case is Cuba. Some form of assistance to that country will help it to rejoin the normal democratic community of nations.
As CDC moves from a structure dependent on loans into one based on equity, there is a need to scrutinise legislation very carefully as a change in structure requires a rather different approach. If CDC is going to cross this divide without falling at various hurdles one has to look at this carefully. I do not have the same gloomy thoughts as the noble Lord, Lord Howell. I do not believe that it is too difficult for governments and the private community to work together. We have seen governments build shares and other investments, but not quite the same as this. There are many instances around the world where governments and the private sector work together successfully.
I am sure that the Minister is well aware of all these potential problems. I am sure that he will give his confirmation that the Government are not unaware of the change that comes about when one goes from a loan structure to an equity one.
I conclude by saying that I hope CDC will continue as it has done in the past. I am sure it will and I wish it well.
3.49 p.m.
Lord Chorley: My Lords, I intervene in this Second Reading debate with some diffidence for in recent years my only forays into the world of development have been

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in connection with the affairs of the British Council. However, many years ago I made my maiden speech on the subject of the Brandt Report. My reason for intervening this afternoon—I am conscious that previous speakers know far more than I do about investment banking, third world development and the CDC—is that I have always had a high regard for the work of the Commonwealth Development Corporation. For example, many years ago I remember two major and successful projects undertaken by the CDC in Swaziland, where I was also involved in development work.
As has been said, the CDC was set up in 1948 as one of several interesting experiments by the Attlee government. This was prior to the days when overseas aid became a major cottage industry or, as the noble Lord, Lord Howell, said, before the high noon of development aid. Some of the Attlee experiments overseas were disastrous, for example groundnuts in Tanganyika and chickens in the Gambia. However, the essence of CDC was small and not mega projects. At the same time one remembers two other interesting experiments: the Finance Corporation for Industry and ICFC, which in due course merged and became "3I's" and it was very successfully floated. It is nice to know that the Attlee government's experiment is still proceeding.
I used to be sent the annual report and accounts of CDC and was interested to see how it was progressing. My impression is that for some time it has been bumping along on a plateau. The noble Lord, Lord McIntosh, explained some of the reasons why it had in a sense become stuck given the normal public sector constraints. In the meantime, in the development field the rest of the world—the private sector—has been pressing ahead. The flows into the third world from the private sector are now much larger than those from the public sector.
Almost everyone welcomed the announcement by the Prime Minister the previous autumn, which was followed by the White Paper to transform the CDC, which we are learning to call public private partnership, or PPP. I am not sure how many of us knew what that meant. At the beginning I believed that it meant privatisation. I am still not entirely clear what it will mean in practice, but it is an interesting and important idea. I still regard it as an experiment, but there is nothing wrong with experiments. Therefore, I welcome this Bill as the starting process.
I have hardly anything to say about the Bill itself. In essence all it does is to turn the CDC into a plc and in that sense it is a paving Bill. I believe that it is quite straightforward. I hope that noble Lords will feel able to agree the Motion to be moved later this afternoon by the Minister—it was originally suggested by the noble Lord, Lord Redesdale—that the Bill should follow the Grand Committee procedure. That is all I say about the Bill, except for two small subsidiary points. I have jotted them down but I believe that both have been dealt with. First, when is the filing date likely to be? I believe that
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the answer is quite soon. My second point concerns the memorandum and articles of association, which I am glad to hear have been placed in the Library.
I come to the big question that has been touched upon by all previous speakers: how easy will it be to attract private equity partners, and how will this partnership work? It is common ground that a prerequisite is that CDC should become in the main an equity financier as compared with currently one-third of its portfolio. Last July the House of Commons in a very interesting and useful report was sceptical about this, rather like the noble Lord, Lord Howell. It drew attention, for example, to a USAID review in 1996 which frankly had been pretty dismissive of the whole concept. That is the big question. I take great comfort from the experience of the noble Lord, Lord Sandberg, and the experience of the Hong Kong and Shanghai Bank. There should not be too great a problem. We also have the noble Earl, Lord Cairns, as chairman. That is quite a good starting point.
There are nevertheless a number of subsidiary but quite important questions. I listed four, some of which have already been touched upon by the noble Lord, Lord McIntosh. The first concerns the length of the transition period. We have been over that matter. Essentially, what is needed is a good solid track record. Secondly, the management will need to be refocused. I do not know whether that is a big problem. Perhaps the noble Earl can tell me following the debate. Thirdly, what will happen to the government loans? As I understand it, they are currently well below the statutory limit of £1.1 billion. It would be a great help to the CDC if they could be freed up to get it off to a good start. Fourthly and finally, the tax status of the CDC is extremely important. Evidently it was a matter of considerable concern to the Secretary of State when she gave evidence to the Select Committee of the House of Commons. Perhaps the Minister can tell the House what progress is being made on that front. These are just some of the points that occur to me.
The transition period will be a tremendous challenge for the CDC, but in the noble Earl and his colleagues we have an excellent team. If they can pull it off it will be a great achievement. It will mean that a fine institution that has done great work over the past 50 years has found a new role to take it into the next 50 years.
3.56 p.m.
Lord Redesdale: My Lords, we on these Benches welcome the Bill for the reasons quite clearly set out by the noble Lord, Lord McIntosh. We believe that it will have a positive implication for developing countries, especially those in sub-Saharan Africa. We wish the Bill all haste at every stage for reasons that I shall go into later. I am glad that all parties have now agreed that it should be subject to the Grand Committee procedure. I suggested as much in the reply to the gracious Speech. I am interested to note that it will be handled by the same Front Bench team who dealt with the National Lottery Bill last year and therefore I do not believe that this system will cause undue problems.

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We have been assured categorically that the Commonwealth Development Corporation Bill is not a privatisation but a move to a public private partnership. I am assured that that is the case. As one who is cynical to the nth degree, at the outset I believed that the privatisation, as it was then labelled, was being promoted so that the spending commitment set out in the White Paper could be met and the £1.5 billion realised from the sale of the CDC pumped straight into the DfID budget. That is not the case and it is something that we applaud. That assurance was made clear last week when the Secretary of State explained the purposes and ideas behind the Bill. That meeting was particularly useful and informative.
Because the Bill has come before your Lordships' House so quickly the reason behind it was explained to all Front Benches last Friday by the chief executive. Bearing in mind that I asked many questions of the chief executive of the CDC, I thank the Minister for the fact that he has not answered the questions before I asked them.
The CDC will change from a reactive to a proactive institution. On these Benches we understand that that is obviously not the easy option. The CDC will enter the harsh environment of the private sector and will have to prove itself. It will be judged on its share price and the dividend that it can produce, albeit not in the easiest of markets. The easy option would be to remain in the public sector, but that would take away one of the major options that the Bill gives to the CDC—to invest in equity, not debt.
The Bill to increase the borrowing requirement that passed through this House during the time of the previous government was a start, but this is the natural course that the CDC will have to take. The noble Earl, Lord Cairns, stressed the issue of looking at equity investment in companies. The importance of being able to invest in equity is that that will act as a lever on other private institutions, taking other companies into the area of investing in companies in emerging markets. The particular difficulties of investing in emerging markets can be seen at present in the City of London. The number of traders who have been investing in the emerging markets and who have found themselves without a job recently is quite substantial.
The Government's role in remaining in the CDC through their golden share is particularly important. The success of the CDC will ultimately rest on how it is perceived as a risk. The provisions in the Bill for bad debt and guarantees, and the fact that the Government are retaining at least 25 per cent. of the shares—although I believe the figure will probably be a lot higher—will give investors a great deal of confidence. The guarantees that will be put forward mean that the CDC will have to stay within a range of 54 countries that meet the criteria set out. I believe the Minister stated that it was $1,750 income per head of population.
There are certain drawbacks in remaining in those markets which are also perceived as the risks associated with investing in the CDC. As there is a higher perceived risk, the rate of return will also have to be slightly higher than in other markets. Will the Minister
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give some assurance that the rate of return and the figures put forward of around 15 per cent. are achievable?
In his introduction the Minister said that the guarantees set out in the Bill could not be changed except by Act of Parliament. Perhaps I am mistaken, but if that is not the case, would he give an indication that it will not be possible to change the guarantees which are going through at present in the area where the CDC will operate? Are those guarantees set by Act of Parliament? Could they be changed by any other method or by the company at a board meeting?
I now turn to specific questions that are raised by the sale. The Minister said that once it becomes a plc, the present assets of the company will be the assets of the new company. Does that include the £550 million in reserves currently held by the Commonwealth Development Corporation? Am I right in understanding that the DfID at present owns those reserves? Will Treasury rules affect the transfer of those moneys or will the Treasury still have a claim on those reserves?
The noble Lord, Lord Howell of Guildford, mentioned the National Loans Fund looking at the £750 million still outstanding. There has been talk of that figure being swapped from loan to equity in the present company. Will the Minister give an indication of how that would take place? Perhaps he could give further details of the implied implications of that transfer, if it could take place.
The timescale for the change from a public sector company to a private sector company will of course be critical. The noble Lord, Lord Chorley, used the word "experiment", but that is a rather risky word for such an important transition. The changeover, as I said earlier, must take place as quickly as possible because the company itself is changing direction. There must be a degree of uncertainty among the staff presently working in the company over the new direction that they will be taking and whether they will have the skills needed for that new direction. It will not affect just a small number of people. I believe there are 250 people affected in this country, 200 abroad and over 40,000 employees of companies in which the CDC invests at the moment. Can the Minister give the House some idea of the timescale for the transition?
Can the Minister also indicate whether there will be a time limit on the flotation of the company? I believe that the Secretary of State will trigger the flotation. Will there be a set period after which the flotation has to take place? I ask that to make sure that the CDC will not be left in limbo if there were continuing turbulence in the emerging markets, although I realise that that is not the Government's intention.
One implication of giving the Bill a hasty passage is that at the moment it is an offence for the Commonwealth Development Corporation to talk to like-minded investors. I believe it is an offence to discuss the break-up of a public body. Although the Minister will have some indication of who those like-minded investors are who will support the goals as set out in the guarantees, there will be certain limitations on having firm ideas of who those investors will be until the Act comes into force.

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It is an important Bill and one hopes that in Committee we shall be able to raise some of the issues in greater depth. I realise that the Minister will not be able to answer all of the questions at present, but he has the support of these Benches.
4.9 p.m.
Baroness Rawlings: My Lords, this has been a most constructive short debate. I wish to stress the importance that we on this side of the House place on the Commonwealth Development Corporation Bill and to express our appreciation of the opportunity for a full and thorough scrutiny of it. I am indeed grateful to the noble Lord, Lord McIntosh, for his detailed explanations, which are most welcome. Despite the consensus in the House on the Bill it is still vital to give proper consideration to the legislation and associated documentation.
The success of transforming a public corporation into a public private partnership depends crucially on how the details of the structure of the legislation, the memorandum and articles of association, and of the CDC at the time of the sale are handled. Your Lordships' House is in a particularly good position to give such consideration given the expertise on this matter among its Members. I think notably of the noble Earl, Lord Cairns, who made such an interesting speech, and the noble Baroness, Lady Chalker, who regrettably cannot be with us today.
The CDC is a success story, as we have heard from all noble Lords who have spoken today, making a valuable and distinct contribution to Britain's overseas development effort. The Minister's lucid introductory remarks have clearly demonstrated that, so I need not burden your Lordships' House with more facts and figures. However, I point out that it was successive Conservative governments which built on the CDC's success by widening its powers and increasing its potential for growth with the 1982, 1986, 1995 and 1996 Acts.
The Conservative record reflects, too, our continuing commitment to development and our belief in the importance of private investment to further the growth of the developing countries. Indeed, in recent years the development finance institutions such as CDC have played a critical role in laying the foundations for much of the dramatic increase in private capital flows to the emerging markets.
The environment in which the DFIs operate have, however, markedly changed. In response to such changes, the DFIs have adapted in a number of ways. One is to increase private sector ownership. The Netherlands Development Finance Company has already done that. The French Proparco and the German DEG are considering expanding private sector ownership, too. Here in the UK it is proposed that CDC brings the private sector into its capital structure in a substantial way.
I should like to state clearly that this side of the House welcomes the Bill and its spirit. We fully support the concept of less state involvement, and of privatisation.
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However, it is ironic that it is a Labour Government who seek to introduce a measure for the partial privatisation of a public body. Only 30 months ago the Labour Benches in another place were seeking assurances that the then Conservative government would not consider privatisation. In particular, at the Second Reading of what became the Commonwealth Development Corporation Act 1996, Mr. Foulkes, said:
"The Opposition are worried about the dangers of progress towards privatisation … We are worried that the Government might be testing the waters for fattening the company and selling it off'.—[Official Report, 20/5196; col. 67.]
I continue to marvel at the way in which realities of government lead Labour to adopt Tory ways.
I turn now to specific aspects of the Bill. It is essentially an enabling Bill. We shall have the opportunity at Committee stage to scrutinise the Bill in greater detail. However, I wish to flag up some areas of concern at this early stage which stem from one fundamental question. Are the provisions envisaged likely to make it sufficiently attractive to the private sector? That was mentioned, quite rightly, by my noble friend Lord Howell of Guildford, and the noble Lord, Lord Chorley.
In Clause 18 the Bill makes provision for a partial privatisation leaving the Government with at least 25 per cent. of the issued ordinary share capital and a special share. We accept the need to accept the entrenched development role of the CDC. However, we should like to ask the noble Lord to clarify a number of points. Have the Government considered alternative models; and, if so, which? Despite what the noble Lord, Lord McIntosh, said regarding privatisation, have they considered outright privatisation but with the development role entrenched on the face of the Bill? Why has the Crown Agents route not been considered appropriate? Is the public private partnership an intermediate step towards full privatisation? For how long do the Government intend to hold a golden share? The noble Lord referred to the foreseeable future, but what does that mean?
As part of enlarging the resources of the CDC, the Government propose in Clause 15 to raise the present limit of government assistance from £1.1 million to £1.5 million. But does that mean that the Government intend to make further loans for £745 million over the coming years? That was one of the questions asked by the noble Lord, Lord Redesdale.
If the provision is read in conjunction with Clause 9, is it the intention that the new loans will be interest bearing? After registration will government finance assistance, in particular new loans under Clause 9, score against the PSBR? That leads me to Clause 8 which provides that old loans, and advances in particular, remain non-interest bearing loans. That clearly suits CDC. During the International Development Committee hearings the Government gave the impression that they were inclined to convert some of the concessional advances into equity and to have some repaid. What considerations led to the changing of that declared intention?

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The Bill represents only one element of the operation to enable setting up the public private partnership. It provides a purely formal framework. I wish to raise some fundamental questions on the contents of the memorandum and articles of association as well as the CDC investment policy. Would any private sector investor wish to invest in a company where the Secretary of State has such extensive powers of control? They may be protected from unpredictable interference, but would they want to invest in a company where the control of he fundamental decisions is not in their hands?
I turn next to the investment policy. That requires the CDC to invest at least 70 per cent. in the poorer countries and 50 per cent. in sub-Saharan and South Asian countries. I note that in 1997 the CDC invested in 17 countries which are not classified as poorer by the World Bank. I note, too, that among the poorer countries there are seven eastern European countries. There is no legal barrier to CDC involvement in those countries, although it is not in its policy at present. As we well know, over the years the focus of British foreign policy has shifted away from the Commonwealth and towards Europe. We on these Benches recognise that development, and support further European enlargement. Indeed, the CDC investment in eastern Europe would realise a hope first expressed by the noble Baroness, Lady Chalker. Would this not be an opportunity to bring the CDC more into line with our foreign policy: by freeing the investment policy of the geographical requirement, increasing flexibility, maintaining the focus on the eradication of poverty and freeing funds for investment in eastern Europe?
The papers discussed so far are as much as the Government have seen fit to disclose. To complete the operation it is necessary, for example, to restructure the company's balance sheet, define its tax status and decide the method and size of sale and, most importantly, its timing. On those points the Government have left us completely in the dark. First, after registration, when the Crown fully own the CDC surely it will have to restructure the balance sheet to make it more attractive to investors? At present about 60 per cent. of the capital employed comes from government advances. Of course, market conditions at the time will be crucial. Depending on likely scenarios, how will the Government restructure the capital base of the CDC? If it is going to convert part of its substantial reserves into equity, would a company with a burden of over 60 per cent. of loans be attractive to the private sector? Would not the CDC become more attractive to private investors if the loans were converted into equity? Will the Government undertake to endow the CDC after registration with a strong, attractive balance sheet, as so rightly mentioned by my noble friend Lord Howell of Guildford?
Secondly, I turn to tax. We understand that provisions for the CDC tax treatment are to be included in the next Finance Bill. Has the Secretary of State been discussing with the Treasury the possibility of a special tax treatment of development investment organisations within the UK along similar lines to the treatment of pension funds? Do the Government intend to grant the
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CDC an advantageous tax status which may provide the necessary incentive to private investors, offsetting the potential commercial disadvantages represented by the Government's retention of a considerable degree of control? How will an advantageous tax treatment be so circumscribed that it will not amount to a tax loophole, encouraging invasion and possibly fraud? What progress can the Minister report on discussions with the Treasury? Will the Government proceed with the Bill even if they do not obtain a special tax treatment for the CDC or allow it to go offshore.
Thirdly, the Government have not disclosed anything about the method and size of sale and, in particular, its timing. What further advice about the evidence of private sector interests have the Government had and what indications emerge from it? What method of sale are they envisaging to adopt? What minority stake above the 25 per cent. do they intend to hold? What is the current valuation of the CDC? Will the Government give your Lordships' House assurances that proceeds of the sale will go to DfID? By what date do they think the CDC will be ready to be privatised?
I hope that the Labour Government are not intending to sell it prematurely to raise money. Paradoxically, that is precisely what Members of the Benches opposite accused us of doing when they were in opposition.
Earlier this year, the noble Lord, Lord Whitty, endeavoured to reassure this House. Of course it is privatisation in one sense, but the motives behind it are not the same as in the case of many privatisations in the past. Our concern is not so much the return on the equity sales which will be involved, but rather the ability to use that to extend access to additional funds. Four months later, DfID announced a comprehensive spending review for the next three years. I quote from the press release of 14th July:
"The Commonwealth Development Corporation will receive an injection of private capital through the sale of a majority share. This will improve the CDC's ability to contribute to development by increasing the flow of investment to poor countries. It will also provide receipts for the DfID budget".
If one looks at the table in the same press release there is an interesting increase for the year 2000 to 2001 of about £500 million, which roughly corresponds to the crude estimate of the partial sale of the CDC.
Looking at the wider canvas, that raises important questions, especially in view of the deteriorating health of world markets. Are the Government going to sell the CDC in 18 months' time? If the current rate of return is decreasing, how can the CDC establish a credible trend towards a rate of return of 15 per cent. and at the same time maximise the development content. How can the corporation undertake in such a short time the necessary shift in management focus and skills base? At what cost will that be to its dedicated and highly expert staff? Should there not be in the Bill a date before which it is not possible to proceed with partial privatisation in order to ensure that the CDC has enough time to make the necessary adjustments? We are seeking assurances that, although the Government are unwaveringly committed to part privatising the CDC, they will not rush into the sale. Will the Government also come back to Parliament before issuing securities?

