Lords Sitting of 29 July 1998

Preamble
The House met at half-past two of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Chichester): The LORD CHANCELLOR on the Woolsack.
Lord Laming
Sir William Herbert Laming, Knight, CBE, having been created Baron Laming, of Tewing in the County of Hertfordshire, for life—Was, in his robes, introduced between the Lord Weatherill and the Baroness Pitkeathley.
Lord Burns
Sir Terence Burns GCB, having been created Baron Burns, of Pitshanger in the London Borough of Ealing, for life—Was, in his robes, introduced between the Lord Simon of Highbury and the Lord Butler of Brockwell, and made the solemn Affirmation.

Diplomatic Posts and Comprehensive Spending Review
2.42 p.m.
Viscount Montgomery of Alamein Viscount Montgomery of Alamein asked Her Majesty's Government:
Whether the Comprehensive Spending Review will affect the number of overseas diplomatic posts.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, we want to deploy resources to where they are needed most to meet today's priorities. The CSR outcome will help. It gives us a significant real terms increase in our budget, the best deal for six years. But we need to reprioritise existing activity, too. That includes strengthening some posts and closing others. We are starting to review the options and we hope to reach conclusions in the autumn.
We aim to provide additional resources for posts in areas of greatest opportunity, including in the EU and NATO applicant countries; in the Caspian region; and in priority export markets such as China and Brazil. In addition, we may want to reinforce some areas in London such as the department dealing with West Africa. The Foreign Secretary also wants to step up work in vital areas such as the fight against the drugs trade.
Viscount Montgomery of Alamein: My Lords, that is an extremely comprehensive and interesting Answer. Is the Minister aware that many of those who travel extensively overseas on business promoting British trade and investment recognise that the Foreign and Commonwealth Office is the smallest and by far the
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most efficient department in Whitehall? As a result, they would wish to see an increase in the number of diplomats overseas in general and in particular in Latin America, which is a priority area in which I must declare a longstanding prejudice and interest.
Baroness Symons of Vernham Dean: My Lords, I thank the noble Viscount for his kind remarks about the Diplomatic Service. He is right; we want to reinforce the commercial sections of embassies in target markets where we are under-represented compared with leading competitors. Our objective in export promotion is to add value.
In my original Answer, I spoke of the particular priority export market in Brazil, and the noble Viscount has drawn attention to Latin America. The trade growth in Latin America is now outstripping much of the world and British exports to Brazil have tripled in the past five years, reaching £1 billion for the first time. But the UK still has only 2.5 per cent. of that market in comparison, for example, with the Germans who have 9 per cent. I agree with the noble Viscount that this is indeed a target area.
Lord Bruce of Donington: My Lords, will the Minister give the House an assurance that in view of the completely unauthorised establishment over the past few years of no fewer than 123 embassies, so called, on behalf of the European Community there will be no withdrawal of any British representation with the object of passing any of its functions or delegations on to the so-called embassies which have emanated from the European Union?
Baroness Symons of Vernham Dean: My Lords, Her Majesty's Government have some 220 posts throughout the world. As I indicated in my original Answer, these posts are being examined to see whether they meet the Foreign Secretary's criteria as set out in his mission statement last year. In the autumn, there will be a report on which posts are to remain.
Viscount Waverley: My Lords, when will we be exchanging ambassadors with Iran?
Baroness Symons of Vernham Dean: My Lords, as the noble Viscount may know, we have chargés with Iran. He may also know that the EU is considering ways of improving across the board our relations with Iran. This country still operates under a chargé. We are doing our best to improve our diplomatic exchanges. I hope that the noble Viscount can be satisfied with that answer at the moment because I cannot tell him that there is a definite date for an exchange of ambassadors.
Lord Steel of Aikwood: My Lords, in recent days, much has been made of the need to increase the numbers in the Africa section of the Foreign and Commonwealth Office. The Minister made reference to that. Will it include the possible reopening of embassies which were closed during the past 10 years in some countries in

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Africa which are looked after rather unsatisfactorily by the missions next door, some of which I visited recently?
Baroness Symons of Vernham Dean: My Lords, we are considering our relations across the board. The remarks I made in the House on Monday related to the staffing of the Africa (Equatorial) Department in London. There are no current plans to open new posts in Africa. As the noble Lord may know, we are not represented in some 19 states in Africa. I should be happy to list those for the noble Lord in writing, if he would find that helpful, but I regret to say that at present there are no plans to open posts elsewhere.
Lord Judd: My Lords, does my noble friend agree that, while it is important to increase our commercial strength in embassies abroad, if we are to play the role that we have set for ourselves of leadership in Europe and fulfilling our responsibilities as a permanent member of the UN Security Council, we must never in the future of the Diplomatic Service underestimate the importance of the traditional political work which is done by that service across the world?
Baroness Symons of Vernham Dean: My Lords, yes, of course I can agree with that point. I was answering a specific point made by the noble Viscount about the importance of commercial work, which certainly cannot be overlooked. But when my right honourable friend made his mission statement he did not talk solely about matters of prosperity where such commercial posts are vital; he talked also about the importance of the continuing security of the United Kingdom and of our overseas territories and about the importance of our humanitarian effort overseas. Perhaps I may also draw to the noble Lord's attention the increased emphasis that Her Majesty's Government are placing on environmental issues and on the difficulties that we are facing in combating the deplorable drugs trade which flourishes internationally.
Lord Gladwyn: My Lords, can the noble Baroness say when the first advertised vacancies for diplomatic posts will appear? Will she confirm that the main criteria in the appointment of heads of mission overseas will continue to be merit and professional qualifications, including the mastery of relevant languages?
Baroness Symons of Vernham Dean: My Lords, as I was able to tell the House on Monday, we have a programme of modernisation and efficiency of which my right honourable friend spoke in his Statement. We are looking at exchanges with the private sector and indeed at bringing in some outside expertise in particular areas such as management and other areas within the London part of the FCO.
The noble Lord asked in particular about ambassadorial appointments. Those will continue to be made on the basis of expertise and merit. We shall
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be looking at that over the course of the next few months or so and I hope to be able to say something further about it in the autumn.
Lord Moynihan: My Lords, I hope the House will forgive me if I take this opportunity warmly to congratulate the noble Lord, Lord Whitty, who, until yesterday, was the Government Whip responsible for foreign affairs, on his much-deserved promotion to full ministerial rank.
As the real increase in the FCO's budget in year one of the next three years is accounted for by the welcome additional funding to the BBC World Service and as, on the Foreign Office's own figures, years two and three see subsequent cuts in real terms, can the Minister give some indication as to where those cuts are likely to be considered during the process announced over the summer?
Baroness Symons of Vernham Dean: My Lords, first, I join the noble Lord, Lord Moynihan, in the tribute which he paid to my noble friend Lord Whitty who I have particular cause to value. He has been an invaluable support as my Whip over the past year or so.
The noble Lord, Lord Moynihan, makes some assumptions about the FCO budget. I do not recognise the figures which the noble Lord has produced. He says that they are based on Foreign Office figures. I have inquired quite specifically, as I thought the noble Lord would ask me, about the increases. There is new money not only next year but the year after and the year after that. Perhaps I may be specific. After inflation has been taken into account and disregarding the money set on one side for the BBC World Service, which is indeed very welcome money—I am glad that the noble Lord recognised that—the new money next year will be £18 million, the year after that £15 million and the year after that £8 million.

Welsh Assembly: Translation of Documents
2.58 p.m.
Lord Hooson Lord Hooson asked Her Majesty's Government:
Whether they are satisfied with the arrangements being made for the adequate translation of documents into the Welsh language in time for the first sitting of the Welsh Assembly in 1999.
The Minister of State, Home Office (Lord Williams of Mostyn): My Lords, the Government are committed to the principle that the Assembly should, in carrying out its business, treat the English and Welsh languages on the basis of equality so far as is appropriate in the circumstances and reasonably practicable. The arrangements that are being made for both document translation and interpretation will facilitate that.
Lord Hooson: My Lords, first, I congratulate the Minister on his well-deserved elevation. As he will