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As I said at the beginning, we welcome the Bill and its aims. However, we fear that there are still many aspects that have not been thought through in sufficient detail as yet. Therefore, we will need to give it a great deal of attention and time in order to ensure its success. I very much look forward to the answers to, I am afraid, my many, many questions.
4.24 p.m.
Lord McIntosh of Haringey: My Lords, I am grateful to all noble Lords who have taken part in the debate. As the noble Baroness, Lady Rawlings, rightly said, it is evidence of the expertise which is available to your Lordships' House from its Members in a number of spheres. I shall try to answer as many of the questions as I can, but it is right that I should start with the fundamental points raised by the noble Baroness, Lady Rawlings, who simply refuses to believe that this is a public private partnership but instead describes it as part privatisation.
I am afraid that the noble Baroness is very seriously in error in her analysis. That is a shame, since the noble Lord, Lord Redesdale, who was initially skeptical—I believe that he used the word "cynical", which does not describe him to me—has been convinced by the arguments about public private partnership. The fundamental difference, as the noble Lord recognises, is that the proceeds from introducing private capital into the CDC will be used for development assistance programmes—in other words, for the purposes of a whole spectrum of the activities of the Department for International Development—and not go straight into the Treasury pot.
That is the fundamental distinction which I wish I could persuade the noble Baroness, Lady Rawlings, is the relevant consideration. It is not an intermediate step towards privatisation, as she suggests. It is a true partnership in which the Government will continue to be involved in the longer term for the benefit of government—in other words, their ability to carry out the objectives of the Department for International Development—and also of the private sector in that the expertise built up over 50 years by the CDC, its links, its offices in 27 countries and its expertise in a whole range of sectors, which are appropriate to poorer countries, will open up these markets to private capital. I hope it is fair to say that under these circumstances, despite the many difficulties which have been properly pointed out, not least and quite rightly by the noble Lord, Lord Cairns, the chairman, this is a win-win situation for the benefit of both sides.
Before going further, perhaps I may get rid of the false analogy which the noble Baroness, Lady Rawlings, raised with the Crown Agents. She asked why we were not following the Crown Agents' route. That is a company limited by guarantee. The Crown Agents cannot and do not have profits and therefore there is no question of attracting private equity capital. Therefore, there is no analogy of any kind between the Crown Agents and what we are considering today.
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A number of noble Lords asked whether the financial implications of the Bill have been taken into account in public expenditure figures. I can categorically say that they have and that the comprehensive spending review figures for the Department for International Development, to which the noble Baroness, Lady Rawlings, referred, take account of the provisions in the Bill.
The noble Lord, Lord Howell, made valid and perceptive points about guarantees. It is true that Clause 11 provides that the Government can guarantee third parties against default on financial obligations by the CDC. But he is also right in saying that after the CDC ceases to be wholly owned by the Crown that will no longer be the case for new projects. The whole point about going to private capital is the balance of risk and opportunity and it would be impossible to conceive of the Government guaranteeing individual projects after the change has taken place. Of course, the experience and expertise of CDC provides some comfort, as I said in my opening speech. And the links which the Government have with the governments in the poorer countries provide some comfort. But that cannot be in the form of financial guarantees.
The noble Lord also made an interesting and important point about the way in which the transformation of the balance sheet will take place. Perhaps I may try to explain it by example. I do not wish to be trapped into saying that the figures which I give are necessarily true figures. They are only exemplars. The present situation is that the balance sheet consists of £755 million of loans and reserves of £550 million. The example I give of a transformation is that in future £900 million would be equity and £400 million would be debt. That is more akin to a private sector balance sheet.
As the noble Lord suggested, interest-free loans must disappear. They have to be written down on the balance sheet. Calculations have been made of the effect on the total balance sheet of writing down those long-term loans. The calculation is that it is probably to the extent of 5 to 10 per cent. of the total balance sheet; in other words, it is manageable.
The noble Lord made a valid point, echoed by a number of other noble Lords, when he said that the activities of the CDC and of aid itself and other activities of the Department for International Development all have their place—I believe that that was the phrase he used—in government activity in relation to developing countries. That is the context in which we should see the matter. It is not that we see the new structure of the CDC as being the way in which the Government will approach their obligations to developing countries. That is one end of the spectrum. Relief aid for natural disasters, such as in central America, where no financial return is looked for, is the other end of the spectrum.
The noble Lords, Lord Howell and Lord Chorley, and the noble Baroness, Lady Rawlings, questioned whether the prospects are sufficiently attractive to the private sector. I take a quite upbeat view. I see it as a unique opportunity for investors to gain exposure to emerging

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markets, using the 50 years of experience of the CDC and, in particular, its experience of managing investments in those markets. This is in the context of global foreign direct investment in developing countries having increased from about 17 per cent. in 1990 to 37 per cent. in 1997. Africa is still low but there have been a number of increases and a number of success stories; for example, Ghana, Namibia, Mozambique, Uganda and Botswana. As those developing countries improve their operating environments for foreign investments—and that is part of what they are being urged to do by the IMF and the World Bank under the HIPC programmes—we expect to see further increases in the amount of foreign direct investment. We are certainly working to promote that. We are working to establish a technical advisory facility to assist governments to encourage wider private participation.
We also expect interest from ethical investors. A report in June of this year from the Ethical Investment Information Service indicates that more than £2 billion is now invested in ethical investment, a figure which has quadrupled in the past five years. So we are balancing the need for capital efficiency with the appropriate degree of risk and allowance for the business to grow in the future.
The noble Baroness, Lady Rawlings, seems to think that the Secretary of State maintains extensive powers of control and that that will be a deterrent to investors. The Secretary of State will not be able to initiate changes after the first phase is complete although changes in certain areas will require her approval. That is not uncommon. The framework which we have set covers the universe of countries for whose benefit CDC can invest. As the noble Lord, Lord Sandberg, rightly said, we have set a minimum which is 50 per cent. for sub-Saharan Africa and south-east Asia—that is the two combined—and 70 per cent. for the poorer countries more generally. But that does not rule out investment in central or South America or even in eastern Europe. I must make clear that decisions on individual investments are for the board and not for the Secretary of State. However, encouragement will be drawn from the fact that ethical best practice means that the CDC will be at the cutting edge of what many companies are now doing and not doing something different.
I should say to the noble Lord, Lord Redesdale, that there will be risks and there will have to be a substantial increase in the returns available which must go up from the average of 8 per cent. over recent years to something like 15 per cent. But part of that will be achieved by the change to the balance from a situation in which 70 per cent. of CDC's activity is in longer-term loans to a situation where nearly all of it will be in equity with the concomitant risks. We believe that the change in skills base which CDC is determined to implement makes that achievable.
It is not possible for me to say anything final about the tax situation, although I shall do so as soon as possible. Clearly, the CDC needs to be tax-efficient and we are still seeking a solution, together with the Treasury and the Inland Revenue, which will meet
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the need to encourage investment in the poorest countries through private public partnership and to prevent abuse of the tax system.
The noble Baroness, Lady Rawlings, accused the Government of keeping people in the dark about the timing, as did a number of noble Lords. Filing will be immediate and the restructuring of the balance sheet will take place as soon as possible thereafter. However, not only would it be wrong, it would also be quite impossible to say when the flotation will take place. That depends on a range of matters that we do not know and that no one could know. Therefore, it would be foolish were I to say anything other than it will take place early in the new millennium. We have not yet taken those decisions. The important issue will be to secure the greatest overall development impact to ensure that new capital is introduced at the right time. Market perceptions of emerging markets and the CDC's track record and forecast performance are significant in the decision which will be taken as soon as possible about flotation. But it will not be taken too soon.
We did not go into this matter without seeking professional advice. The indication has been that private sector interest in public private partnerships could come, as I said, from those interested in these emerging markets and in ethical funds and from general institutional stock market investors and international organisations such as development banks.
The noble Lords, Lord Sandberg and Lord Chorley, were keen that the Government should give an assurance that we are aware of the full significance of the change from loan to equity activity. I hope that what I have said and the speech of the noble Earl, Lord Cairns, gave them some reassurance. The noble Earl is well aware of the magnitude of the challenge—the challenge to the staff of the CDC and the need for additional skills in this new era. I have had the opportunity of meeting the principals involved in this significant change over recent days and I am confident that those concerned will do their best to bring about a successful venture and that their best will be good enough. I commend the Bill to your Lordships.
On Question, Bill read a second time.
Lord McIntosh of Haringey: My Lords, I wish to express gratitude to the noble Lord, Lord Redesdale, who first suggested it, and to the noble Baroness, Lady Rawlings, who agreed to it, and beg to move that the Bill be committed to a Grand Committee.
Moved, That the Bill be committed to a Grand Committee.—(Lord McIntosh of Haringey.)
On Question, Bill committed to a Grand Committee.
Lord Hunt of Kings Heath: My Lords, before we move to the Statement on the Post Office I should like to take this opportunity to remind the House that the Companion indicates that discussion on a Statement should be confined to brief comments and questions for clarification. Peers who speak at length do so at the expense of other noble Lords.

The Post Office
4.41 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, with permission, I wish to repeat a Statement on the future of the Post Office. The Statement is as follows:
"It has long been recognised that the postal sector worldwide has entered a new and turbulent age. Competition for business will be fierce. With greater uncertainty will come opportunities for expansion. Change is absolutely necessary if the Post Office is not to fall behind.
"Globalisation of postal services, the growth of electronic mail and the Internet, changing customer demands and greater liberalisation of markets are the key drivers of change worldwide. The main uncertainty is not whether markets will become more competitive, but how far and how fast.
"Other post offices are gearing up for this revolution, seeking greater commercial freedom to do so. Within Europe, for example, the Dutch and German post offices have been investing in substantial acquisitions; Sweden and Finland are free to acquire and invest in other companies and Denmark has already entered a number of strategic alliances. France also enjoys considerable commercial freedom and has a wide spread of joint ventures and acquisitions. In Australia, New Zealand and the Nordic countries, their post offices have become independent PLCs. Germany has announced its intention to privatise and the Netherlands and Singapore have moved to partial privatisation.
"Not surprisingly, the British Post Office has been demanding changes to its own organisation for years but without anyone in government, until now, prepared to act. In the face of market pressures from other public post offices, from private postal operators outside the monopoly area, other communications media and distribution organisations, the Post Office was to be in a position to deliver a wider range of faster, more reliable postal services, differentiated products and prices which meet individual customers' requirements.
"Notwithstanding its successful attempts to adapt and its current profitability, the Post Office cannot meet these challenging times in its present condition. It must change or find, increasingly, it is confined to a diminishing high volume, low mark-up sector of the postal market with all the consequences of falling value and shrinking profits and employment base that this would involve.
"The Government are not prepared to sit back and allow this to happen. The Post Office plays too important a part in our national life—contributing vitally to our economic prosperity and social cohesion—and we have therefore decided to embark on the most radical set of reforms since the modern Post Office was created in 1969. In future, the Post Office will be driven by a combination of effective
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market disciplines and commercial freedoms which will transform its performance and its ability to do business.
"Our starting point is that the relationship between the Post Office and Government has to change. I should make it clear that we certainly do not rule out the possibility of introducing private shareholding into the Post Office—for example through the sale of a minority stake in it—at a later stage. But at present wholesale privatisation—favoured by the Conservative Opposition—would not be a realistic option. It would cause massive uncertainty and diminish the chance of immediate reform now, which would be the worst outcome of all—as the management made clear to us.
"Instead, a radical, new form of public sector enterprise, operating at arm's length from government, needs to be created. This new framework will contain the following features: the Government's role in the Post Office will be restricted to the strategic level, both on matters of commercial direction and on setting social objectives. The Post Office Board will become clearly accountable for its success or failure in running the business; an independent regulator will he established to protect consumer interests, including standards of service; to regulate prices, to ensure the Post Office is able to meet its universal service obligations, and to ensure fair competition; once adequate regulatory provisions are in place to oversee fair competition the Post Office will be able to form joint ventures, enter into partnerships and make acquisitions within the UK beyond the present limit of £20 million per annum; the regulator will have a duty to promote competition by a careful and phased liberalisation of the monopoly postal area, whilst maintaining the universal service obligation; we will require the Post Office to present a rolling five-year strategic plan each year for approval by government. This is essential to protect taxpayers' interests.
"On the basis of that plan, the Government will agree a profit target for the Post Office and the equivalent of a dividend to government, as shareholder, in line with normal commercial dividend practice. This will mean, in effect, more than halving the rate at which profits are removed from the business. The external financing limit (EFL) for the Post Office for the year 1999–2000 will immediately be reduced to £207 million from the provisional figure of £335 million; in future years the EFL will be on a more commercial footing. The Government will expect a dividend of 40 per cent. in contrast to the recent average of 80 per cent.
"This increase in retained profits will enable the Post Office to finance an increased level of investment in the maintenance of its existing business. However, the Government recognise that larger growth investment including acquisitions and joint ventures may require prudent borrowing if the Post Office is to grow successfully with new products, partners and markets. The Government will approve normal Post Office requests for borrowing for investment cases which are commercially robust.

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Separate fast-track arrangements will be put in place for considering the largest strategic investments. It will now be possible for the internal boundaries, for example, between the Royal Mail and Parcelforce, to be rationalised, if the Post Office Board so decides, while ensuring that undue cross-subsidy does not occur from monopoly to non-monopoly areas—approved and transparent accounting structures must therefore be put in place.
"The Post Office Users National Council will be given a more central role and its powers increased.
"A uniform public tariff will be maintained for those activities which fall within the obligation on the Post Office to provide a universal service. The Post Office will, however, be given the freedom to price flexibly for volume users and, within the monopoly area, the regulator will restrict prices to make sure the Post Office is not making excess monopoly profits. This will be a real spur to efficiency and ensure the general public is paying no more than it should for normal postal deliveries.
"We intend to provide statutorily for the newly appointed independent regulator carrying out these duties as part of the implementation of the European Union Postal Office Directive next year. I will therefore be bringing forward measures under Section 2.2 of the European Communities Act to put this framework in place.
"The Government remain firmly committed to a network of post offices across the country. The sub-post office in particular plays a valuable role in local communities and offers real service, particularly to the less mobile. We will set a social objective for the Post Office and for the regulator of maintaining an effective network. The individual businessmen and women who run the post office cum village shop often have to be very enterprising to keep them afloat. With the best will in the world, the Post Office cannot sustain a network if it is not used, nor can the Government. But we intend to ensure reasonable access nationwide to those who need post office service on an electronic basis or face to face with the sub-postmaster or mistress.
"Because the Post Office will be at a strategic arm's length from government, we will therefore set criteria for public access to the services of Post Office Counters which will be policed by the regulator.
"There has been a moratorium on the Crown office conversion programme. I have now agreed with the Post Office a strategy, which reflects proposals put by the Post Office to the trades unions, of retaining a core of directly owned and managed Crown offices which account for a significant value of the business done at post office counters. But the strategy also recognises that some further conversions will be beneficial to customers and the business. This is a sensible way forward, and I am therefore lifting the moratorium.
"If the Post Office is to operate on a commercial basis, it must be able to reward staff for their efforts, taking account of the success of their business, but cutting the cloth to fit in difficult periods. The
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Government therefore intend as part of this staged process of reform to invite the Post Office Board to come forward with proposals which will, within the necessary context of public sector pay policy, enable more flexible means of reflecting performance within the various parts of the business. It is important that, where appropriate, the Post Office should be able to reward success.
"Events will, no doubt, continue to move rapidly in this constantly changing commercial environment and further structural changes might be required to enable the Post Office to grow and to meet customer needs and which are in the best interests of the Post Office and its staff. As I said earlier, we do not rule out the possibility of making further changes to equip the Post Office for success, such as a minority share sale or an exchange of equity with other businesses. These options will be kept under review. We will need legislation in due course, in any case, to reflect the long-term nature of the reform package we are putting in place, including turning the Post Office into a PLC to underline the commercialisation of the business.
"The reform programme I have outlined will provide a balanced package of freedoms and disciplines for the Post Office. It is, I believe, the best possible package of reforms available to the Post Office, which to date has been left starved of resources to invest in growth and unable to step up to new market challenges in the way that other European postal services have done.
"Over the past year we have appointed a dynamic new chairman and have refreshed the board with new non-executives with wide and complementary business skills. They have a vision of a British Post Office which is world class and which aims to be among the most successful in the world. We must give the Post Office the opportunity to bring this about.
"Considerable benefits to the consumer will be the result in terms of choice, price and quality of service.
"We are ushering in the start of a confident, bright new dawn for the Post Office, and are looking to its management and workforce to seize the opportunities, putting right the neglect of the past.
"Everyone stands to be a winner from our reforms which will be set out in more detail in a White Paper early in the new year. In the meantime, I commend them to the House".
My Lords, that concludes the Statement.
4.54 p.m.
Baroness Miller of Hendon: My Lords, I thank the Minister for repeating the Statement made in the other place. I apologise to him for the fact that I was not able to accede to his request that the Statement should be taken after six o'clock. I am sure that, on reflection, the Minister will agree that it is necessary for your Lordships to hear such news here first, in the Chamber, rather than on the news later. It would not be appropriate to marginalise either House of Parliament in that way.