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appreciate, I am sure that I am expressing that sentiment on behalf of all sides of the House. I wish him the best for the future. Those are the kindest words that I shall eschew about him in this Parliament.
I turn to the Answer to my Question. I am sure that the Minister will agree with me that the passing of the Welsh Language Act 1993 and the taking out of party political controversy the status of the Welsh language in Wales really means that the assembly, when it starts, must not start at any disadvantage as regards bilingualism. Is the Minister really sanguine that, with all the pressures on the translating service at present, all the documents will be in place when the assembly meets next year?
Lord Williams of Mostyn: My Lords, it is very important that the under-privileged, the less-favoured and the unfortunate should be properly protected so those who cannot speak Welsh will obviously be entitled to full translation facilities. In fact, there is work in hand. The Welsh Office is recruiting a new head for the assembly's translation services. That postholder will have a key role in designing the structure of the new services. We believe that we are well on track to provide a proper level of service. I thank the noble Lord Diolch Yn Fawr.
Viscount St. Davids: My Lords, will the Minister go a little further and assure the House that when our national assembly comes into being in May next year, it will, as a minimum requirement, be able to conform with the provisions of the Welsh Language Act?
Lord Williams of Mostyn: My Lords, I believe that that will be the position. We are consulting widely, not least with the National Assembly Advisory Group on which the noble Viscount has given such service. Its reports dealing with those particular matters will be available for the Secretary of State in a matter of days. We are taking advice from the Welsh Language Board, the Association of Welsh Translators and in particular Gwynedd County Council which has a very good record in that regard.
Lord Elis-Thomas: My Lords, I too add my congratulations to my noble friend who is the most distinguished of our bilingual barristers. Will he agree that the steps taken by the Welsh Office and by the Welsh Language Board, which I chair—and I therefore declare an interest—to ensure bilingualism in the assembly will bring about precisely the circumstances which the noble Lord, Lord Hooson, set out; namely, that there shall never again be conflict on language issues? Will he agree also that when we come to legislate on delegated legislation in Cardiff, it will be the first opportunity since the great days of Hywel Dda for us to do that?
Lord Williams of Mostyn: My Lords, it will be the first opportunity since the great days of Hywel Dda, who of course had a codified system of laws long before it
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was thought of in other countries. Being the first in the field of bilingual barristers in your Lordships' House confines it to a very small field indeed.
Lord Roberts of Conwy: My Lords, I add my congratulations to the noble Lord on his elevation. He will be well aware of the variety of services, including translation services, which will be required by the assembly. Does he not consider it wise to establish some sort of body to co-ordinate the provision of the variety of services required?
Lord Williams of Mostyn: My Lords, we shall have a new head of translation services who will make a full analysis of the size and structure of what needs to be provided. We do not need a separate body, but we need arrangements in place to give the assembly a first-rate start in May of next year. I believe that preparations are well in hand for that.
Lord Cledwyn of Penrhos: My Lords, will arrangements be made to give lessons to those unfortunate people who cannot speak Welsh at the present time?
Lord Williams of Mostyn: My Lords, every encouragement will be given in Wales for English speakers who are monoglots and therefore not as well favoured to learn the language which is likely to be so important in the new Wales as well as in the new assembly.
Lord Thomas of Gresford: My Lords, will the proceedings be held in both languages and will there be instantaneous translations for that purpose?
Lord Williams of Mostyn: My Lords, the probability is, subject to the advice that we have from various bodies, that there will be simultaneous translation and any person will be able to speak in either of the two relevant languages—Welsh or English.

Israel: US Transfer of Strike Aircraft
2.58 p.m.
Lord Kennet Lord Kennet asked Her Majesty's Government:
Whether they consider it to be in accordance with United Nations Security Council Resolutions 487 and 687 that the United States should transfer to Israel 25 strike aircraft capable of reaching Iran.
Baroness Symons of Vernham Dean: My Lords, Security Council Resolution No. 487 condemned the Israeli air strike against Iraq in 1981. Security Council Resolution No. 687 upholds current sanctions against Iraq. I reply on the basis that my noble friend's question refers to his concern that Israel might use those US aircraft to attack Iran's weapon development programme.
Article 51 of the UN Charter enshrines each member state's right to self-defence. Therefore, it is a matter for Israel to decide what equipment it needs to exercise that

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legitimate right. Defence sales between the US and Israel are a matter for those countries. The way to address concerns about the development of weapons of mass destruction in the Middle East is through international diplomatic efforts, including through relevant multilateral fora. The United Kingdom will continue to play an active part in those efforts.
Lord Kennet: My Lords, given that Israel disposes of 200 or more nuclear warheads and has publicly threatened to take out the Iranian civil nuclear facility, is it wise, in the opinion of HMG, of the United States to make available to it this large number of extremely advanced aircraft? If it is not, can my noble friend say whether the Government will be able to say anything outside the framework of international treaty or convention rules?
Baron Symons of Vernham Dean: My Lords, as I said, it is a matter for the United States and for Israel. Indeed, it is a matter for the US provided that the sales do not contravene the international obligations and commitments of the United States to enforce UN embargoes or internationally agreed non-proliferation treaties or conventions. However, I should remind my noble friend that the F15-I aircraft is a conventional weapon.
Lord Wright of Richmond: My Lords, does the Minister agree that there is a clear contradiction between the continued readiness of the United States to provide military assistance of this sort to Israel and its apparent unwillingness, as evidenced by a statement by Mrs. Madeleine Albright this week, to put any pressure at all on Mr. Netanyahu to get him to return to the peace process, to stop and reverse his illegal settlement policies and to agree to American proposals for the withdrawal from 13 per cent. of the West Bank?
Baroness Symons of Vernham Dean: My Lords, the US—I hope that the noble Lord will agree with this—has worked hard in recent months to produce the package of proposals which are under discussion. It is still our position that we believe that these represent the best way of breaking the current deadlock in the peace process. We have indeed welcomed President Arafat's acceptance of the proposals, and the UK Government continue to urge the Americans to use all their influence to persuade both parties, including Mr. Netanyahu, to agree.
Lord Beloff: My Lords, does the Minister agree that, although these matters about the peace process are very important, the major threat to peace in the Middle East comes from the acquisition, or likely acquisition, by the Government of Iran of weapons of mass destruction—rockets that pose a great threat even beyond the Middle East? Therefore, ought we not to concentrate on how to prevent this happening?
Baroness Symons of Vernham Dean: My Lords, we are of course concerned about weapons of mass
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destruction wherever they may appear. That is certainly so, as the noble Lord indicates, as regards the extremely volatile situation that pertains in the Middle East. As the noble Lord pointed out, there are concerns about what is happening in Iran and we should not forget the continuing concerns that exist about weapons of mass destruction in Iraq. We should also remember UNSCOM' s effort to try to establish the nature of those weapons of mass destruction. We must look at all the countries in the Middle East where such weapons of mass destruction exist.
Lord Janner of Braunstone: My Lords, does my noble friend specifically share the concern expressed last week by President Clinton at the testing and development of long-range equipment for the delivery of ballistic missiles? Further, should we not welcome the increase in the ability of democratic Israel to defend itself, as opposed to Iran, which people have accused of many things but never of being a democracy?
Baroness Symons of Vernham Dean: My Lords, as I indicated, such problems exist in all the countries in a very volatile part of the Middle East. Any escalation in an arms race, whether we are talking about an escalation in conventional arms or in weapons of mass destruction, is an escalation which other countries like the United Kingdom and the US must keep under firm review. Of course I agree with my noble friend that at this difficult juncture in the Middle East peace process, which I believe all noble Lords acknowledge, anything that escalates the amount of available weaponry is a matter of concern to all.
Lord Wallace of Saltaire: My Lords, does the Minister recall the Foreign Secretary's visit to Israel some months ago and the clear demonstration that British and European policies in that region are not identical to those of the US? Further, does the Minister share the concern of some of us that American policy appears to have been captured by the Israeli lobby and that, therefore, it requires the British Government, in concert with their European partners, to begin to spell out rather more clearly how our interests across the Middle East, not only in regard to the Israeli/Arab conflict but also as far as concerns the Gulf, differ from those of the United States?
Baroness Symons of Vernham Dean: My Lords, of course I recall my right honourable friend's visit. I hope that the noble Lord also recalls that there was a full discussion of the Middle East peace process at the recent Cardiff Summit. EU partners shared the very brave concern of Her Majesty's Government at the continuing deadlock in the Middle East peace process and the threat that that poses to the stability of the region. However, we reiterated our strong support—as, indeed, did all EU countries—for the efforts of the US to gain the agreement of the parties to the package of proposals which, if accepted, would open the way to relaunching the final status talks. As I said, we have already welcomed the Palestinian acceptance of those proposals,

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and the UK Government continue to call on the Government of Israel to give now a clear and positive response to them.
Lord Kennet: My Lords, does my noble friend agree that there is really no such thing as a conventional bomber aircraft? Indeed, bombers are bombers and may be conventional or nuclear, according to what is put in them.
Baroness Symons of Vernham Dean: My Lords, what may be a perfectly innocent vehicle in one respect can become a vehicle for a weapon of mass destruction in another. Indeed, I imagine that even a rucksack full of canisters of anthrax could be considered in some circumstances to be a highly lethal vehicle for delivering a weapon of mass destruction. I take my noble friend's point. However, in relation to the specific question that he raised, the aircraft under discussion that the US is committed to selling to Israel are conventional weapons.