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As it appears that the Treasury was in favour of the sale of at least a substantial minority share of the business, and the Secretary of State for Trade and Industry seems to have won that particular argument, may we know how the capital receipts estimated at £2 billion, on which the Treasury was presumably relying in its forecasts, will be made up?
Although the Government claim that they will be giving more commercial freedom to the Post Office, it is not clear how that will be achieved. We all remember how the telephone service was starved of funds before it was privatised, freed of Treasury shackles and the constraints of the PSBR.
Where will the funds for commercial expansion come from? It is estimated that the Post Office needs £2.7 billion over the next few years. If the Treasury is still to cream off a substantial part of the profits after tax over and above what would be a normal shareholder's dividend, will not that continue to starve the Post Office of funds?
The Statement suggests that the 80 per cent. of profits that the Treasury currently takes will be reduced to 40 per cent., but that still seems to be a substantial proportion. Will the Post Office have to go into the market to borrow the extra funds to make up for what the Treasury takes away?
The Post Office currently pays £335 million per year to the Treasury over and above its corporation tax. If that money is no longer to be available to the Treasury, presumably the loss to the health budget and to the "education, education, education" budget will have to be found from some other source. Will that be by higher taxes or additional borrowing?
If the Post Office is to be a government-owned commercial corporation, how free will its directors be to enter into joint ventures with other companies here and abroad, to make takeover bids or even to enter into commercially risky transactions? The Statement mentioned only joint ventures here, but would that preclude joint ventures from abroad? Who would bail out the Post Office if anything went severely wrong with any of its enterprises? They may be somewhat risky. Would that be a matter for the taxpayers?
Although it is clear to us that the Government have yielded to pressure from "Old Labour" in the unions—the same unions that were so wrong in their opposition to the privatisation of British Telecom—are the Government aware that the members of the unions will now be deprived of the opportunity to acquire shares in the company for which they work? That is something that the Conservative Party has always encouraged, even before the party opposite discovered stakeholding.
As Germany and Holland have effectively denationalised their post office services and the new company will be in competition with them, how will the Government answer any allegations from the EC that the Post Office is being unfairly subsidised in breach of its rules? What changes in legislation will be needed to bring us into line with the European postal directive? The Minister referred to Section 2.2 of the European Communities Act.
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Finally, my final question to the Minister is a simple one on a point that I am not sure that I totally understand. On the one hand, the Post Office will be given more commercial freedom, but, on the other hand, it will be subject to more competition; and the Statement suggests that somewhere down the line there might be some sort of privatisation. I believe that a minority share sale was mentioned, but even total privatisation does not seem to have been ruled out. How does the Minister think that the new proposals will make the Post Office financially viable so that somebody will want to buy the shares in, say, two or three years?
5 p.m.
Lord Razzall: My Lords, on behalf of these Benches, I should like to share the welcome that the noble Baroness gave to the Statement. Those Members of your Lordships' House who have followed the developments of the past year will know that my noble friend Lord Ezra, occasionally aided and abetted by myself, has been somewhat like a Jack Russell snapping at the heels of the Government asking when we were to have this Statement. Indeed, for the past 12 months the Government have behaved a little like a spaniel—to take the canine analogy of the moment—but now we have the Statement before us.
My concern is obviously shared by the Government in the Statement; namely, the fear that the longer they delayed in giving the Post Office commercial freedom the more its global opportunities would diminish. Indeed, the recent acquisition by Deutsche Post of 50 per cent. of Securicor demonstrates our concern in the area.
I have three comments and/or questions for the Minister. First, we share the Government's rejection of privatisation. We feel that the privatisation that was heavily rumoured in press reports is not the solution which the Post Office requires, for the fundamental reason that we believe that the Post Office must have the global freedom to trade and invest but must also maintain the essential ethos of public service which it has had for so long. That is particularly reflected in our desire and our campaign to ensure that the thousands of sub-post offices which are now under threat should not suffer as a result of these proposals.
The Minister may well comment that the Statement indicates that a social objective will be given to the regulator and to the Post Office with regard to sub-post offices. However, I should be most grateful to receive confirmation that, wherever appropriate, other government action to protect sub-post offices will ensue. There are obvious government actions that can take place, such as resolving the difficulties between the Benefits Agency and Post Office Counters Limited over the computerisation of benefit payments where the Government have a role and can intervene to protect the interests of sub-post offices. Further, there is the ruling by the DVLA that only 3,000 out of 19,000 post offices can supply car tax discs. Indeed, that is another area where the Government could intervene. It is not just a question of social objectives. If possible, I should be

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most grateful if the Minister could confirm that, wherever appropriate, action by the Government to help post offices and sub-post offices will ensue.
I have two further points to raise. First, in rejecting privatisation, the Government have clearly been persuaded by much of the argument for an independent, publicly-owned corporation which has been put forward both by the Union of Communication Workers and the Communication Managers Association. Many of the proposals put forward in the Statement reflect the recommendations from the independent report commissioned by those two bodies.
However, there are two areas where the Government appear not to have been prepared fully to bite the bullet of an independent, publicly-owned corporation. The first was touched upon by the noble Baroness, Lady Miller—namely, the freedom to borrow and invest. As the noble Baroness said, the Post Office management calculates that £2.7 billion over the next five years will be needed for expansion, automation and new services. The recommendation and the logic of an independent, publicly-owned corporation with its own commercial freedom is that it should be free to borrow that money in the capital markets, if it so requires, without Treasury consent and with the corollary that that would be without government guarantee; in other words, the corporation would be free to go into the commercial markets as any other corporation would do. That was the recommendation of the report produced by the Union of Communication Workers and the Communication Managers Association. The Government do not seem to be prepared to go that far. I should be most grateful if the Minister could expand on that aspect. I am concerned that this will constrict the apparent giving to the corporation of the commercial freedom to meet its financial objectives.
The second area relates to the same point but does so in another way. If the Post Office is to attempt to be one of the major players on an international basis, it will, as reflected in the Statement, need the ability to pay and "incentivise" its staff on an appropriate basis as if it were a private corporation. Again, the recommendation of the report to which I referred was that the corporation should be given that freedom. However, the Government have not been prepared to go that far in their Statement. Therefore, can the Minister confirm that a restraint will not be imposed by the Treasury with one hand in relation to what it appears to be giving with the other?
5.6 p.m.
Lord Sainsbury of Turville: My Lords, perhaps I may, first, say that I hope no disrespect was given to the House by my request that the repeating of the Statement should be delayed until six o'clock this evening. Having flown back from Japan yesterday in order to attend a meeting this afternoon of the Council of Science and Technology, I very much wanted to be able to attend.
I should begin by pointing out that the Treasury was not expecting to receive £2 billion, so there is no issue as to where this money has to be found. After a period
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of substantial starvation of the Post Office, there will be a significant change in the amount that it will be able to keep. Indeed, instead of having 80 per cent. of its after-tax profits taken away, it will have to give up only 40 per cent. That is a typical figure for any corporation to have to give in terms of a dividend.
As regards the question about joint ventures and partnerships abroad, the Post Office will be able to do that within the borrowing requirements that it has, subject of course—if it is a significant investment—to the approval of the Government. In fact, it will take very little to bring the affairs of the Post Office into line with the European directive. There will be a minor change on the level of the monopoly from, I believe, £1 to 92p, but that is rather a small change.
If in due course it is decided that shares should be sold to the public, I see no difficulty in making the corporation viable as it already makes considerable amounts of profit. I believe that both the management and the workforce of the Post Office will rise to the challenge which they now face. I am not able to enter into these animal analogies about the behaviour of the House. I found it quite difficult in Japan last week to explain what was happening in your Lordships' House; indeed, it was difficult enough without even going into the question of spaniels.
It was sensible to look at the problem carefully and not rush into decisions. The Post Office is part of our national assets and has an important social function. Therefore, it is important to get the exact balance between social and commercial objectives and between freedoms and disciplines. There will be a social objective and I can assure noble Lords that we will do everything that we can to help sub-post offices, especially in terms of systems and other procedures.
Although we are giving substantial freedom to the Post Office, as has already been said, the taxpayer will ultimately stand behind the corporation. It therefore seems to me appropriate that, for significant proposals of investment, the Government should have the ability to give the final word. As far as concerns pay and incentive, we want to change the situation so that members of the Post Office management and workforce can be "incentivised". But consideration must be given to public pay policy. The significant aspect of the proposals is that they combine both discipline and freedom. I believe that that is the way forward for the Post Office.
5.9 p.m.
Lord Skelmersdale: My Lords, I should, first, declare an interest as I am a director of a mail order company and from my point of view the Post Office should essentially be healthy, successful and efficient. In that connection I welcome the 40 per cent. dividend proposal as opposed to the ever escalating negative EFL, although I note that there is a holding exercise for the next 15 months or thereabouts during which negative EFLs will continue. Even so, I calculate that, as long as the Post Office is not allowed to borrow too much in the first year of the interim period, the Treasury will still receive the best part of £400 million—both from the

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40 per cent. dividend and from the corporation tax which any organisation has to pay—in the year 2000–2001. Does the Minister agree with that figure?
I am sure the noble Lord, with his experience, will agree that the success of a commercial organisation depends on management at every level. The top level is one of the vital ones. Will the Government continue to appoint directors of the Post Office or just the chairman? Will the chairman be given freedom to have his own men and women around him as executives or indeed as non-executive directors?
The Statement mentions new businesses. One such fairly recent one is Subscription Services Limited. Will such businesses be free from the prohibition in the Telecommunications Act which prevents them from using electronic mail out of their offices? Currently, they receive instructions and items for outward transmission by fax and e-mail but are not allowed to use their mailing lists and then split them out, as it were, to the various people on the mailings lists by electronic means. They have to do it by hard copy. Will such freedom be allowed to them?
Lord Sainsbury of Turville: My Lords, the noble Lord is right to say that the figure will be about £400 million. I cannot give the exact calculation but it will be about that. If anything, it will be slightly more in terms of both corporation tax and dividend. But I can see no reason why the Post Office, like all of us, should not have to suffer corporation tax and pay a dividend.
The chairman and non-executive directors will continue to be appointed by the Government—in the case of non-executive directors, after careful consultation with the chairman. On the noble Lord's final point, the White Paper will set out the exact framework, but I imagine that the situation will continue where it is not in the business of just total electronic transmission.
Lord Dearing: My Lords, the great difference between a private sector board and a public sector board is that, in the former, to the great benefit of the efficiency of the business, the shareholders then trust the running of it to the board. Over the past 50 years, that has not been so of public sector boards—to their detriment. I therefore very much welcome the Minister's determination to make radical changes. I seek three specific assurances that these will be radical.
Referring to the Statement, the noble Lord bases the Government's relationship on approving a five-year rolling strategic plan. I ask the Minister to assure us that this will not be a meaningless mass of numbers but a strategic plan and that controls will be at the strategic level.
Secondly, where the Minister refers to separate fast-track arrangements for considering the largest strategic investments, will he clarify what is meant by "fast-track"? The quickest I ever had as chairman of the Post Office was one year.
Thirdly, when the Minister refers to greater freedom on pay and says that it is important that, where appropriate, the Post Office should be able to reward
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success, will he be clearer as to what it meant by "where appropriate"? My experience was that I received immense assistance all the time from Her Majesty's Government on pay. I would hope that the Government's aspirations will be rather less than those of their predecessors.
Lord Sainsbury of Turville: My Lords, I am delighted that the noble Lord, Lord Dearing, has asked those questions. When I was a member of the Carter Committee, which reviewed the Post Office in the late 1970s, he was deputy secretary on nationalised industry matters at the Department of Industry. He then went on to an extremely successful career as chairman of the Post Office. Therefore, we have been discussing the issues of the Post Office for around 20 years. I have greatly enjoyed the noble Lord's comments and I am greatly pleased that, in broad outline, he approves of what we are doing.
The noble Lord asked three questions. Perhaps I may assure the House that we are very serious about the issue of giving commercial freedom to the management of the Post Office. We see that as absolutely essential if the Post Office is to develop in the way we want to see it develop. Therefore, the strategic plan will concentrate on strategic issues and not be, as so often has been the case in the past, simply a mass of details to be picked over by the Government.
I cannot at this point say what "fast-track" will consist of, but it will certainly be better than it has been in the past. As issues will have been raised in the strategic planning, it should be much easier to take quick decisions on them.
I hope the Post Office will be clear that if it is to have the right management it needs a genuine ability to pay them and that that will be the situation as we go forward.
Baroness Byford: My Lords, perhaps I may follow up the point about the Post Office's social responsibilities. Many of our rural post offices are currently under great stress. Some are miles away from anywhere. I wish to raise three concerns. My first follows up the point made by the noble Lord, Lord Razzall, about car tax and benefit payments. Will there be restrictions on other organisations using the Post Office. I give an example. Some post offices are allowed to sell lottery tickets for Camelot. I understand that targets are set for such post offices. This has proved a huge problem for some post offices in rural areas as they are not achieving their targets. I understand that it is possible that their right to sell lottery tickets will be withdrawn. In considering these changes, will greater freedom be given to post offices in rural areas so that they can adapt to what suits best their particular area, or do the Government have in mind a set standard for the whole of the UK? Rural needs may be very different from urban needs because of the smaller number of people in rural areas. I should be grateful if the Minister could respond to that point.
Secondly, are there proposals for setting targets? Will there be an urban target and a more rural target? Thirdly, in the Statement, the Minister kindly explained the Government's acceptance of their social responsibility.

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That is hugely important to people living in rural areas. The post office is not just a place to which they go to buy stamps and so on; it is actually a meeting place. The post office is the heart of some villages. I just wonder how much that point is being taken into account. Finally, will the Government find time for the House to debate the White Paper?
Lord Sainsbury of Turville: My Lords, we are all conscious of the need of rural communities for sub-post offices. The Government are fully committed to the maintenance of a nationwide network of post offices. However, as I hope I made clear, neither the Government nor the Post Office can guarantee that no post office will ever close, as the majority are in fact privately owned, but we recognise that they perform an important social function and, as I hope I made clear, we will do everything we can to support them.
I very much hope that the new commercial freedoms will enable post offices to develop more services which will improve their financial viability. The relationship between post offices and Camelot is a commercial one. I believe that always involves targets with regard to the best outlets in which to sell lottery tickets. The financial target will obviously take account of the economics of offering services in urban and rural areas.
Lord Clarke of Hampstead: My Lords, I declare an interest. As I said in my maiden speech last week, I spent 51 years of my working life totally associated with the Post Office. Last week I asked for a speedy response to the review from the Government. I had no idea that it would be this quick! I join those who welcome the fact that a decision has been made. I await the publication of the White Paper before giving the measure a wholehearted welcome as one or two pieces of this jigsaw are still missing. The Statement does not specify the more central role and the increased powers that will be enjoyed by the Post Office Users National Council. Will that in some way conflict with the new regulatory regime that is envisaged in the Statement? It seems as if, yet again, there will be another layer of bureaucracy for the Post Office to fight as it tries to do its business.
The Statement refers to the Crown office conversion programme, which is mostly known in the industry as the Crown office closure programme. Can the Minister assure us that careful consideration will be given to this matter before more of our valuable High Street post offices are transferred to supermarkets which are accessible to people with cars but not to those who do not have cars? Will these considerations be taken into account? I, of course, welcome the change in the external financing limit and the increased amount of profits that post offices will be able to retain for their own investment. As I say, I await with interest the White Paper but I would appreciate hearing the Minister's comments on the points I have raised.
Lord Sainsbury of Turville: My Lords, I am delighted that we were able to respond so quickly to the point the noble Lord made last week. It is absolutely typical of this Government to respond so quickly to
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intelligent questions. As regards the Post Office Users National Council, it will have increased powers as regards availability of information. I believe it will work closely with the regulator and therefore will be more effective. I do not think it is a euphemism to talk about a Crown office conversion programme. I am sure that the Post Office will take great care to locate Crown offices in places that are easily accessible and where there is heavy demand.
Lord Monson: My Lords, I hope I may strike a more mundane note. Does the Minister agree that what the general public want is for their letters to be delivered in good time and to the right address? Unfortunately, recently more and more correctly addressed and, what is more, first class letters, take several days to reach their destination. Usually it is quicker to post a letter from Glasgow to London than from one side of London to the other. In my experience, at any rate, more and more correctly addressed letters are delivered to the wrong address—in my case about 4 per cent. of them, although, happily, they are delivered to addresses within a radius of about 500 yards from my own, and therefore they usually reach me eventually. However, that can occur several days later if the relevant people are away. Is anything being done to rectify this regrettable lapse in standards?
Lord Sainsbury of Turville: My Lords, I take entirely the point that consumers are looking for a better service. I hope that what we propose will address that issue. I believe that the combination of an independent regulator and increased competition will improve the service.
Lord Clinton-Davis: My Lords, is my noble friend aware that while, of course, points of detail will emerge when both Houses consider this matter in due course of time, the message that he has communicated to the House this afternoon is welcome indeed, stressing, as it does, the benefit to the consumer that will flow from what he has announced in terms of principle and also the value of fair competition? Those are, I suppose, the two basic themes that he has enunciated. Is it not a remarkable contrast to the prevarication that the previous government showed over this matter, totally incapable as they were over many years of coming to any sensible solutions at all? I believe that the country will welcome the changes that the noble Lord has signalled, and, moreover, that in due course of time this pragmatic, positive approach which the Government have announced will be of immense benefit to the country as a whole and will provide the Post Office with the ammunition to be able to compete effectively with other international post offices.
Lord Sainsbury of Turville: My Lords, I am delighted that my noble friend Lord Clinton-Davis made the point that customer service is absolutely central to what we are trying to do and that the tackling of this problem is long overdue. When one considers that this great institution was cash starved for many years, it is no surprise that sometimes it did not undertake the important investment that was necessary to increase its

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productivity. As I said at the beginning, we seek to combine discipline and freedom. I am sure that the performance of the Post Office will improve as management and staff seize this significant opportunity.
Lord Gladwin of Clee: My Lords, I declare an interest as for over 20 years I was a non-executive member of the Post Office Board. It is that experience which leads me to say how much I welcome the Statement that has been repeated by my noble friend this afternoon. However, I wish to press him on a paradox in the Statement which I find puzzling and which I do not believe his replies to noble Lords who have pressed him on this matter have clarified. The relevant paragraph relates to pay. My fear is that employees of the Post Office reading this paragraph as it stands could ask, "So what? What is new?" The paragraph states,
"If the Post Office is to operate on a commercial basis, it must he able to reward staff for their efforts, taking account of the success of their business".
That is fine, but there then follows a phrase which I do not understand. It states,
"but cutting the cloth to fit in difficult periods".
The Post Office is then invited to make proposals to the Government,
"within the necessary context of public sector pay".
The problem is that we do not have a public sector pay policy. We have moved beyond that. Therefore I do not understand that sentence. My next point was mentioned by the noble Lord, Lord Dearing. The statement continues,
"It is important that, where appropriate, the Post Office should be able to reward success".
Will the Minister give us an assurance that it is the Post Office that will determine where this is appropriate and how much is appropriate, and not Her Majesty's Government, as has been the case for many years?
Lord Sainsbury of Turville: My Lords, perhaps I may explain the phrase, "cutting the cloth in difficult times". I think we all feel that good performance should be recognised where it takes place in industry. It is also important—and this is not always so closely adhered to—that when times are difficult and performance is not good pay should equally reflect that. This is not a one-way system.
"Where appropriate" indeed implies that the Post Office should make these decisions. The Statement is a very clear invitation for it to do so and to reflect appropriately where it needs to pay salaries to ensure the quality of people needed to run the business.

Fair Employment and Treatment (Northern Ireland) Order 1998
5.30 p.m.
The Parliamentary Under-Secretary of State, Northern Ireland Office (Lord Dubs)The Parliamentary Under-Secretary of State, Northern Ireland Office (Lord Dubs) rose to move, That the draft order laid before the House on 30th November be approved.
The noble Lord said: My Lords, the purpose of the draft Fair Employment and Treatment (Northern Ireland) Order 1998 is to consolidate and extend the legislation on fair employment which is unique to Northern Ireland. I believe that it will be helpful to the House if I outline briefly the background to the order and then say a few words about its more important provisions.
The promotion of equality of opportunity has been a priority of successive administrations since the early 1970s and the order before the House represents the culmination of a comprehensive review of the legislation carried out over the past three years.
The first Fair Employment Act in 1976, which established the Fair Employment Agency, was ground-breaking legislation and paved the way for the introduction in 1989 of the second Fair Employment Act. That had considerably more teeth and put the onus on employers not simply to avoid discrimination but actively to promote equality of opportunity through affirmative action. Much has been achieved under the 1976 and 1989 Acts but the review of the legislation carried out by the Standing Advisory Commission on Human Rights, and published in June 1997, indicated that more needed to be done.
The Government considered carefully the SACHR recommendations and published its response in March of this year in a White Paper entitled Partnership for Equality. Subsequently the Government made a commitment in the Good Friday agreement to make rapid progress in the implementation of the measures set out in the White Paper. The order now before the House fulfils that commitment.
The order makes a number of amendments and contains several new provisions to strengthen the law on fair employment. These are set out in the explanatory document which accompanies the draft order and I do not intend to go into them all in detail. There are, however, some key issues which have been tackled in the order and I should like to comment briefly on them.
First, the order brings together in a single piece of legislation the 1976 and 1989 Acts and incorporates the various amendments that have been made to them. This exercise alone will be of considerable help to all those who work with the legislation, including employers, trade unions, the commission and the Fair Employment Tribunal.
One important change is that the order also extends the legislation to cover the provision of goods, facilities and services and the management and disposal of premises, which includes land. This brings fair employment law into line with that on sex discrimination and race relations, but that is not the main reason for the change. The main reason is that it is the right thing to do. As a matter of principle, all unjustified discrimination, whether in employment or in any other area, should be unlawful and the opportunity is now being taken to extend the law in that respect.
The order does, however, provide for reasonable exemptions. Since 1989, all except the very smallest employers have been required to monitor annually the community background of their employees, and larger

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employers and the public sector have also monitored job applicants. Monitoring is now widely accepted and understood, and employers have installed systems to assist them to meet the various requirements. The data that has been generated has been extremely useful but it does not provide a complete picture of movement in a workforce so far as relative community participation is concerned. The order therefore extends the monitoring provisions to include all part-time workers and applicants for employment. In addition, larger employers will be required to monitor leavers. The new requirements will be set out in revised monitoring regulations which will be published shortly but which will not apply until employers have had time to collect the relevant information.
When the 1989 Bill was going through its parliamentary stages there was some criticism that while it assisted those in employment it did little for the unemployed, particularly the long-term unemployed. The draft order addresses that issue in two ways. First, Article 75 enables an employer, if he wishes to do so, to fill vacancies in his workforce only from among people who have not been in work for a specified period of time and protects him against a charge of unlawful indirect discrimination. I hasten to add that no employer will be compelled to recruit exclusively from among the unemployed but those who wish will be able to do so.
The second change in the law which will be of particular benefit to the unemployed is a permissive provision in Article 77. This allows employers to provide training for people of a particular religious belief who are not in their employment. Up to now "religion specific training", as it is called, has been unlawful, but Article 77 would enable members of an under-represented community to take advantage of training which would enhance their skill levels and thus help them to compete on more equal terms for vacancies when a subsequent recruitment exercise takes place. As with Article 75, no employer will be compelled to provide this type of training.
Other significant changes to the existing legislation include compensation for unintentional discrimination in employment; action against persistent discrimination; new roles for the commission; extension of the law to cover barristers and larger partnerships; and the introduction of an appeal procedure against certificates issued by the Secretary of State for the purpose of safeguarding national security.
That is all I wish to say at this stage about the provisions of the draft order but in closing I must reiterate that fair employment and the elimination of unlawful discrimination continues to be an important issue and a priority for government in Northern Ireland. Enormous progress has been made in recent years and effective remedies are available to anyone who has a genuine grievance. Nevertheless, there is no room for complacency and there must be a continuing effort by all involved to work towards a situation where the scourge of unlawful discrimination is finally eradicated from society. I beg to move.
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Moved, That the draft order laid before the House on 30th November be approved.—(Lord Dubs.)
Lord Lester of Herne Hill: My Lords, we on these Benches warmly welcome the order. It gives effect to the White Paper, Partnership for Equality and to the recommendations made by the Standing Advisory Commission on Human Rights in Northern Ireland. It is an important step towards greater coherence in this area of the law; namely, the use of law to tackle discrimination. It brings the fair employment law into better harmony with sex discrimination and race relations legislation. It shows that it is perfectly possible to introduce comprehensive legislation to tackle the scourge of religious discrimination. It highlights the continuing anomaly that we do not have legislation of this kind in Great Britain. That means that Muslims are wholly unprotected under the law against religious discrimination, and Jews are protected only if they can show that they are members of an ethnic or racial group. We hope that it will not be long before that gap is filled. I know that it does not concern the Minister's department.
The measure also highlights another matter beyond the scope of the Minister's remit. I refer to the need for a single code of legislation tackling discrimination generally: a single equal rights code with harmonised powers of enforcement. The Government have taken an important step in creating an equality commission which allows harmonisation of strategic enforcement across the Irish Sea in Northern Ireland. That step needs to be taken in some form or other on this side of the Irish Sea as well.
The Minister said—and I entirely agree with him—that all unjustified discrimination, whether in the field of employment or elsewhere, should be unlawful. However, there is unfortunately still a completely anomalous gap in this order. I gave notice to the Minister that I intended to raise this matter yet again. I raised it several times during the debates on the Northern Ireland Bill, as did the noble Lord, Lord Cope. I am sorry that the drafting of the order seems to have ante-dated the debates on the Northern Ireland Bill and so, unless the Minister tells me differently, the problem has not been tackled.
Perhaps I may explain to the House the nature of the gap. I have to do it in stages. The starting point is Section 76 of what is now the Northern Ireland Act 1998, which makes it unlawful for a public authority carrying out functions relating to Northern Ireland to discriminate on religious grounds directly. It does not cover indirect religious discrimination but only what is known as direct religious discrimination by public authorities. During the debates on the Northern Ireland Bill I raised the need to extend the concept of indirect discrimination to cover public authorities carrying out public functions. I pointed out that it was necessary to amend the Bill because of an unfortunate majority decision of the Appellate Committee of the House of Lords in a case called re: Amin, which is reported in 1983 2 Appeal Cases at page 818.

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That was a case involving the proper construction of Section 29 of the Sex Discrimination Act 1975, applying to the provision of goods, facilities and services to the public, a provision which is in identical language to Article 28 of the present order. A majority of the Law Lords, the noble and learned Lords, Lord Scarman and Lord Brandon of Oakbrook, dissenting, held that the reference in Section 29 to the provision of,
"goods, facilities or services to the public or a section of the public",
concerned only marketplace functions performed by public authorities as though they were private persons. I believe that judgment to be wrong. I wish it had been tested by the Equal Opportunities Commission or by the Commission for Racial Equality in relation to a similar provision in the Race Relations Act, but it still stands in the law reports as good law.
The problem that it creates with relation to the present order can be explained in this way. Article 28 of the order uses identical language to that of Section 29 of the Sex Discrimination Act. It makes it unlawful,
"for any person concerned with the provision … of goods, facilities or services to the public … to discriminate",
whether directly or indirectly. That is most welcome. It then gives examples of the facilities and services mentioned, one of which, in 28(2)(g), is:
"the services of any profession, trade or business, or any local or other public authority".
Article 91(1), which deals with application to the Crown, applies the order to the Crown,
"as it applies to an act done by a private person".
It is that language which was used by a majority of the Law Lords to narrow what is now Article 28 of the order by saying that, when Parliament refers to an act done by a private person, that means a marketplace activity and therefore cuts down the services provided by a public authority within the meaning of the equivalent of Article 28(2)(g) of the order.
There is the absurd consequence, first, that the Northern Ireland Act 1998, which we have recently enacted, covers only direct discrimination on religious grounds by a public authority and, secondly, that this order covers direct and indirect discrimination by a public authority in providing services and facilities, but, because of the decision of the Law Lords in re: Amin, it covers it only in relation to acts done by public authorities as if they were private persons. That is, if I may respectfully say so, totally absurd because a public authority is not performing private functions but public functions and, if anyone should be liable for direct or indirect religious discrimination, it is a public authority when it is discharging public functions.
The explanatory document does not deal with this matter. In paragraph 17 it correctly says that the article mirrors the existing law relating to gender and race relations and extends the anti-discrimination legislation into such areas as the services of, inter alia, a local or public authority, but it does not deal with the re: Amin gap.
I raised this matter during the debates on the Northern Ireland Bill and was ready to move one of several amendments. I raised it on 26th October on the third day
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of Committee (at columns 1748–49 of Hansard) and again on Report on 17th November (at columns 1212–14), the Minister having intervened (at column 1211). The Minister referred to the fact that the order would cover goods, facilities and services. I asked whether that protection against discrimination would apply to public authorities as well as to private bodies, having referred to the re: Amin gap. I said:
"Perhaps I can have clarification on that".
The Minister replied,
"the answer is yes".
I replied to that:
"that is a most welcome announcement by the Government. It seems to me to fill an important gap. I express great appreciation and beg leave to withdraw the amendment."—[Official Report, 17/11/98; col. 1214.]
I would not have done that without that assurance. Unless I am much mistaken, the situation is that I was induced to withdraw an amendment on an unequivocal statement made by the Minister that this gap would be filled in the present order. It has not been filled. Therefore, although the Minister says that all unjustified discrimination, whether in the field of employment or elsewhere, should be unlawful, about which I agree with him, there is one kind of unjustified discrimination in the field of services and facilities—namely, where provided in a public capacity by a public body—which is not unlawful and which will not be unlawful under this order; and nor will it be unlawful under the Northern Ireland Act. That is completely absurd. More than that, it is inconsistent with our international human rights legal obligations.
Perhaps I may explain. For example, Article 1 of the First Protocol to the European Convention on Human Rights guarantees the right to property, including the allocation of, or refusal to allocate, public housing by a public authority. Article 2 of the same protocol guarantees the right to education, including allocation of educational opportunities in state-funded schools. Article 14 of the convention covers indirect as well as direct religious discrimination in relation to the allocation of public housing and educational opportunities in the public sector. So under the European Convention on Human Rights the United Kingdom is obliged to provide effective remedies for religious discrimination, direct or indirect, by public authorities whether in the field of housing or education. We are not fulfilling that commitment in this order or in the Northern Ireland Act.
Having had notice, I hope that the Minister will be able to deal with the matter in his reply. I have raised this matter on many previous occasions as it is very important. Unfortunately, when the Human Rights Act comes into force, someone will bring a case of alleged discrimination in the field of education or housing in the public sector. Remedy will not be obtainable under this order as it stands unless the case of re: Amin is reversed. It may be that in some future case it will be reversed. If so, the problem I have raised will no longer arise. However, as it stands, if re: Amin is good law and this order stands as it will today, we shall be failing in our duty under international human rights law and the Minister will fail to achieve his laudable objective of

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making unlawful all unjustified indirect as well as direct discrimination in providing goods, facilities and services for the public in Northern Ireland.
I apologise for having taken a long time on this explanation but I have done so because I wanted to make it intelligible to noble Lords who are not lawyers so that they understand why it is quite an important matter. I ask the Minister to indicate whether he agrees with that there is a gap caused by the case of re: Amin and what measures the Government intend to take to close that gap. Surely they cannot intend that there should be a gaping whole in the scheme of protection in this admirable measure.
Perhaps I may add one further comment in favour of the measure. The powers of monitoring; the duties imposed on employers and the powers of the Equality Commission are far stronger than anything in the sex discrimination, race relations or disability discrimination legislation. I very much hope that the powers of the commissions, if they are to remain separate on this side of the Irish Sea, and the powers in Northern Ireland of the Equality Commission will be harmonised so that we have the highest common factor of enforcement which is contained in this order. That highest common factor owes a great deal to Mrs. Thatcher's government who, in amending the Fair Employment (Northern Ireland) Act in 1989, gave the commission, as it became, much stronger powers than have been given to the other commission. This is not, therefore, a politically partisan matter. I congratulate that previous government on taking that important step in 1989. With those important caveats we welcome the order, but very much hope for clarification.
Lord Molyneaux of Killead: My Lords, I apologise to the Minister for being absent for the first few minutes of his speech. As regards the very important point just made about discrimination in terms of the provision of services, I wonder whether it is possible also to include what is becoming a very real problem in Northern Ireland; namely, the publicly orchestrated boycotts which in many cases have driven small companies, small shopkeepers and the providers of motor fuel and milk suppliers out of business purely on religious grounds. There must be very narrow dividing lines. I do not want to complicate the matter further, but perhaps the Minister can deal with that in his reply to the noble Lord, Lord Lester of Herne Hill.
As regards timing there is a certain similarity between the way in which we are treating this legislation and the premature Police (Northern Ireland) Bill which was passed into law some four months ago. It comes into force about the end of October before any possible publication of the Patten Report. My argument at the time was shared by several noble Lords in that it would be much wiser to await the conclusion of the Patten Commission before we set in the Bill proposals for major changes in the police.
Is there not a real danger that we are making this amendment to the existing fair employment legislation without taking into account the views and attitudes of the Equality Council set up by your Lordships only a few weeks ago when the Bill reached its final stages in
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your Lordships House and received Royal Assent? As was widely recognised in all parts of your Lordships House, inevitably there would be a degree of interplay with the Fair Employment Agency, in whatever form it survives, the equal opportunities and race relations bodies and the still more complicated question of sexual preferences being added, which is another pressure group.
It is having the effect that I predicted four years ago. The Good Friday agreement established the Equality Council and thereby fulfilled my prediction that even in terms of employment the cake must henceforth be cut into eight slices and not just two. There are the Roman Catholics, Protestants, atheists and agnostics, male, female and races, whose numbers who are yet unknown. They are already claiming a place in the sun and they are all clamouring for a slice of the cake. Now that United Kingdom law is subservient to European human rights law, it is inevitable that other groups will join in the clamour and demand inclusion in the kind of legislation that your Lordships are debating this evening.
It seems to me sensible to ensure that the Equality Council created by the Good Friday agreement, and therefore with the status of holy writ, should not be inhibited in any way by an order of the kind that we are dealing with this evening. In approving the order we should clearly express at least a willingness to amend this legislation or even replace it. The Equality Council has all the authority of the Good Friday agreement behind it which, we have often been told, cannot be tampered with and therefore is in many ways superior to the laws of the United Kingdom. The Equality Council should not find itself in any way constricted in its task of ensuring fair play in all the eight categories I have mentioned, and the others yet to emerge, and not just the two religions.
I repeat the plea of my noble friend Lord Cooke, on another occasion, for financial assistance for small companies burdened with the cost of unfounded and vexatious allegations of discrimination. I renew my own plea on that occasion for substantial financial compensation for public bodies such as hospital trusts forced to expend very scarce funding on defending themselves against what usually turn out to be facetious allegations. There is also the pernicious habit affecting all public bodies in that they settle rather than see the matter through to a tribunal for the simple reason that they are faced with the problem of diverting the services of fairly scarce and very expensive employees while also incurring very heavy legal fees. There is always a temptation to settle rather than allow the allegation to go before a tribunal. I condemn this entirely, but my condemnation will not stop it. I do not know whether Parliament can devise any means of making this practice illegal and forcing bodies against whom allegations have been made to go the whole way and pursue the matter before a tribunal. In the absence of such a measure there will be a burgeoning industry of complainants sure in the knowledge that, however frivolous their complaint may be, they can be assured of what, I understand, may be on average £20,000 tax free. It is not surprising that the habit catches on. I hope that this time the Minister

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will listen and perhaps persuade his colleagues in government to find some means of putting an end to this scandal.
6 p.m.
Lord Monson: My Lords, can the Minister say whether, apart from the odd isolated incident or series of incidents, such as the boycott described a moment ago by my noble friend Lord Molyneaux, there is any evidence of sustained, long-term discrimination in the provision of goods and services in Northern Ireland on religious or political grounds; or is this extension of the law essentially a symbolic gesture? There is nothing necessarily wrong with gestures, but it would be useful to know whether in the main this is a gesture or there are genuine and fairly widespread grievances that are about to be rectified. If so, is the noble Lord in a position to provide a couple of examples when he comes to wind up?
Lord Blease: My Lords, I thank my noble friend for outlining in some detail the extensive and comprehensive Northern Ireland order. It almost competes with the Northern Ireland Act in legislative detail. The order has 125 pages of parts, paragraphs and schedules whereas the Act has about 100. I should like to raise a couple of points that I believe require attention in relation to the Equality Working Group and its report.
However, perhaps I may seek the indulgence of the House for one moment while I say a few words about the Northern Ireland Act 1998. Because of the pressure of time at the winding-up stage of the Bill—I hope that that is an acceptable parliamentary description—I did not have the opportunity to pay tribute to all those who took part in a momentous occasion for Northern Ireland parliamentary affairs and Irish political matters.
As a Northern Ireland citizen I pay tribute to my noble friend Lord Dubs, his Front Bench ministerial colleagues and all those civil servants and parliamentary staff who helped in placing the Northern Ireland Act 1998 on the United Kingdom statute book. I also extend my words of appreciation to all noble Lords who took part in the debates, particularly noble Lords on the Official Opposition Front Bench. The whole approach to Northern Ireland legislative measures epitomises the great sense of bipartisanship in this House that sets an example.
The Fair Employment and Treatment (Northern Ireland) Order 1998 is one of the main pillars upon which the real function and work of the Northern Ireland Assembly will be built. There are other pillars which have already been mentioned in the course of this debate. However, I believe that this pillar will get people working together. There is a basic legislative framework in which the Equality Commission will operate and promote essential fair employment practices and equality of treatment. It will provide a great public opportunity for members of the Northern Ireland Assembly to exercise justice, mercy and fairness to all citizens. It will enable all Northern Ireland Assembly members to display humble witness to good citizenship
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and to undertake honourable political action for the benefit of all in the Province—indeed, a better life for all in Northern Ireland.
I understand that the Equality Working Group has met under the appointed chair, Dr. Joan Stringer, that it is compiling a report on structures and practical issues and that its report will be ready by the end of January. Can the Minister indicate how the group's report will be approved and implemented? Will it be submitted to the Assembly and to the Westminster Parliament? If so, what will be the procedure and timescale? If it is approved is it intended to be submitted to the Northern Ireland Assembly at its proposed March/April 1999 session?
There are continuing difficulties in the Province. However, to talk about this matter in a vacuum is perhaps the wrong approach in this House but it is more meaningful in the sense of the Northern Ireland Assembly. It is there that the exercise of rights and other matters should be fully appreciated and understood. However, I am hopeful that the new year may be peaceful and that there will be reasoned approaches in our strife-torn community. I believe that the Northern Ireland Act and the Fair Employment and Treatment (Northern Ireland) order will help to set our sights on an end to political strife and all that goes with it in the Province.
As we debate this measure today I feel very much an old man. I recall the setting up of the van Straubenzee Committee. The present Permanent Secretary of State for the Department of Economic Development, Gerry Loughran, was then secretary to the committee, which led to the setting up of the Fair Employment Agency. Later I went on to set up the Standing Advisory Committee on Human Rights. In those days we felt that we were getting to grips with matters but they only exposed the inadequacies of the people of Northern Ireland in learning to live together. I hope that this time matters may take a different course.
Lord Fitt: My Lords, my noble friend Lord Blease, with his long and distinguished record of the trade union movement in Northern Ireland, was only too well aware of the many allegations of discrimination that were made throughout his tenure of office in Northern Ireland when there was one-party government in Northern Ireland. It is to the credit of the trade unions, given the political divisions that then existed, that they tried desperately to bring about a set of circumstances in which discrimination would not be permitted.
My mind goes back vividly to 1976 when the noble Lord, Lord Molyneaux, and I served on a committee in the House of Commons and the very first Fair Employment Act was put on to the statute book. Since then it has been amended and regenerated. I am conscious of the fact that we can debate this order with all its clauses and its myriad suggestions in a civilised atmosphere, but I have no doubt that when this measure, which will affect the population of Northern Ireland, is discussed in Stormont a good deal of heat will be generated.