Private Sector Executives: Remuneration
3.6 p.m.
Lord Dormand of Easington Lord Dormand of Easington asked Her Majesty's Government:
Whether they will expedite their report on progress made in monitoring the application of "best practice" principles set out in the Greenbury, Hampel and Cadbury reports on payments made to private sector executives.
The Minister of State, Department of Trade and Industry (Lord Simon of Highbury): My Lords, the Government have made it clear that they expect to see early evidence of companies complying with the spirit of both the Greenbury Code of Best Practice and the Hampel Report. The Government also expect senior executives to show that they understand the importance of sustainable pay rises in all sectors and at all levels. Although we will not be rushing into unconsidered action on directors' remuneration, we are equally not ruling out any particular policy response at this stage.
Lord Dormand of Easington: My Lords, I thank my noble friend the Minister for that Answer. As there are now three reports on the matter and as the Prime Minister and the Chancellor of the Exchequer have recently made yet another strong criticism of what they call "boardroom greed", is not early action—indeed "early" as my noble friend just said—necessary? Does my noble friend agree that there are at least two aspects which cause concern? First, there is the understandable pressure that is now coming from workforces for higher than inflation wage increases, a pressure which, I suspect, will grow even more in coming weeks; and secondly, there is the serious danger to a Labour Government in allowing an ever-increasing gap to emerge between the richest and the poorest in society.
Lord Simon of Highbury: My Lords, in commenting on the statements that have been made, I am quite sure
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that all of us would wish that shareholders, with whom the responsibility lies, take appropriate action on settlements within companies that do not appear to reflect their performance and their progress. On my noble friend's second point, I am sure that none of us wishes to see settlements that do not reflect productivity and which, therefore, make much more difficult the sustainable and effective management of a balanced economy, which will encourage investment, create more jobs, and make more companies successful.
Lord Chalfont: My Lords, is the Minister aware that the recently issued Stock Exchange code of best practice brings together many of the points raised in the three reports to which reference has been made? Therefore, does he agree that, if the latter are properly followed and observed, many of the fears raised by the noble Lord will be removed?
Lord Simon of Highbury: My Lords, I thank the noble Lord for that observation. I absolutely agree with him. Indeed, I believe that the final Stock Exchange report included all of the many sensible and well-supported suggestions contained in the Cadbury Report, the Greenbury Report and the Hampel Report, whose author, I am glad to say, is now sitting in the Gallery listening to our debate. All those suggestions, if better applied, would cause companies, the workforce, the shareholders and other stakeholders to see better governance and better performance in our country.
Lord Ezra: My Lords, in view of the fact that, as the noble Lord, Lord Dormand, pointed out in his Question, there have now been three reports on the subject of corporate governance, and indeed the Stock Exchange has also produced reports on the subject, is it not appropriate that the Government should produce a consultative document on the issue to include the vexed and controversial issue of senior executive pay?
Lord Simon of Highbury: My Lords, I thank the noble Lord for the observation but that is precisely what the Government have done. On 4th March the Secretary of State for Trade and Industry announced that there would be a review of company law during the course of this Parliament in which we would review among other things the role of the shareholder and the relationship between shareholders and senior management on such issues as remuneration. I think our policy is well known. We want to see more openness, more accountability and more involvement of the shareholders, whose responsibility these issues are. I am quite certain that that will be considered as we go forward with the company law review.
Lord Islwyn: My Lords, in the meantime does the Minister agree that a better example should be set in this area by the present president of the CBI?
Lord Simon of Highbury: My Lords, I cannot comment on the example of the present president of the CBI because he has hardly been in post long enough to set one. My view is that he, like many of the

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management team of the CBI, is as involved as we all are in strengthening our industrial performance, improving our governance and ensuring that shareholders do what is appropriate to ensure that good governance is applied throughout our nation.
Lord Barnett: My Lords, as my noble friend will know, some 70 per cent. of shares in the major companies are in the hands of institutions. Would he care to prepare any new papers—although we have had enough on this subject—showing how the Government measure productivity in the hands of major company directors?
Lord Simon of Highbury: My Lords, in a good company the relationship between directors and the company is a symbiotic one. The result in terms of the value that is created for all the stakeholders in the company is positive. I think there are many ways of measuring performance, but what we must do as a principle is to make sure that governance ensures that the performance of individuals and of the workforce in general are taken into account in relation to all the awards in the company.