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The noble Lord, Lord Molyneaux, mentioned two factors to which my attention was drawn. At the present time there are people in Northern Ireland who advocate discrimination. Far from making the plea that discrimination should be removed, they advocate it. One has only to think for five seconds of the ludicrous submissions made by Sinn Fein to the Patten Commission in relation to the RUC. I do not think that anyone could take its submission seriously for a single second when it advocates a massive reorganising of the present RUC on grounds of religion because most members happen to be Protestant. I do not think that it is possible, except in its own vivid imagination, to get thousands of Catholics to join the RUC and it would upset all the Protestants.
It also made a recommendation, which made the very few hairs that I have on my head stand on end when I read it, that 15 per cent. of the RUC should be lesbians and the rest should have some other discriminatory facet. Such a submission is made to a government-appointed agency.
In relation to the supply of goods and services, I support what was said by the noble Lord, Lord Molyneaux. Religious discrimination and sectarian discrimination have taken place over past years because of sectarian and religious divides. Catholics have been forced to boycott Protestant shops because of the religion of those who own the shops and Protestants have been forced, in certain areas in Northern Ireland, not to give their custom to Roman Catholics because of their religious beliefs. I do not want to mention a particular town in case it causes disharmony. However, in a town I know very well in County Down, I can think of one chemist's shop with a notice in the window saying, "No members of the security forces will be served in this establishment". The shop was owned by a member of the Social Democratic and Labour Party. There must be other establishments in Northern Ireland which, although they do not have a notice in the window, have made it quite clear that they will not do business with members of the security forces.
On the question of discrimination, there are many aspects to be examined by the Assembly, as I mentioned to my noble friend the Minister this afternoon when I received the order and saw that it contained over 100 articles. My noble friend Lord Blease and I were not aware that there was an explanatory leaflet which we received during the course of the debate. I believe that the most important decisions in relation to the implementation of the order will have to be taken in the Northern Ireland Assembly because members of the Assembly and those they represent will have to live with the consequences. All I can do is wish them well.
Lord Cope of Berkeley: My Lords, like other noble Lords, I welcome the order. In general, I am in favour of consolidating legislation when such legislation becomes too complicated. I do not think that we do enough consolidating of legislation. That is perhaps another way of saying that we fiddle about with the law too much and too frequently. It makes it extremely inconvenient for those who wish to consult the law and deal with it.
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Most of the order is consolidation and there is a list of the origin of the clauses in the explanatory document. Because the order is not purely a consolidation measure, it has not followed the "consolidation route" in Parliament and so has not been subject to the usual checks. However, it is a long and complicated order, the old provisions and the new. In many respects, it is not very satisfactory to have to discuss it in a single debate. As the powers and the customs of your Lordships' House are under consideration, it seems to me—and I speak personally—that the possibility of the House going into Committee on an order of this length and importance, might be helpful. As I said in the course of debates on what became the Northern Ireland Act, our habit of never voting against orders might come into question as well.
I have many detailed points I want to raise which are, by their nature, Committee stage points, but I do not apologise as this is our only opportunity to raise them. The principal new part of the order, as has been said, is the outlawing of discrimination against goods and services. I say to the noble Lord, Lord Fitt, that I assume that in future it will be illegal for a shop to put up a notice saying that it refuses to serve Roman Catholics or Protestants. I am not sure whether it would still be illegal to put up a notice saying that it refused to serve the security forces. The security forces are not a religion, although they may sometimes feel as though they are. I would be interested to know the answer to that. Like the noble Lord, Lord Fitt, and other noble Lords, I strongly deplore any notice of that kind.
In the case of shops and businesses, it is extremely difficult to see how one could write a law that discriminates against the buyer, the customer, which the noble Lord, Lord Molyneaux, rightly and understandably, in many senses, asked for. If people choose not to buy from a particular shop, it is difficult to see how you can say, "Well, you should have bought your goods from shop A instead of shop B, and you should not have discriminated", even if the discrimination is on religious grounds of some kind.
6.15 p.m.
Lord Molyneaux of Killead: My Lords, I believe that the noble Lord, Lord Fitt, confirmed that there are cases where certain organisations, in newspapers and in distributed leaflets, have made no secret of, the identity of those promoting a boycott on a large scale. Surely, there must be something in common law, as it exists, to deal with that kind of thing. Could that provision be extended?
Lord Lester of Herne Hill: My Lords, perhaps I may take the example that the noble Lord, Lord Fitt, gave about the shop that would not serve the security forces. That is an example of indirect religious discrimination. If the proportion of the members of the security forces who could not comply were mainly of one religion, that indirectly could be a condition or a requirement, yet disproportionately. We are getting into complex areas. Perhaps I may take the example of the collective boycott. I am confident that that would be both an

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unlawful conspiracy in common law, a tort, and also might well constitute pressure to discriminate unlawfully under the order.
Lord Cope of Berkeley: My Lords, those are helpful interventions. I am glad to learn that a conspiracy of the kind described by the noble Lord, Lord Molyneaux, may fall foul of common law. I believe it would be better if it were stated in statute law as well.
As far as the security forces' religion is concerned, it may be difficult to mount a case even on the basis that the noble Lord, Lord Lester, suggests. In the Army, for example, there are many Roman Catholics and members of all sorts of religions. I have no reason to suppose that the proportions in the Army are different from the proportions in the general population of the United Kingdom. It might be difficult to use that argument. The RUC is a different matter because Catholics, for a long time, have been terrorised against joining the RUC. That is the basic reason why there is such an imbalance of religions in the RUC.
This order deals with the refusal of someone to sell a house to another person on the grounds of their religion whether Roman Catholic or Protestant. That is not the most disgraceful discrimination in the area of housing. The most disgraceful discrimination is when people are forced out of their houses because of their religion. We know that that occurs. It is already illegal. The order does not deal with that. However, it is an example of the point made by the noble Lord earlier: that there is little evidence of discrimination in the fields with which this order deals, but there is a great deal of evidence of other types of discrimination which are more vicious and damaging and difficult for the law, the RUC, and so on, to deal with.
I was also disturbed by the speech of the noble Lord, Lord Lester, when he described the re: Amin gap. During the debates on the Northern Ireland Bill (as it then was) we were given an assurance by the Minister. The noble Lord read a passage—he suggested that it was from Report stage; it is from Third Reading—which was entirely accurate. The Minister reassured us that the re: Amin gap would be filled. We all want it to be filled. The Minister shakes his head. I do not wish to read out the words again unnecessarily. The noble Lord, Lord Lester, asked whether discrimination would apply to public authorities as well as private bodies, and the Minister replied that the answer was yes.
On page 45, in paragraph 5.49 of the White Paper published in March of this year, there is discussion of this point and the recommendation of SACHR that the provision should be extended to apply to indirect discrimination of this type. The White Paper stated that the proposed extension of fair employment law to the fields of goods, facilities, services and premises will greatly extend the public sector's obligation to avoid indirect discrimination.
The order implements the White Paper in that respect. However, it does not appear to do what is advertised. As the noble Lord, Lord Lester, suggested, the order may have been drafted before the re: Amin point was
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raised in the course of debates on the Bill. I find that slightly unlikely. The order has been amended to take account of the existence of the assembly, and other points arising from the Bill. In any case, a problem still exists.
The noble Lord, Lord Lester, drew attention to a different problem: that of education arising from the application of the Human Rights Act. Previous legislation—it is continued into this legislation—exempts teachers and the employment of teachers from the provisions of the legislation. We know why that is. It is because many of the schools in Northern Ireland are of one religious persuasion or another. There are many Roman Catholic schools and the state schools consequently take primarily Protestants, with the integrated schools doing their best to take the balance from both communities. I understand that many teachers are not of what one might call the appropriate religion in the schools. There are some Protestant teachers in the Roman Catholic schools, and vice versa in the state schools. I wonder whether it is still necessary to exempt teachers from this legislation. If that gets us into trouble with the Human Rights Act it may have been better to have included teachers at primary and secondary schools in the legislation in the first place.
The order extends the monitoring to part timers and to leavers in most cases. I note that the monitoring regulations are to be left to the Assembly to agree, on the proposal of the department. That assumes, as we all assume and hope, that the Assembly goes ahead and is able to discharge that kind of responsibility. However, I wish to raise a few small points. The regulations in Article 48(10) have for some reason or another been assigned to the Assembly. It would be helpful to know why it is that, when a concern has to satisfy conditions for registration, reference to employees of any person shall include a reference to the employers and bodies corporate. It is a very technical clause. For some reason that has been picked out from among the many clauses and subsections to be the responsibility of the Assembly.
More interestingly, perhaps, orders made under Article 6(3) relate to,
"employment concerned with exploration of the sea bed or subsoil".
By this provision this department is enabled to provide that the provisions shall have effect in a certain way. Regulations on that matter are specifically to be approved or otherwise by the Assembly. That surprised me because the sea bed and subsoil is a reserved matter, for the time being, under the Northern Ireland Act. It is not a matter that has been given to the Assembly.
Another matter which arises from the Northern Ireland Act concerns the definition of a Minister. We had much discussion on the definition of a Minister during the passage of the Bill. It was not left in a satisfactory situation. However, on page nine of the order, the definition of "Northern Ireland Minister" specifically includes the First Minister and deputy First Minister acting jointly, but not when they act separately. However, there is no reference to junior Ministers. I wonder whether junior Ministers should have been included in that definition. That is again the kind of point which would be discussed in Committee.

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Page nine of the order gives a complicated definition of a member of a vocational organisation. For some reason there is a distinction in (a) and (b) between those who belong to a vocational organisation—a trade union, employer's organisation, or a professional association which covers people in their jobs. However, (b) states that students, for example, are not members if they are concerned with a trade union or employer's organisation, but only if they belong to a professional type of organisation. That seemed to me extremely odd.
More importantly, it seems odd that a member of a trade union includes an applicant or a former member except for the purposes of Article 23. Among other things, Article 23 deals with discrimination against retired members. It is odd that someone should not be held to be a member of a trade union, and hence covered by the legislation, if it has deprived him of membership, which is part of Article 23 on page 32. The point is complicated.
In the light of the kind remarks of the noble Lord, Lord Blease, about our previous co-operation on Northern Ireland matters, for which I am grateful, it would be only fair of me to say that if the Minister is unable to deal with the points in detail he might be kind enough to write to me in due course.
In general, I welcome the order, which consolidates complicated law and the extensions in a single document, provided the extensions have the desired meaning and the meaning that the Government intended—although doubt has been thrown on that during tonight's debate.
6.30 p.m.
Lord Dubs: My Lords, I am grateful for the comments that have been made in particular by my noble friends who were supportive of the legislation. I take the point made by the noble Lord, Lord Cope, and my noble friend Lord Fitt that the legislation is complicated. I fully understand why, given our procedures, noble Lords find difficulty in doing justice to it. Were we not handing over power to the Assembly I should be sympathetic to suggestions about changes in our procedure for dealing with such matters. All being well, such future legislation will be before the Assembly and not before Parliament. Therefore, the matter will be resolved happily.
I shall deal first with the point made by the noble Lord, Lord Lester, about the Amin case and indirect discrimination by public bodies. I agree with him that there is a gap provided the House of Lords' decision in that case represents the law. However, the gap in Northern Ireland is not as wide as in Great Britain because of Section 76 of the Northern Ireland Act and previously the provisions in Section 19 of the Northern Ireland Constitution Act 1973. To make any changes now to fair employment legislation would lead to it being out of step with that on sex and race.
Having agreed with the noble Lord, Lord Lester, that there is a gap, although smaller than he suggested, perhaps he will allow me to write to him in more detail.
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The difference between us is not large, although I concede that there is a difference in the terms in which he put the point forward.
Lord Lester of Herne Hill: My Lords, I should be grateful if that could be done. However, I am troubled because I was persuaded not to seek to amend the Northern Ireland Bill to fill the gap. It is not filled by the order and I wonder whether the Minister would deal at least with the merits of the issue. Does he agree that one can think of no good reason for treating discrimination by a public authority as lawful and discrimination by a private person as unlawful, whether indirect or direct discrimination, in providing services and facilities?
I ask that question as a matter of policy and also because I expect that someone will at some time challenge the unfortunate decision by the House of Lords. Can the Minister or his colleagues identify any good reason for that highly restrictive approach to the problem? If not, it must be tested in the court or dealt with by subsequent legislation. If he cannot deal with that matter now can he write to me and to other noble Lords who are interested?
Lord Dubs: My Lords, while listening to the noble Lord, I was tempted for a brief moment to try to deal with the matter here and now. However, it would be wiser to accept his offer to write to him and to the noble Lord, Lord Cope. The issue is complicated and I believe that if I were to enter into it off the cuff I might mislead him. If I misled him on a previous occasion I very much regret doing so. It was not my intention. I answered the final question he put during our debate on the Northern Ireland Bill literally and not in the context that he has now outlined. I agree that that may have been a more appropriate interpretation of his question, but I interpreted it literally. The question he asked had only one answer, which was "yes". I did not qualify the answer and perhaps I should have done. It would be better if I wrote to him on the point he raised.
Lord Lester of Herne Hill: My Lords, I am not at all suggesting that there was any intention to mislead me or the House. I fully understand that under pressure the Minister said "yes" when he might have said "yes, but". I might then have had to press the point, so I shall be grateful if at this stage he could deal with, in correspondence, the mischief I have addressed and say how we can deal with it; whether by way of seeking clarification in the courts, through legislation, or otherwise.
Lord Dubs: My Lords, I shall certainly do so by letter. It might not be a consolation to the noble Lord if I say that had he pursued his amendment at that stage I should have been obliged to resist it, so it would not have passed anyway—I trust. I shall certainly deal with the issue by letter.
I thank the noble Lord, Lord Lester, for the complimentary words he uttered about the Government's basic approach to the legislation. The noble Lord, Lord Molyneaux, made a number of

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comments to which I wish to respond. The noble Lord, Lord Lester, may have dealt with the question of boycotts in his earlier intervention. I agree that boycotts are unhelpful. In the atmosphere of reconciliation, which the majority of people in Northern Ireland wish to pursue, it is particularly unhelpful that there should be boycotts as described by the noble Lord and my noble friend Lord Fitt. However, it is difficult to make a case against someone who does not use a particular service or buy other goods. I know that the point was also directed at organisations which seek to encourage such boycotts. The law is complicated and the noble Lord, Lord Lester, probably had it right.
The fair employment tribunal has the power to award costs in cases which are frivolous or vexatious. I assure the noble Lord, Lord Molyneaux, that the order has nothing to do with sexual orientation. I take it that the reference to the Equality Council is the Equality Commission created by the Northern Ireland Act.
The noble Lord, Lord Monson, asked about the justification for extending the legislation to include discrimination in the provision of goods, facilities and services and in the management and disposal of premises. It would be ill-advised of me to give anecdotal illustrations or examples as these could be better demonstrated by cases brought in the courts. Answering at the Dispatch Box would not be the best way to clarify this matter. The issues to which the noble Lord referred were not covered in the 1976 or 1989 Acts. The Government believe that any unjustified discrimination on the grounds of religious belief or political opinion should be unlawful. Therefore, as a matter of principle, it is right to extend the legislation to include goods, facilities, services and premises.
If the noble Lord were to look a long way back into the history of Northern Ireland he would find areas where such discrimination took place, but I doubt whether it would be helpful for me at this stage to go down that path.
Lord Monson: My Lords, I am grateful to the Minister for giving way. I accept that entirely. I was trying to ask whether there had been any recent, or relatively recent, cases of such discrimination. I understand why the noble Lord may not wish to give specific examples.
Lord Dubs: My Lords, I am grateful to the noble Lord for his understanding. My noble friend Lord Blease asked about the working group. That is not a statutory body. It will bring forward proposals to Northern Ireland Office Ministers after it has consulted relevant interest groups in Northern Ireland. I note my noble friend's interest in the group's proposals and I shall ensure that he receives a copy of them when they are ready.
I believe that I have dealt with the point made by my noble friend Lord Fitt in relation to shops that do not serve the security forces and indicate that by a notice. I deplore such acts of discrimination, even though they may not be unlawful within the terms of existing legislation. It is not helpful for shops to display such
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signs or for people to organise boycotts because we wish to move forward in a more positive manner in Northern Ireland. The majority of people want that, although the minority try to give a different impression. I hope that that minority will desist.
The noble Lord, Lord Cope, asked a number of specific questions. It will be unlawful to refuse to serve a person of a particular religion. If a member of the security forces were refused service, he might have a case of indirect discrimination against the service provider but it would be difficult, legally, to achieve that.
The noble Lord, Lord Cope, asked about the position of teachers. Employment as a teacher in a primary or a secondary school in Northern Ireland is exempt from the provisions of the order, as the noble Lord indicated. There has been no change in the position since 1976. However, the commission has duty to keep that exemption under review.
The noble Lord referred also to the description of "Northern Ireland Minister" to which we devoted quite some time during the various stages of the Northern Ireland Bill. That expression does not include a junior Minister for the purposes of this order. The only reason for that inclusion in Article 2.2 is to make clear that it includes the First Minister and Deputy First Minister when acting jointly and all Ministers other than junior Ministers. Junior Ministers do not have that particular position.
The noble Lord asked also about the definition of "member" and why it was split between two parts. The simple explanation is that it is merely for ease of reading. There is no complicated thinking at all. It is merely to make it easier to read the text by having it divided in that way.
Lord Lester of Herne Hill: My Lords, before the noble Lord leaves that point, the intervention of the noble Lord, Lord Cope, drew my attention to something of which I was unaware; namely, that trade unions are not covered by the legislation, as far as I can see, whereas they are under the race relations and sex discrimination legislation.
There is no direct provision making it unlawful for a trade union to discriminate on religious grounds against members or applicants for membership or in the collective bargaining process. That is my reading of the order. I thought that I was some kind of an expert and it may be that I am about to be proved wrong. However, if that is correct, the Minister may like to write to me because there is a complete mismatch, if I am right, between the race and sex equality legislation and the religious discrimination legislation. However, I may have missed a provision in the order and I am grateful to the noble Lord, Lord Cope, for drawing the matter to my attention.
Lord Dubs: My Lords, my understanding is that trade unions are covered by the definition of "vocation bodies".
Lord Lester of Herne Hill: My Lords, I understand that. I am not dealing with discrimination in training or

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vocation but in membership of the trade union or the role of the trade union in the collective bargaining process. I realise that that may be rather technical but I should be grateful if the Minister were able to clarify the position at some stage.
Lord Dubs: My Lords, I should be happy to write to the noble Lord and to the noble Lord, Lord Cope, who raised that matter.
The noble Lord, Lord Cope, referred to another point in the White Paper; namely the section in the White Paper which deals with SACHR's recommendations in relation to the constitution Act. The reference there to fair employment legislation is to clarify that the constitution Act provisions were effectively a goods and services provision for the public sector and that the fair employment legislation would extend those to the private sector.
The noble Lord, Lord Cope, raised a number of points about the way in which the order has been drafted. The order is drafted in post-devolution terms with transitional provisions to cope with the interim period. Again, I wish to write to the noble Lord on some of the technical points he raised.
In concluding, perhaps I may make two brief points about the fair employment legislation generally. First, there is evidence that it is achieving increasing cross-community recognition as those of all religious beliefs and none make use of the legislation and come to realise its value in upholding fundamental rights. That is surely a most welcome development.
I should like also to restate the Government's firm commitment to the principle of appointment on merit and their opposition to quotas or any form of discrimination. That is not only morally right but in economic terms it is the only approach which makes sense. More important, it is a key principle to which both communities in Northern Ireland can subscribe.
The merit principle ensures that the legislation is not partisan and that it can make a particular contribution to the success of the political settlement in Northern Ireland. I am encouraged by the progress made in promoting equality of opportunity in Northern Ireland. The introduction of the order will certainly continue that process. For those important reasons, I hope that your Lordships will join with the Government in formally approving the order.
Lord Lester of Herne Hill: My Lords, I am now satisfied, having listened to the Minister and having looked at the definition of "vocational organisation", that trade unions are covered fully. Therefore, it is unnecessary for the matter to be clarified further.
Lord Dubs: My Lords, I am grateful. That will save me one letter. I commend the order to the House.
On Question, Motion agreed to.