Energy Efficiency (No. 2) Bill [H.L.]
3.12 p.m.
Lord Ezra: My Lords, I beg to introduce a Bill to make further provision for energy efficiency. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time.—(Lord Ezra.)
On Question, Bill read a first time, and to be printed.

Business of the House: Standing Order 70
3.13 p.m.
Baroness Jay of Paddington: My Lords, I beg to move the Motion standing in my name on the Order Paper.
In moving the Motion I take the opportunity to thank the usual channels for agreeing that this important order should be discussed even though the Joint Committee has not yet reported on it. That is necessary for the timetable of the primary legislation under which it is laid, and because of the need for the order to be approved by both Houses before the Summer Recess. Business Motions such as this are unusual, but I hope in these circumstances that the House will approve the Motion today.
Moved, That Standing Order 70 (Affirmative Instruments) be dispensed with to enable the Motion to
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approve the draft Northern Ireland (Sentences) Act 1998 (Specified Organisations) Order 1998 to be taken tomorrow notwithstanding that no report from the Joint Committee on Statutory Instruments on the draft order has been laid before the House.—(Baroness Jay of Paddington.)
On Question, Motion agreed to.

Liaison: Select Committee Report
The Chairman of Committees (Lord Boston of Faversham): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the Second Report from the Select Committee (HL Paper 133) be agreed to.—(The Chairman of Committees.)
Lord Ezra: My Lords, I wish to express my regret that the Liaison Committee in its recent consideration of possible subjects for ad hoc Select Committees has decided for administrative reasons that the inquiry which I had proposed into our overseas trade should not be undertaken now, but reconsidered at some later date. If ever there was an issue which I feel should be considered for parliamentary scrutiny at the present time, it is this one. The latest trade figures showing a major adverse balance, the difficulties of the Rover company, the recently published CBI trends survey, the trends survey of the Engineering Employers' Federation, and the views expressed by the TUC and many other organisations suggest that there is deep unease about the situation affecting our overseas trade. I regret therefore that we shall not use the clear knowledge and experience in this House to look at this urgent issue. If we are not to do so, I very much hope that will be done in another place because I feel that this is a matter which deserves urgent parliamentary scrutiny.
The Chairman of Committees: My Lords, I quite understand the disappointment of the noble Lord, Lord Ezra, that at this stage your Lordships' Liaison Committee did not find it possible to recommend that an ad hoc committee should be set up straightaway on this matter. However, I ought to tell your Lordships that the committee regarded this proposal as a powerful one, as indeed it did the proposal which it is recommending to your Lordships for an ad hoc committee on monetary policy. The Liaison Committee was torn between those two powerfully advocated proposals. It was not divided, but it was torn between those two proposals. However, it was unanimous in its decision.
Perhaps I may bring a certain amount of comfort to the noble Lord, Lord Ezra. As your Lordships will have appreciated from the report before the House, the matter is to be returned to in the autumn. I received a substantial number of recommendations for the proposal of the noble Lord, Lord Ezra, not only from within your Lordships' House but also from organisations outside. Those who wrote to me were in the main leading people from those organisations. Therefore it has not escaped the attention of the committee that this was a powerful proposal.

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The only other point I wish to add is the following. While I am sure your Lordships and the noble Lord, Lord Ezra, will appreciate that I am not in the circumstances able to give any guarantee, I have no doubt whatever that when the Liaison Committee reviews these matters in the autumn, although it will have to do so in the light of any other proposals which have emerged in that time, it will return to this proposal with some sympathy. I shall also ensure—Members of the committee will have already appreciated this—that the additional comments of the noble Lord, Lord Ezra, are borne firmly in mind.
On Question, Motion agreed to.

Pensions (Amendment) Bill [H.L.]
Read a third time.
Lord Morris of Manchester: My Lords, I beg to move that this Bill do now pass.
The ex-service community is most grateful to noble Lords in all parts of the House for their support for the Bill and for their help in facilitating its passage.
Moved, That the Bill do now pass.—(Lord Morris of Manchester.)
On Question, Bill passed, and sent to the Commons.