Rates (Amendment) (Northern Ireland) Order 1998
6.46 p.m.
Lord Dubs Lord Dubs rose to move, That the draft order laid before the House on 12th November be approved.
The noble Lord said: My Lords, this brief order, which makes a number of changes in Northern Ireland's rating legislation, is the last of its kind to come before this House under the Order in Council procedure. Future changes of this sort will be matters for the new Assembly to consider and legislate upon. Until the Assembly assumes its powers in the new year, however, there is a continuing need to ensure that the legislation is kept fully up to date. This order is intended to do just that.
Article 3 removes an entitlement to a reduction in the amount of rates chargeable following a revaluation during any period that an increased valuation is under appeal. At present the maximum rates recoverable during the appeal period is restricted to the sum of the previous year's rate bill and 75 per cent. of any increase due to the revaluation. This change removes from Northern Ireland legislation a provision which has no equivalent in Great Britain rates or council tax law. Should a new valuation be reduced on appeal, any overpaid rates will, of course, be refunded in full.
Where the owner of, or more usually the rental agent for, a property instead of the occupier has agreed in writing to pay the rates, where the rent is paid at intervals shorter than quarterly. Article 4 reduces the different types of "allowances" or discounts available from three to one. At present a 7.5 per cent. allowance is available where an owner or agent agrees to pay the rates only in relation to periods of occupancy. In certain circumstances this enables rate refunds to be claimed by owners in respect of past periods of vacancy, long after the property has been reoccupied by tenants and, in view of the large numbers of properties involved, the facts relating to alleged earlier vacant periods may be difficult or even impossible to establish. Such a system is clearly open to abuse and requires firmer regulation.
This 7.5 per cent. allowance will be discontinued along with an obsolete 5 per cent. allowance which no agent has claimed in 25 years. Agents agreeing to pay the full year's rates, whether or not a property is continually occupied throughout the year, will continue to qualify for a 10 per cent. allowance. The following Articles 5, 6 and 9 all mirror changes introduced in Great Britain by the Local Government and Rating Act 1997.
Article 5 should be read in conjunction with Schedule 1. These provide for a scheme of rate relief in rural settlements. Schedule 1 requires the Department of the Environment to maintain a list of rural settlements in Northern Ireland and provides for the only general store or post office in such a settlement to benefit from a 50 per cent. reduction in rates. It also enables the Department of the Environment, in certain circumstances, to grant relief, at its discretion, of the full amount of the rates on such properties as well as to properties, the use of which are considered to benefit the local community.

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Article 6 provides for all Crown property in Northern Ireland, which mainly consists of government offices, to be subject to rates. The practice whereby the government make "contributions in lieu of rates" will be discontinued. Similar changes are planned for Great Britain in just over a year's time.
Article 7 exempts from rate liability buildings used for the scientific testing of livestock and poultry for the purpose of identifying top breeders. For example, this will assist a pig-testing centre, the only one of its kind in the United Kingdom, at a very difficult time.
Article 8 will enable the parts of prisons used primarily by the prisoners themselves to be valued and rated as being used for domestic purposes and subject, therefore, to domestic rates. Those parts include cells, libraries, kitchens and so forth. The rest of the prison, used for security and administration purposes will continue to be liable to non-domestic rates. This is a technical change only and brings arrangements for the rating of Northern Ireland prisons into line with those in Great Britain.
Article 9 removes the liability of sporting rights to rates; for example, fishing rights. Sporting rights which are separate from the occupation of land and valued in their own right will be removed from the valuation list. Those rights which are currently valued along with the land will no longer be reflected in the rateable value of the land.
Article 10 and Schedule 2 make minor technical and consequential changes none of which affect rate bills or rate payers directly. Article 11 is necessary to enable the Foyle Fisheries Commission to continue to levy its fisheries rate after the general exemption of sporting rights under Article 9. Otherwise the commission would have to forgo a small, but important source of revenue.
At the beginning I described this order as brief. I hope the House will agree nevertheless that these are important and useful changes which in some cases benefit ratepayers directly and in others improve economy and efficiency in rate collection procedures.
Moved, That the draft order laid before the House on 12th November be approved—(Lord Dubs.)
Lord Lester of Herne Hill: My Lords, perhaps I may raise one point. Under Article 8 of the order the rate on parts of prisons in Northern Ireland will now apply. I am told that that will raise around £250,000 from the Northern Ireland Prison Service. Will the Minister tell the House whether the Northern Ireland Prison Service will receive an extra £250,000 to pay that bill or is the money expected to come from savings made within the prison service?
Lord Cope of Berkeley: My Lords, in general, this order is welcome. I particularly welcome the provision for general stores in rural settlements. I was a supporter of the same clauses with respect to the rest of Great Britain and am glad to support them in the case of Northern Ireland.
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I have only one question for the Minister. Can he tell the House what the financial effects of the order will be? Clearly they will benefit some rate payers at the expense of local authorities but, conversely, local authorities will benefit with regard to central government. It would be interesting to have an idea of the changes in the financial flows that are involved as a result of the order. The noble Lord, Lord Lester, suggested one in respect of prisons. I am not sure that it works out quite as cleanly as he suggested, but it would be helpful to know the financial effects.
Lord Molyneaux of Killead: My Lords, I too have a special interest in Article 8 referred to by the noble Lord, Lord Lester, but for a different reason. I have read the remarks of the Minister in another place dealing with this order and he said:
"Article 8 will enable the parts of prisons used primarily by prisoners to be valued and rated as being used for domestic purposes and will be subject, therefore, to domestic rates. Such areas include cells, libraries and kitchens. The rest of a prison, used for security and administration, will be liable for non-domestic rates".
He then went on to say,
"This change is intended to bring Northern Ireland legislation into line with that of Great Britain".—[Official Report, Commons, Fifth Standing Committee on Delegated Legislation; 3/12/98, col. 4.]
I do not challenge that. However, the effect will be rather different. We have in effect—whatever people may choose to call it—what is perceived by evil doers in Northern Ireland as an amnesty. It is exclusively for murderers and, in theory, it is not supposed to apply to future murderers. My guess is that the legislation will be amended at some stage in the future so it will be a sort of conveyor-belt operation. The major prisons will then be entirely empty unless we can find enough sex offenders and drug peddlers to prevent them from being completely de-rated with the consequent loss of revenue to the prison service. I therefore lend my support to the plea from the noble Lords, Lord Lester and Lord Cope, that the prison service be recompensed for loss of revenue.
On a more serious note, but a brief one, it is probably too early to define the future of the "regional" rate and the balance of liability for financing the water services in future in Northern Ireland. On previous occasions I drew attention to the chaos resulting from the planning section of the Department of the Environment in Northern Ireland encouraging housing developments where essential services such as water, sewerage and electricity were not available. Thus the heaviest financial burden of updating and providing those essential services has unfortunately fallen on the water authorities.
Added to that, the water authorities are required to engage in schemes and expend vast sums of money to comply with European regulations as well. I can never quite understand that. The last time I went to a continental country—a member of the European Union—the captain warned us within an inch of our lives in two respects: first, be very careful about the strength of the sun; secondly, on no account must we drink the local water but should buy it in bottles. Therefore, I do not see why the UK is penalised.

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More seriously, will the water service deficit become a burden on the council rates, the regional rate or on Treasury subvention? Also, what may be the resulting danger of an accelerated campaign for revaluation? It is never a popular device and was certainly unpopular in 1977–78 because there had been such a long period before the previous revaluation. It would be helpful to have some information on that point.
Lord Dubs: My Lords, I am grateful for the comments that have been made. Perhaps I may deal with the question asked by the noble Lord, Lord Molyneaux. I am not sure whether it fits in well with this debate but if I understood him correctly he was asking about possible increases in the regional rate. He related that to the burden on the water services to provide water to new housing developments which did not have access to it. Perhaps the noble Lord will permit me to write to him. I should be delighted to enter a discussion on it, but it would be better if I wrote to the noble Lord.
The noble Lord, Lord Lester, asked about the consequences of the change in procedures as regards the Prison Service. The Prison Service will be relieved of the £250,000 which will not be charged. It will not have to pay that, but that means that, in turn, the Assembly will have its income reduced by the same amount. There will, therefore, be a financial knock-on effect on the Assembly's money. I am not sure at this stage whether it is possible for me to quantify the effect of all the measures. I should prefer not to do that as it is difficult. I hope that the noble Lord will allow me to write to him if any clear figures come to light, rather than make rough estimates which might have to be revised later. I commend the order to the House.
On Question, Motion agreed to.

Parliamentary Constituencies (England) (Miscellaneous Changes) Order 1998
7 P.m.
Lord Hoyle Lord Hoyle rose to move, That the draft order laid before the House on 4th November be approved [47th Report from the Joint Committee, Session 1997–98].
The noble Lord said: My Lords, the order gives effect without modification to the final recommendations in respect of the 16 constituencies in Greater London, Surrey, Berkshire and Buckinghamshire which are described in the report of the interim review presented to the Home Secretary by the Boundary Commission for England on 26th June.
If the draft miscellaneous changes order now before this House is approved by your Lordships, my right honourable friend the Home Secretary will submit it to Her Majesty in Council to be made. Article 1(3) provides that the order comes into operation on the fourteenth day after the day on which it is made, but the new boundaries will not take effect until the next general election.
The commission's recommendations are framed only to take account of anomalies which have arisen between parliamentary constituency and local government
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boundaries in those areas since June 1994. The changes affect some 3,721 electors in total. These proposals are moderate and sensible and have been welcomed in the areas affected. The commission has received only one objection to the recommendations. That objection raised matters which would have required changes more than the minimum required to bring boundaries back into alignment with local government boundaries and was considered by the commission to be more appropriate for the next general review.
The draft Order in Council now before your Lordships was considered in another place on 17th November and has been approved by that other place. I have no hesitation in commending the commission's final recommendations to your Lordships. I beg to move.
On Question, Motion agreed to.

Pollution Prevention and Control Bill [H.L.]
7.2 p.m.
Lord Whitty: My Lords, I beg to move that this Bill be now read a second time. In speaking to the Bill, I am not sure that I can be as brief as my noble friend—
Noble Lords: Shame!
Lord Whitty: My Lords, this is a very short Bill on pollution prevention and control. It arises from the fact that we must implement the European Council directive on integrated pollution prevention and control next year. We wish to do so in a way which, first, preserves the coherence of our industrial pollution control systems; secondly, delivers maximum benefits for environmental protection; and, thirdly, minimises the burden of compliance.
The Bill will enable us to do just that. It will enable us to create a single unified pollution prevention and control regime where we would otherwise have to have two or three. I do not believe that there should be any great dissention on the matter and I hope the whole House will join me in supporting the Bill.
Perhaps I may put the Bill into context. The background is our system of integrated pollution control on the one hand and the European equivalent on the other. I believe that if I spell out the reasons behind the introduction of the Bill, that will help the House to understand it.
In this country, proposals for an integrated approach to pollution control were first put forward as far back as 1976 by the Royal Commission on Environmental Pollution. Its report drew attention to the way in which pollution is transferred across the environmental media. The commission made a strong case for ensuring an integrated approach to difficult industrial problems at source whether affecting air, water or land. The previous government acted on the Royal Commission's suggestion and by 1991 had introduced a system of integrated pollution control, based on statutory provisions as set out in Part I of the Environmental

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Protection Act 1990. That government also introduced a parallel system of local air pollution control which operates under the same legislation.
The integrated pollution control regime introduced by the previous government now applies to around 2,000 industrial processes in England and Wales, plus another 200 in Scotland. An equivalent system is now being introduced in Northern Ireland. Integrated pollution control covers processes in the chemicals industry, power generation, oil refining, metals, minerals, waste disposal and some other smaller industries, but 60 per cent. of the processes fall within the broad chemicals sector.
The core features of IPC are, first, that the operator needs a permit before he can operate a process of the type to which the regulations apply; secondly, that the permit must include conditions requiring the use of the "best available techniques not entailing excessive cost"; and, thirdly, that regard should be had to the "best practicable environmental option"—a term first coined by the Royal Commission.
The principle of setting standards of pollution control with respect to the individual process is at the heart of the United Kingdom's approach to pollution. It is a principle sometimes misunderstood on the Continent where the UK is, on occasion, accused of taking into account only pollution with a local impact and thereby ignoring the impact of emissions from the UK on continental ecosystems. That was not the approach of the previous government; nor is it our approach. The previous government signed and ratified a UN protocol to reduce emissions of sulphur dioxide. We have signed similar protocols for heavy metals and persistent organic pollutants. We have always taken our responsibilities seriously, not only for pollution within the UK, but beyond our borders also. That tradition has been followed through by my right honourable friend the Deputy Prime Minister, in particular in the Kyoto negotiations.
The previous government were successful in securing a European directive at that level on integrated pollution prevention and control which puts the UK's site-specific approach to pollution permits at the heart of European environmental policy. Not only that, but the UK's pragmatic approach to costs and benefits also appears on the face of the directive. Initially, that was against the wishes of some member states, but the UK approach prevails. The directive states that the permits issued by member states must take into account the technical characteristics of the installation concerned, its geographical location and the local environmental conditions.
That may seem like common sense, but some previous continental regimes had a more rigid and inflexible approach. On costs and benefits, the directive does not employ the UK term "best available techniques not entailing excessive cost", but defines "best available techniques" as those where the "costs and advantages" have been taken into consideration.
A directive as compatible with the UK's approach to pollution control was not achieved without considerable effort and I pay tribute to those involved. Of course, the
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directive is not exactly the same as our existing system; in many respects, it is a significant improvement. It is a good idea to consider, for example, energy efficiency and noise alongside the emissions potential of an installation. Our existing IPC system was rather artificial in the way it limited its focus to emissions of polluting substances and did not address other environmental impacts. I understand that in many cases industry already appraises its projects in the way the directive will require.
The directive also extends to a significantly greater number of installations than our existing system. Our best estimate is that it will apply to some 6,000 installations, compared to the 2,000 or so to which the IPC already applies. The extra installations covered by the directive include 10 per cent. of those currently regulated by local authorities. Therefore, they are already subject to some degree of regulation. It also includes around 1,000 landfill sites, on which we had a debate recently, and a similar number of the larger intensive pig and poultry farms, plus around 500 food and drink factories which are not already covered. There are a number of technical differences between the IPPC and the IPC; for example, the fact that "installations" have to be regulated under the EU directive, whereas "processes" are regulated under the current IPC and the local authority regime.
One could go on at length about the difficulties caused by the decision to control processes under our own Environmental Protection Act 1990, but the European choice of the term "installation" should enable a more rational system to be developed, one which also takes account of the fact that it is, in practice, increasingly common for operators to outsource various aspects of what they do.
It would be possible simply to translate the IPPC directive, along with our existing system of pollution control, into the UK legislation. However, if we did that we would in effect end up with three regimes. The first would be one under the directive controlling the 6,000 installations to which I referred and which the directive requires us to control. Secondly, there would be the remains of the IPC regime covering the 400 for so processes which we control through the IPC but which are not actually included in that directive. The third would be a local air pollution control regime administered through local authorities which would cover the remaining 11,000 or so processes and, therefore, the vast majority of small installations.
The first regime—the European regime—would regulate "installations" according to "best available techniques" and with full consideration of energy efficiency, noise and site remediation. The second regime, the IPC regime, would regulate "processes". The third regime would regulate "processes" but only in respect of emissions to air. The second and third regimes would be compatible with each other, as they are now, but the first regime—the IPPC regime—would be compatible with neither: to use a technical term, the overall result would be a dog's breakfast.
In order to avoid potential confusion and incoherence as regards operators of those processes, we have introduced the Bill. The power set out in the Bill will

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enable us to bring in regulations setting out a more coherent pollution prevention regime consisting of compatible regimes of integrated pollution prevention and control and local air pollution control. We will be able to regulate all installations using a common system and we will have a common terminology running through the integrated system, including a local air pollution control system, as at present. That is basically the purpose of the Bill. We will end up with a more coherent regime and one which is compatible in all respects. However, we will continue to have one regime operated nationally and one through local authorities; but they will operate on the same basis.
At the same time, your Lordships should know that the Government have carried out two consultation exercises and are about to launch a third, the basis of which should be available shortly in the Library of the House. We have been able to identify a number of improvements to the existing regime as a result of that consultation. The Bill would give us an opportunity to extend those benefits and those improvements to all installations which are covered by pollution control through the regulations which we will implement under this Bill.
Those improvements include quicker decisions on variations in cases where the regulator is convinced that an environmental improvement will result; better focused arrangements for public consultation; greater transparency; and measures to make it easier to grant payments to those who deserve them and to withhold them from others. The third consultation paper to which I referred will be available shortly and certainly before we reach the Committee stage of the Bill. It will set out the Government's specific proposals for the use of the regulation-making power in the Bill and will be accompanied by a first draft of the regulations which the Government propose to make. Your Lordships will therefore have a very early opportunity before the Committee stage to see the use to which the Government intend to put the powers in the Bill.
Perhaps I may quickly run through the provisions of the Bill. Clause 1 confers on the Secretary of State power to make regulations creating a new regime of pollution control. Schedule 1 lists some of the specific purposes for which this power may be used. It reads very much like a skeleton draft of the regulations to which I just referred. There is, of course, a question of the competence of the Scottish Parliament and the National Assembly for Wales in future years.
Clause 2(1) and (2) enable the transfer order under the Government of Wales Act 1998 to follow the negative resolution procedure rather than the affirmative procedure to give the responsibility for the secondary legislation to the National Assembly for Wales. Clause 2(3) provides for the transfer of functions under the Bill to the Scottish Executive under the Scotland Act 1998.
Clause 3, together with Schedules 2 and 3, gives effect to some consequential amendments and repeals. In particular, the Bill provides for the repeal of Part I of the Environmental Protection Act 1990 except in so far as it applies to Northern Ireland. Clause 4 contains the
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Short Title and so on of the Bill. Clause 4(7) retains those sections of the 1990 Act which apply to Northern Ireland.
The Bill will duplicate those provisions as far as concerns Great Britain, but the other sections of the 1990 Act need to be retained for Northern Ireland. Clause 4 also provides for regulations under the Bill to apply to installations under the jurisdiction of the United Kingdom but beyond its territorial waters. The directive applies to large combustion plants on oil rigs. Clause 4 will allow such plants within our jurisdiction to be regulated whether or not they are within our territorial waters.
I believe that I have given your Lordships sufficient details of the clauses of this fairly straightforward Bill. I hope that noble Lords will agree that it makes our regulatory mechanisms coherent and understandable. I commend the Bill to the House.
Moved, That the Bill now be read a second time.—(Lord Whiny.)
7.16 p.m.
Lord McNair: My Lords, the first thing I have to do is to apologise on behalf of my noble friend Lord Mar and Kellie. Due to the unexpectedly late start of the debate, my noble friend has had to leave because he has a plane to catch. Noble Lords will be glad to know that I shall not be making two speeches. However, I shall, nevertheless, make a point that he would have made.
I welcome the Bill and I should declare a small and non-financial interest as Vice-Chairman of the West London Green Business Club, which has been established and supported by the Interactive Environmental Group, which also facilitates and supports the National Recycling Network. I feel that some businesses may groan at what they see as a new imposition in the cause of integrated pollution control, but I would rather see the directive and this piece of legislation as a spur to the development of new technologies for recycling, reuse and in process waste (and energy) minimisation.
There is a process which I have come across recently which is an advance on existing methods of consolidation and vitrification for industrial and municipal solid waste. This process uses the heat generated in the materials themselves. I note that the Minister talked about energy conservation. I do not understand the process because I am not technical, but the company Vortek is setting up a plant in the Republic of Ireland and, possibly also, in the United Kingdom to process industrial and municipal waste.
The BATNEEC principle of dealing with pollution was much debated during the passage of the Environmental Protection Bill. It can be operated in such a way as to hold up the development of new technologies or in such a way as to accelerate the development of new technologies because they are actively sought by companies seeking to improve their performance in terms of the environment. This will certainly require investment, but I wonder whether there is a role for the DTI or the Environment Agency in

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acting as a clearing-house for new ideas. We are a very inventive nation and this is an area where our inventiveness could come to the fore.
I hope that the inspectors at the Environment Agency will be tough on polluters and will actually prosecute for negligent and irresponsible pollution. Clearly, there has to be continued pressure on companies to reduce environmental impacts by new technology and new methods of decontamination and purification.
I shall make just one point that I believe my noble friend would have made about education from his point of view. He has just joined the board of the Scottish Environmental Education Council, which supports the need for regulation and rigorous enforcement as a means of preventing and controlling pollution. The success of the Bill will, ultimately, depend on the inter-related roles of education and legislation. The commitment to information, publicity and consultation, mentioned in Schedule 1, is welcome. Fundamentally, there needs to be a hearts and minds approach to pollution and its limitation. It is only through education in its broadest sense that the best environmental practice will be sustained. We need to move from an attitude of "these infernal regulations" to a posture of personal commitment and voluntary action beyond the regulatory requirements.
In its recent environmental strategy, the Scottish Environmental Protection Agency has placed emphasis on the complementary use of non-regulatory tools, such as education, for achieving its objectives—evidence of a hearts and minds approach, my noble friend supposes. I hope that there will be a corresponding increase in the resources allocated to this sector of environmental action and care.
Finally, I am pleased to see that Clause 4 brings offshore installations within the scope of the legislation. I wish the Bill a safe and speedy passage through your Lordships' House and another place.
7.20 p.m.
Baroness Hamwee: My Lords, the Minister said that he hoped that there would be no dissension with regard to the Bill. From these Benches, there will be none.
When I was warned that the Bill was to be part of the business of your Lordships' House, I was told that it was called the Integrated Pollution Bill. The comment was made to me "If we cannot have an integrated approach to the environment, at least we can have integrated pollution". Perhaps neither of those points is fair. I am glad to find that the Bill is about control and prevention first and that it is not a dog's breakfast. However, I wonder whether the Long Title promises a little more than the contents give us. It seems to me that this is not a new system but more a co-ordination of regimes. It is none the worse for that, but I feel that the Long Title is quite optimistic.
We welcome the Bill because we welcome what the Explanatory Notes call,
"a simple, coherent pollution control system",
for the regulation of all types and sources of pollution. While I am mentioning the Explanatory Notes, perhaps I may say how much I welcome them, particularly for a
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technical Bill such as this. It was far easier to read the rounded explanation than to have to guess at what was between the lines of the technical provisions of the Bill.
The Bill proposes a system to regulate all types and sources of pollution. However, the Minister explained that not everything will be within the new system. As I understand it, what is left outside is what is within the aegis of the local authority. It would be helpful if the noble Lord could expand on what does not fall within the Bill.
The Bill, perhaps inevitably, relies on regulations. The Minister told us that the draft regulations are due to be published by the end of the year. The directive is to be implemented some 10 months later. Does the Minister believe that there will be sufficient time for the consultees to respond to the consultation? How long a period for consultation will there be? On a practical point, will there be sufficient time to put the necessary arrangements in place? The Explanatory Notes say that there will be no regulatory costs but they say also that costs will arise under the regulations. Can the noble Lord give us some idea of the scale of the costs? The paragraph in the Explanatory Notes dealing with the financial effects makes the point. But I am not sure it is sufficient to say that the costs cannot be estimated as they will have to be paid. I do not disagree with the point that the polluter will pay. However, while I hope not appearing to be approving of pollution, I think the operator of a process needs to know the likely bill at the end of the day.
The Minister referred to energy efficiency, and the directive requires installations to be operated in such a way that,
"energy is used efficiently".
My attention was drawn to the report of the noble Lord, Lord Marshall, on economic instruments and the business use of energy. The report makes the point that IPPC will deliver some emissions reductions for heavy industry, particularly of carbon dioxide, but that most small and medium-sized industrial firms and all commercial premises will be outside its scope. In any event, IPPC is existing process-based. Paragraph 35 of the report states:
"It will require firms to tighten up their existing processes, but it will not provide an incentive to look at whether instead to reduce operating periods, to retire plant early, or to switch out altogether of more carbon intensive technologies or lines of business into less carbon intensive ones".
The report gives the example of a pipe currently made from primary steel. It says that there could be a number of options which would reduce the energy consumption of its manufacture, such as making the pipe from less steel, making the pipe from recycled steel or even making the pipe from a completely different material. The report states:
"IPPC will focus on making the primary steel process more efficient but would provide no incentive for the market to take up the other options. In practice these may actually have been better for the environment as well as cheaper in the long run for the economy".
I was interested in the reference in paragraph 8(1) of Schedule 1 to the Bill to the transfer of permits. Can the Minister say a little more about that? Are permits to be

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transferable simply because businesses may be transferred and therefore the permits relating to the businesses need to be transferable as well, or is this some indication of the use of tradable permits? My colleagues in the Liberal Democrat party have been concerned about that point, although perhaps it is a more international system than we will be dealing with here. I should be grateful if the Minister could say a little more about the transfer of permits.
Finally, I made a note that on these Benches we wish the Bill a fair wind. I realise that those dealing with pollution prevention prefer a "calm day", but we will support the Bill.
7.27 p.m.
Baroness Byford: My Lords, I have three slight difficulties with the Bill. The first concerns the way in which the legislation will apply. Ever since our forebears began to realise that polluted drinking water causes cholera there have been those who pollute and those who try to stop pollution.
This Bill is intended to draw together the integrated pollution control regime, the local air pollution control regime and the waste management licensing system in a manner which accords with EC Directive 96/61 on integrated pollution prevention and control. Among other things, this will mean regulating
"significant numbers of installations which are at present unregulated by either Part I or Part II of the 1990 Act"
and,
"through a system of permits some 2,600 installations which are not currently regulated in this way".
Perhaps we should note that at present only some 2,000 installations are regulated by permit. Moreover, the EC directive introduces a profound change to the law. At the moment both regimes require that,
"Best available techniques not entailing excessive costs"
are to be used to prevent or minimise pollution. In future, the operative phrase will be "best available techniques".
To illustrate the nature of this change, I refer your Lordships to the EC directive on the safety of glass used in windows and doors as it is applied to our schools at present. One of the smaller counties calculated that to replace all the unkite-marked glass in its schools with that marked to the correct British Standard would cost some £2.25 million. Most of its schools are in practice replacing all broken panes with BS material, but are covering the rest with safety film at about one-fifth to one-quarter of the cost. Extend that to industrial processes which give rise to pollution, apply best techniques and the probable cost is much higher than that which now applies. In those circumstances it is essential that the requirements of the law are clear, unequivocal and obvious to all those to whom it applies.
My second major difficulty is with the identification of those people and processes which will be covered by the new legislation. Clause 1(4) seems to me to be a catch-all, to end all catch-alls. I doubt whether anyone, having read it, could be sure whether it applied to his business, proposed activity, hobby or whatever. Can the Minister tell us, for example, if it is to be used to extend
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the life of the Magnox reactors as requested by BNFL, while pushing the ratification of the Portugal agreement to render marine protected areas off limits to man's activities, and backing Mr. Prescott's refusal to accept near zero discharges of radioactivity?
My third major difficulty is that in this Bill we once again have a situation where the Government appear to avoid parliamentary scrutiny of their actions by providing the Secretary of State with sweeping powers which, once gained, can be overturned only by a resolution of either House. As noble Lords will know, that means this House will have no opportunity to amend them in detail. Can the Minister assure us that we shall have an opportunity to see the outcome of the consultation due to be published by the end of this year—he has indicated that that will happen—before the Bill reaches Committee stage, and that it will contain a draft of the Secretary of State's intentions? Will that be binding on the Government? Does the Minister agree with me that such a strong reliance on regulations could be seen by the electorate as a total renunciation of democracy by a Government who have a considerable majority?
Finally, I ask for an assurance that the draft regulations will be available in the House before we reach Committee stage to enable us to consider them in detail before the Bill completes its passage. I know that the Minister is aware that the Christmas Recess is nearly upon us, but will he ensure that the department makes every effort to bring forward detailed guidance or draft regulations before the Committee stage? Will he also ensure that the Delegated Powers and Deregulation Committee brings forward its report to assist the House before the Government seek to proceed through all stages of the Bill in this House?
7.33 p.m.
Lord Whitty: My Lords, I thank noble Lords who have participated in this debate. I wish to respond to a number of the points which have been raised. The noble Lord, Lord McNair, referred to technological advance in this area, including vitrification and the creation of solid waste. Those and other new techniques are important and the relevant government departments are actively trying to encourage them. To reduce pollution at source is the main purpose of the Bill and fits in very much with the line the noble Lord took in relation to new technology. While the regulations cannot deliver the new technology, they can at least encourage its use.
I am happy to endorse the point the noble Lord made on behalf of his noble friend Lord Mar and Kellie as regards education and information. That is absolutely essential if we are to get the message across. The sentiments that the noble Lord expressed on behalf of his noble friend are in tune with the department's wish to convey information and to encourage motivation to adopt personal responsibility in these areas. That fits in with our "doing your bit" campaign.
The noble Baroness, Lady Hamwee, mentioned a number of issues. As regards the transfer of permits, the reference in Schedule 1 is to transfers of the permits as operator transfers. However, there is a possible role for

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permit trading in due course although not quite on the scale we are discussing in Buenos Aires. That is referred to in paragraph 1(3) of Schedule 1. There is an element of potential trading, albeit relatively minor, involved.
As regards what is included in the Bill, all three regimes to which I referred are included in order to achieve a coherent approach. It is not a case of local authorities being outside this approach; we hope that there will be a coherent approach based on the same principles. Effectively local authorities will continue to administer the regime as regards the vast majority of installations—that is, over 11,000 of them. The noble Baroness also asked about costs. As regards the acquisition of the permits, it is difficult to predict the precise costs because under the present regime charges range from £100 for a relatively small installation up to £80,000 for a power station. The costs of abatement can be negative or they can run into hundreds of millions of pounds. The key point is that a site specific judgment needs to be based on the costs and benefits on both sides of that equation and needs to be made on a case by case basis.
As regards the consultation document—which I believe the noble Baroness mentioned twice—the timetable is tight. The point was also mentioned by the noble Baroness, Lady Byford. The consultation document I mentioned would probably have been available to this House had this debate taken place on the date originally scheduled, before it was brought forward. However, it will certainly be available to the House in good time for the Committee stage of the Bill and almost certainly before Christmas. The timetable for consultation is relatively tight. We hope to hold two rounds of consultation on the basis of the document before the regulations are laid. That is a challenge but the new regulations with regard to existing installations will be phased in over a period from the passage of the Bill to the year 2007. Although we need quick responses to the consultation, some views in relation to particular processes may be given at a later stage and will still be taken into account.
The noble Baroness, Lady Byford, mentioned a number of other issues. She asked to how many new installations the measure applies. I believe I mentioned the figure of 2,600, which is the approximate figure of new installations, as distinct from those which may be transferred from one regime to another. Of those, about 1,000 are landfill sites and another 1,000 relate to intensive farming installations, principally of large pig and poultry farms. There are about 500 within the food and drink industry to which the present regulations do not apply. It is only that number which will be newly affected. The vast majority fall within the three categories I have mentioned.
The noble Baroness asked to whom Clause 1(4) applies. I assure her that the schedule which will be produced will make it clear that it does not apply to Magnox power stations. In the new year we intend to produce a schedule to make it absolutely clear to which processes and to which installations the measure applies.
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We certainly hope to have the draft consultation paper available before Committee stage, although it is a matter for the House authorities rather than myself. No doubt the Delegated Powers and Deregulation Committee will examine the matter in that timescale. The draft regulations will therefore be available, which will answer many of the points raised.
I thank noble Lords for their contributions. I believe that the Bill will be generally welcomed as a clarification of the position and as an operation of a regime that is more easily understandable than had we moved into three different regimes attempting to control similar processes. The fact that there can be a regime in our national legislation compatible with that of Europe is a positive bonus in this context. I therefore commend the Bill to the House.
Lord Mayhew of Twysden: My Lords, before the noble Lord sits down, perhaps I may apologise for not having heard the whole debate. He made reference to the committee on delegated legislation. Will he help me as a member of that committee as to whether there is any statement of policy that will be achieved by the provisions of the Bill, or is it entirely a matter of order and regulation-making powers being conferred upon the Secretary of State to do whatever seems to him or her to be appropriate later? I am not aware of any specific matter of policy that is sought to be achieved by the provisions of the Bill, save the conferring of powers to make regulations.
Lord Whitty: My Lords, there is a policy implication in terms of structuring a single regime and the concentration on installations rather than processes in that regime. That is a narrow but strategic point in the approach to the whole issue of pollution prevention and control.
The noble and learned Lord is correct. The Delegated Powers and Deregulation Committee will no doubt examine the powers of regulation under the Bill. It will confer on the Secretary of State powers which for the most part he already has in a different context; nevertheless, it does convey substantial regulation-making powers on the Secretary of State. That is no doubt of direct and central interest to the committee.
Baroness Byford: My Lords, before the Minister sits down, perhaps I may take up my noble and learned friend's point. It is a matter that I raised at the start of the debate. Can the Minister give the House a better idea as to timing? As I said, the time is very tight. Perhaps he can therefore enlarge upon the matter.
Lord Whitty: My Lords, as regards the timing of the draft consultation document, which will include the draft regulations, I cannot absolutely put my hand on my heart and say that it will be available before Christmas. It will certainly be available before Committee stage, which will give adequate time for consideration by this House. We accept that the wider consultation process is tight. However, after the end of

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that formal consultation period other views could be taken into account in determining approaches to particular processes and installations.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Local Authorities: Age of Candidates
7.43 p.m.
Baroness Miller of Chilthorne Domer Baroness Miller of Chilthorne Domer rose to ask Her Majesty's Government whether they will consider lowering the minimum age for candidates standing in local elections to 18.
The noble Baroness said: My Lords, first, I wish to thank all those who have chosen to take part in the debate. When I looked at the Speakers' List last week I feared that very few were interested in this issue and that, despite frequent references to the need to consult, engage, involve, and listen to young people, concrete action further to involve them was of no great interest. However, with those noble Lords who have chosen to speak, I now look forward to hearing your Lordships' views and the Government's thinking on this subject.
Noble Lords may wonder why I have chosen to address particularly the question of local authority candidature rather than all candidature. While I believe that the arguments in favour of parliamentary representation at 18 may be equally valid, I wish to concentrate on why we need young people to be able to represent their local communities in particular. But first, I wish to touch on some wider principles.
We lay great emphasis on trying to create balance in our elected bodies. We try to address gender imbalance and ethnic imbalance, and try to ensure that people with disabilities are not disabled from standing as candidates. Yet we treat our young people as though we hope to exclude them from office for as long as possible. A minimum age of 21, if your birthday falls just after the election, can mean in practice that you will be nearly 25 before you can stand. Inevitably that creates councils where a "very young" counsellor is someone in his or her late 30s. That may seem young to us, but to children, teenagers and those in their early 20s that is already at the top of the hill, if not over it.
In the Government's modern local government paper, In Touch with the People, paragraph 3.60 states:
"In particular, there is a need for more talented, vigorous young people in local government".
That is correct. Young people are not only able to be among the most active in their community; they are the future of their community. For that reason we should involve them as early as possible. They are also the major users of local authority services. Education is obviously one of those services, but they are also major users of leisure facilities such as swimming-pools and football pitches; they are major users of the housing service as they leave home or become homeless or first-time tenants. If there were more young councillors, I am sure that the kind of investment we have seen by some councils in, for example, the foyer model of housing—where there is housing, training and support
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all in one—would have been far greater. We can cast our minds back to remember what it was like being young (that is, if we try hard) but what we remember bears little or no resemblance to what it is like being young nowadays. We need people to be involved in decision-making in their own communities who have grown up there in the past five years and who have experienced the realities, for example, of how effective a community safety strategy is, what public transport is like, or whether street lights make a difference. The experience of a group of 17 year-olds waiting at a bus-stop at 10.30 p.m. after the cinema is vastly different to the experience of two pensioners waiting at the same bus-stop at 10.30 in the morning after a shopping trip.
It may be that councils will be urged, for example, to use a youth focus group in order to gain views. The trouble is that a focus group, which is a rather eulogised tool for making the excluded feel involved, can at best give only a snapshot of the views of a young age group. It is not the same as being part of the decision-making process.
At 18 or 19 you may be in a first job, unemployed or still in education. But the 19 or 20 year-old is often relatively free of other commitments. One of the most difficult combinations in life is that of public office, a very young family and a career. So if we exclude young people from standing before they have a family we may in practice be excluding them until their late 30s or early 40s as the demands of that young family and career take over. This may be the last civil right denied to people who are by all other definitions adults. At 18 you can marry, die for your country and be deemed old enough to look after your own needs in housing terms—but you are too young to represent your community.
Elsewhere in Europe nearly all countries accept that 18 is sufficiently mature for local candidature. One or two countries in Europe have differentiated between local elections and national elections and have retained the higher age of 21 for eligibility for regional or national elections. I shall not enter into that argument today. I wish to concentrate on the argument, which is overwhelming, for reducing the age for candidature in local elections.
This Government have been quite active in supporting a young people's democracy programme to encourage them to vote, to take part and to express a view, but that only goes so far. I believe it lacks credibility. We are saying to those young people: "We want you to be interested in 'our show'. You cannot be part of it, but please come along and watch". No wonder apathy is so frequently encountered among the young when politics is mentioned. We want them as activists, we want them out there delivering our leaflets, and we want them as voters—much is talked about how to get them to turn out and vote—but we do not want them as representatives. I believe that they can understand the double standard that that represents.
What would it mean in local communities? I should like to turn for a moment to the communities that I know best, small rural communities, and look at the things that a parish council deals with. They are small things but

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they make a big difference in the life of the community. Let us look at how a parish council reaches the decision as to how to spend its precept. The spending choices for an older age group may include floodlighting the church and benches on which to sit to look at the church once it is floodlit. They may include street lighting so that people can see the group of scary teenagers lurking in the bus shelter. Issues for that age group include getting the police to stop the teenagers lurking in the bus shelter and to stop those same teenagers skateboarding in the street.
If the younger age group were involved, what would they provide for their younger brothers and sisters aged between, say, 8 and 18? If someone were elected who had only just stopped lurking in the bus shelter, he or she would provide a place for that younger age group to meet in on a couple of evenings a week so that they were not condemned to the cold, dark bus shelter. They might choose, for example, to rent the village hall for an informal youth session, to provide a multi-surface area for street hockey or to subsidise a bus back from town on a Saturday night.
The voice of those growing up now is different. They have had a completely different experience of life from the one we had, growing up in the 1960s, 1950s and 1940s. I will not go back any further out of respect for those here! If we are to modernise our service delivery in line with the reality of what it is like living in our communities today, we need to hear that voice on the decision-making bodies of our country. What are we going to do about it?
There has for many years been cross-party support for making no differentiation between the age at which one can vote and the age at which one can be a candidate. In 1985 Conservative Back Benchers tabled a members of parliament (minimum age) Bill, which I believe was talked out. The Labour Party said, in its document A new age for democracy:
"There is no justification for the continued discrepancy between the age of nomination and voting rights. We believe that it is right that the age of nomination, which at present stands at 21, should be reduced to the age of 18".
We on these Benches have consistently campaigned for and included in our Liberal Democrat manifestos the reduction of the age to 18.
I do not believe that it is the law which should restrict voter choice. If people do not want to be represented by a very young candidate, they can simply not vote for that candidate. That is perhaps an argument in favour of trying this change first, especially for local elections. A constituency MP is the people's one representative to Parliament. If people were nervous about reducing the age of candidates, it could be tried at local level—for example at parish or town council level, where multi-member wards means that one can field some very young candidates and also have older people representing that same community. People could choose to vote for one very young candidate among their choices.
What is it that frightens successive governments about giving the younger age group the right to vote and a voice? As far as I can see, there are no valid arguments
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to continue the anomaly that at 18 one can do everything but represent one's community. I hope that your Lordships will send a strong message to the Government that this issue should be looked at as a matter of urgency. I think that the local government Bill could be amended to include this measure so that young people could qualify for election next May.
7.55 p.m.
Lord Davies of Oldham: My Lords, I congratulate the noble Baroness on raising this issue and on the way in which she has presented it. I do not need to detain the House long since I agree with a large number of the noble Baroness's arguments. Whether she would receive the extent of support that she would hope for if the House were more crowded this evening, I beg leave to doubt.
I realised a few weeks ago that, whereas I arrived in this House with expectations that we would promote reform of your Lordships' House—a matter which has been the subject of general debate over the past few weeks both here and in the other place—on the grounds that it was less representative of the nation than it ought to be and over-representative of privilege and wealth, in fact the major problem is that it is over-representative of the aged. Our problem is that we are grandfathers and grandmothers deliberating on the affairs of the nation. The debate on the age of consent brought home to me very sharply that we are a true gerontocracy. The aged are seeking to present laws and rules for a generation—in fact, two generations—behind us. We are out of touch with an important segment of opinion in our nation. That is why I welcome this evening the opportunity to support a proposal which would give greater recognition of the rights of young people.
I decided to quote this evening a distinguished Liberal since the noble Baroness who introduced the debate is of that party. Lord Asquith said that the attitude was often adopted—and it seems to be adopted here—that youth would be a much more impressive state if it came a little later in life. I think many of us probably share that view.
I believe that there is change in the air. For example, as a result of the last election we have in the other place the youngest Prime Minister of the 20th century. The Leader of the Opposition is the youngest in his post in the 20th century. We have a Member of Parliament who was aged only 24 on his election to the House. These are indications that voters are not put off by the younger generation. It is against this background that the debate about whether candidates, in particular for local elections, should be drawn from those aged 18 and upwards is to be considered.
As the noble Baroness pointed out, the law at present is fairly arbitrary. There are no clear lines in this country for defining the age of maturity. We allow young people to marry at the age of 16. We allow people to drive cars at the age of 17—and, regrettably, some do so dangerously. As the noble Baroness pointed out, people can join the Armed Forces at the age of 17. If they are in work—and, believe it or not, some 16 year-olds are—they start paying taxes at the age of 16. They do not

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have the vote until they are 18 and they are not allowed to be candidates until the age of 21. There is an argument for tidying up this position and, in particular, for bringing the age at which a person may be a candidate down to 18, the age at which they may vote. That could certainly be done with regard to elections to local authorities.
Perhaps I may declare an interest here. I wish to make a short reference to education. I chair the Further Education Funding Council. The Government are at present considering the issue of reforms to the governing bodies of colleges. Those reforms clearly envisage the possibility of students being members of governing bodies. In many colleges that position already obtains and students—some of them younger than 18—play their full part on governing bodies. It can be said that students have a particular stake in education and therefore bring to the work of governing bodies the obvious value that they are stakeholders with a particular interest in the enterprise. A college of education can have a very large budget, but perhaps not as large as those of some local authorities which have colleges. I am sure the students will be represented on such bodies which measure up to the budget size of the smaller local authorities. We shall see students playing their part on such bodies at a young age. If we are prepared to invest that degree of trust in their contribution within that framework, I am not quite clear why 18 year-olds who are not students but who are part of the local community and who might wish to represent the communities on the local authorities should be denied the opportunity. That is against the background that it may have been said in the past that such young people who are most motivated towards political understanding and who wish to play their part in politics would go into higher education and get their chance in the National Union of Students. At least one spokesperson this evening—probably from the Liberal Democrat Benches—might even refer to the glorious days of that organisation in the past. People should have a chance to play their part in higher education.
We are increasingly facing change in the provision of higher education, and more people will study at their local university and live at home. They will want to play their part in the local community as opposed to engaging in the student activities of the higher education institution. I see no reason at all why we should deny them the opportunity. When one considers the talent which plays its part in student activities in higher education there is no reason to deny the opportunity for that kind of talent to be deployed to the advantage of local authorities if young people choose to make that their area of contribution to society rather than higher education.
I ask the Minister to recognise that we are seeking to help the nation recover from a really depressing period. Young people today have grown up in circumstances where a Prime Minister denied that there was any such thing as "society". It was suggested that the only obligation one had was to oneself and the immediate family and to pursue the rather narrow interests identified by self. If we are seeking to create a better sense of community and a better climate for public
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activity, we have to try to reinstate concepts of public service so that there is some belief that there are common values to which young people can contribute. Why should we seek to deny them at a young age from taking part? We should encourage 18 year-olds to seek nomination to fight a council seat, if that is at all possible.
In other words, we have to recognise that young people today have developed a very different culture from that which the majority of noble Lords would recognise. There is a great deal of commercial pressure, and opportunities. There is a great deal of wealth in society. It makes the younger age group a much more defined and separate community, not least in its purchasing power and the way in which it defines its own cultural icons and practices. All this surely requires recognition by wider society. Local authorities need to respond as well.
Although local authorities need to cater for all sections of the population, when it comes to the matter of facilities in the evening, whether that is where young people go or something as basic as whether the public lavatories are open late in the evening, it is young people who are likely to need such facilities and not older people, who are more concerned and content to be either in front of the television or involved in bringing up their families. As regards young people out on the streets engaged in joint activities, the local authority should have some proper concern for what is provided for them.
A genuine debate needs to take place in our society concerning the role of young people and the extent to which we can be a more embracing culture, recognising that our representative institutions need to take full account of the developing culture of younger people. It is right that we should look at the question of representation. The representation of 18 year-olds standing for local authorities is as good a place to start as any.
8.5 p.m.
Lord McNally: My Lords, it is certainly a paradox that the House should be discussing this subject. I am sure that the grey heads on the Government Front Bench are already quaking that the debate has unleashed the youth wing of the House of Lords to put the case. It seems only yesterday that the noble Lord, Lord Davies, and I were playing football for the parliamentary team. We all suspect that the noble Viscount, Lord Astor, has a portrait of himself in his attic, which is growing old, so youthful does he display himself on the Opposition Front Bench.
We are very grateful to be able to put the case for youth to the Government tonight. We do so with considerable pride. I confess that I am not one of my party's local government experts so I was very careful to make sure that I armed myself with Grassroots Campaigner, the magazine of the Association of Liberal and Democratic Councillors. In reading other and more relevant issues, I noted that there is a very good article on making money at jumble sales. That is something

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which both the Labour and Conservative parties may have to study if the committee of Lord Neill starts to bite.
I am grateful to the MORI organisation for its research. Recent polling shows some quite disturbing facets of the attitude of young people, which this debate and proposal may go some way to address. MORI recently asked 16 to 21 year-olds how important they thought their vote would be in affecting their lives. Four per cent. thought that it was very important; 21 per cent. thought it fairly important; 50 per cent. thought it not very important; and 21 per cent. thought it not important at all. Four per cent. said that they did not know. So about one in four young people consider voting fairly or very important to them.
A recent poll asked 15 year-olds and over what they thought most important about being good citizens. In some ways that was more encouraging. They identified respecting others, being good parents and obeying the law. But only 9 per cent. said voting at elections and only 6 per cent. referred to the importance of being active in their local community. Another poll of 18 to 24 year-olds was slightly more encouraging, 54 per cent. saying that they were fairly or very interested in politics. The polls are not exactly comparable; nevertheless they show an interesting discrepancy. One in four believe that the vote matters, but two in four are interested in politics. There is a high level of social responsibility, respect for others, good parenting and obeying the law. The poorest result was for voting or local community action.
One of the challenges facing society is how we bridge the gap between interest and participation. If we do not bridge that gap these are worrying trends. Local government is an important part of our democracy and it is a part of our governance which most touches people's lives. Worrying dislocation between the importance of local government and the participation by electors in the process can distort representation. We all know that turn-out at local government elections is depressingly low. In the 1988 elections the turn-out was 29 per cent. in England and 34 per cent. in London.
To the credit of the Government they are taking action to shake up the process of local government. The idea of a Cabinet-style executive—an elected mayor—has caught the headlines, but there is also scope for a wide range of community involvement and participation. The Department of the Environment, Transport and the Regions is bringing together programmes to provide an holistic service provision. The New Commitment for Regeneration gives local authorities responsibility for establishing long-term partnerships. The Minister of Housing is positively promoting the idea of full tenant participation. How do I know that? All of these matters are listed in Grassroots Campaigner. Perhaps more surprisingly, it states:
"There are many many more examples of increasing good practice from the Government which we want to implement".
That is a good basis. If the Government seek to improve local government we should look seriously at this proposal, not in isolation but as part of a general programme to strengthen local democracy.
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The Government must take a good look at the percentage of local government expenditure within the control of local authorities if they are serious about transferring power. As the head of one important local authority said to me, the problem with successive governments is that the numbers and the words on the cheque rarely match and the intentions are not backed up by real financial commitment.
Nevertheless, we are moving into a period in which there is flexibility and a willingness to try ideas. We on these Benches believe that proportional representation at local level would transform local government. Votes at 18 would encourage participation and involvement but not in isolation. I should like to see much greater emphasis on civics at school and the use of the new technologies to promote awareness: the digital channels, the Internet and the like. I believe that the use of local referendums will increase involvement in local government.
The aim must be to put real power back into local government so that there is genuine democracy, transparency and participation. The proposal by my noble friend is part of a process that the Government encourage; it is a "Let 1,000 flowers bloom" approach to local government. If we view it as a period of change aimed at strengthening and invigorating our democracy nothing can prepare us better for the 21st century than to enable the young people who will play such a part in shaping that century to participate in building local communities and taking part in local government. My noble friend has made a positive and clear suggestion to incorporate this measure into the Local Government Act. If the Minister gave that assurance tonight it would be a very positive response. We look forward to his response.
8.13 p.m.
Viscount Astor: My Lords, the Question before noble Lords this evening is whether we should consider lowering the minimum age for candidates to stand in local elections. The response must be that the case has not yet been made. The answer is probably no. The corollary to that is whether we need to have young people involved in government and politics. The answer to that question must be yes. Therefore, we must examine the issues. We are all grateful to the noble Baroness, Lady Miller, for giving us the opportunity to debate this intriguing matter.
It is important that young people are involved in politics, and many of them are. They canvass in general elections and local elections and support various parties. But I believe that that is where we should draw the line for one very good reason that has been referred to but not emphasised: one-third of young people in this country are in higher education. The Government aim to raise that one-third to 45 per cent. I do not believe that a young person can be in higher education and easily be involved as a candidate or councillor in local government. After all, many of those who go on to higher education travel to different parts of the country and do not necessarily remain where they are. Often they change universities. For example, are we asking people aged 18 who, as in the case referred to by the

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noble Lord, Lord Davies, attend a local university to sign up for what may be a three or four-year term? That is a lot to ask of a young person aged 18 if he is elected. Does he know whether he really wants to hoist himself on that? He will be in difficulty if he wants to go elsewhere. If it causes a by-election pressure is then exerted on him by his party that he should not stand down; otherwise, in a by-election that party may lose out in the balance of power. Such a person may find his career in higher education constrained by such a commitment. It may seem wonderful at the time when everyone is frightfully enthusiastic and full of good ideas, but suddenly it begins to affect his life. I believe that that is the most important reason.
Political activity is part of university life and higher education. One learns about politics and the issues involved. I am sure that many elected at the age of 18 would do a good job. Equally, there will be those who find that it does not suit them, that they have got into something that they do not really want, that they have changed their mind and that it is detrimental to their education. The noble Baroness said that young people are often free of other commitments. I do not believe that we should be proud if young people are free of commitments. We want them to be committed. They should have further education and a career and should be concentrating on that.
Of course, one can be involved in politics as a student. I am aware that the noble Lord, Lord Williams of Mostyn, was very active in the Cambridge Union as President, following Michael Howard. That was where he engaged in politics. I also note that the noble Lord, Lord McNally, was President of the Students Union. That was his first stab at politics.
If the Liberal Democrats believe as a principle that one should be able to stand in local elections at 18, what about hereditary Peers? I am one of the few people who were disfranchised for a short period of time. When I was 18 I could not take my seat in your Lordships' House. When I wanted to vote I could not do that either. For three years I had no democratic representation at all. However, the country seemed to get on quite well without my role in politics. It meant that I was able to sit on the Back Benches on the Government's side during the Heath government of 1970 to 1974. Does the noble Lord, Lord McNally, consider that such a proposal would have made a great difference? However, the advantage of the Liberal Democrats is that they always have local policies for local areas. Someone once said, "Liberal Democrat policies are rather like the weather forecast, variable in the regions and often wrong".
Education is a serious matter. I have two boys. If this proposal were accepted by the Government, they would be able to stand in local elections. I think that they have quite a difficult task coming to grips with issues of national government. It is quite difficult at that age to decide which issues are important and which are not, and how they should deal with them. They have the vote in general elections, as I think they should. However, I am not persuaded that they should have views forced upon them and that they should be part of a party
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machine. They should have time in which to develop their own ideas, to decide which party they wish to stand for, and exactly what they want to do.
I have to admit that the Leader of my party in the House of Commons made one of the greatest speeches of his career at a very early age at the Conservative Party conference. That shows that one can be involved in politics at a young age and be very successful.
I shall be interested to see what the Government's view is of this issue. Do the Government have a policy? However, if they have one, they can change it. I suspect that they might, like me, remain to be convinced. I look forward to the Minister's speech.
8.21 p.m.
The Minister of State, Home Office (Lord Williams of Mostyn): My Lords, we have heard some fascinating, if under-compelling, arguments, two of which I specify immediately. My noble friend Lord Davies of Oldham—he was echoed a moment or two ago by the noble Viscount—said that the Conservative Party in the House of Commons had the youngest Leader of the Opposition this century. I remember when I was at the Bar the late Mr. Justice Caulfield saying, "Is that really your best point?" The noble Viscount said that because of his presence, unwillingly, in your Lordships' House he was not able to vote in parliamentary elections. We shall be able to help him quite soon.
From 1695—I am sorry that the noble Earl, Lord Russell, is not in his place to hear these historical reminiscences—the age of voting and taking a seat in the House of Commons was 21. Then the Latey commission was set up and it came to the conclusion that there was a good case for reducing the voting age to 18. Obviously, the noble Baroness, Lady Miller of Chilthorne Domer, has focused particularly on the local authority context rather than the parliamentary context.
The arguments deployed in front of Latey have been deployed this evening. Young people can marry, fight for their country, pay taxes, own property and vote at a younger age than that which pertains for standing in a local authority election. That is true. However, it has never been the case that attaining a particular age has necessarily been seen as denoting the level of maturity which gives access to rights across the board.
As has been mentioned, the school leaving age is 16. The armed forces can recruit volunteers at the same age. Sixteen is the age at which it is lawful to have heterosexual relations and to marry in some circumstances. We have already said that this session we shall legislate to make the age coterminous for homosexual relations. Eighteen is the age of voting, of course, but that is only in this country. Your Lordships will not be surprised to hear that in Mongolia it is 25 and in Iran it is 15. The age of criminal responsibility in this country differs from that in other jurisdictions. There is no absolute harmonisation but at 16 one can lawfully buy tobacco. The age limit for

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married couples and single applicants who want to adopt children is still 21.
In other jurisdictions which have been mentioned, one finds differences again. Denmark, Germany, Spain, the Netherlands, Portugal, Finland and Sweden go for the minimum age of 18, not only to vote, but also to stand as a candidate. In France you have to be at least 23 and in Greece at least 25 to be a candidate. In the United States you have to be at least 30 to be a senatorial candidate and at least 25 to be a Congressman and in the local context in the United States, state legislatures differ from jurisdiction to jurisdiction.
It is true that some young people are very sophisticated and able to come to mature conclusions. Equally, we know of examples of men and women in the prime of life—about 70 or 75—who do not seem to
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have benefited from the years of experience which separate them from their youth. That certainly is not an example that I have noticed in your Lordships' House.
There is an arguable difference in capacity and suitability between what is required to be a voter and what is required to be a representative. I do not believe that there is a definite conclusion to which one can come. Notoriously, we are not a government driven by dogma. Certainly we have heard an attractive argument, which has been attractively deployed this evening, and I believe it is wise not to have a closed mind in listening to such arguments. I can assure the House, and in particular the noble Baroness, who has stimulated us to discuss these important matters, that the Home Secretary will undertake to keep the position under continuing review.
House adjourned at twenty-six minutes past eight O'clock.