Government of Wales Bill
3.20 p.m.
The Minister of State, Cabinet Office (Lord Falconer of Thoroton): My Lords, I beg to move that the Commons reasons and amendment be now considered.
Moved, That the Commons reasons and amendment be now considered.—(Lord Falconer of Thoroton.)
On Question, Motion agreed to.

MOTIONS TO BE MOVED ON CONSIDERATION OF A COMMONS AMENDMENT TO A LORDS AMENDMENT AND COMMONS REASONS FOR DISAGREEING TO CERTAIN OTHER LORDS AMENDMENTS
[The page and line refer to HL Bill 98 as first printed for the Lords]

LORDS AMENDMENT
3 Clause 4, page 2, line 42, leave out from ("have") to end of line 9 on page 3 and insert ("one vote (referred to in this Act as a constituency vote).
(2) The constituency vote is to be given for a candidate to be the Assembly member for the Assembly constituency.
(3) There shall also be calculated the number of additional member votes for each registered political party which has submitted a list of candidates to be Assembly members for the Assembly electoral region in which the Assembly constituency is included.
(3A) The number of additional member votes for each party shall be the same as the number of constituency votes for the candidate of the party in that constituency.").
The Commons disagreed to this amendment for the following reason—
3A Because it would unjustifiably restrict the right of voters to
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choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
Lord Falconer of Thoroton: My Lords, I beg to move that this House do not insist on their Amendment No. 3 to which the Commons have disagreed for the reason numbered 3A. With the permission of the House, I shall also speak to Amendments Nos. 5 to 12, 14 to 16, 18 and 20 to 22.
These amendments are concerned with the electoral system. They would have the effect of allowing electors only one vote rather than two, as the Government proposed both in our White Paper and in this Bill. Another place has taken the view that your Lordships' amendments would unjustifiably restrict voters' ability to exercise a meaningful choice of their regional representatives—as was pointed out in this House, the effect of the amendments would be to create a method of indirect election of regional members via a constituency vote rather than allow electors to vote directly for the party or independent candidate of their choice.
We have debated this matter on several occasions. We are into the realms of hypothesis when considering the possible manipulation of the electoral system. We on this side of the House are, however, clear that whatever the validity of that hypothesis, the solutions proposed in this and other amendments would be worse than the hypothetical problem—and that view has been accepted by another place.
Moved, That this House do not insist on their Amendment No. 3 to which the Commons have disagreed for the reason numbered 3A.—(Lord Falconer of Thoroton.)
Lord Roberts of Conwy: My Lords, first, perhaps I may congratulate the noble and learned Lord who was until yesterday Solicitor-General on his translation to the Cabinet Office. We are grateful to him for his explanation of the Commons' rejection of our amendments relating to the PR system proposed by the Government. I am sure that the House will be relieved to hear that I certainly do not intend to argue the case for these amendments yet again. That has been done superbly and refreshingly on several occasions already by my noble friend Lord Mackay of Ardbrecknish.
One of the highlights of our debates was the comment of the noble Lord, Lord Callaghan, on the first day of Report on 1st July (col. 685 of Hansard) that he had been confirmed in his position that first past the post is "easily the best system". As I understand it, it is the noble Lord's diamond wedding anniversary this week. I am sure that there are many noble Lords in the House who would like to congratulate him and Lady Callaghan on that celebration.
Our belief on this side coincided with that of the noble Lord, Lord Callaghan. It was our starting-point in the debate about the PR system. Nevertheless, we acknowledged that the Government held a different view on proportional representation and were intent on the additional member system now proposed.

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We were also aware that there were defects in that system. We were particularly concerned about the "split ticket" or "alter ego" party problem highlighted by Dr. Michael Dyer of Aberdeen University, whereby political parties could manipulate the two-vote system to their own advantage by using different descriptions of themselves for constituency and electoral region elections.
We were anxious to assist the Government to avoid that pitfall in the legislation. I can vouch for the fact that some of my noble friends and other colleagues devoted much time, thought and argument to meeting the challenge posed by the potential abuse arising from that defect. The noble and learned Lord the former Solicitor-General, the Secretary of State for Wales, and the then Parliamentary Under-Secretary of State at the Welsh Office, Mr. Win Griffiths, all accepted that there could be a problem. My noble friend Lord Mackay of Ardbrecknish also candidly acknowledged that there were shortcomings in his single vote solution, although, resourceful as ever, he had ideas for meeting those imperfections.
I say all that in order to impress upon Members of both Houses the sincerity and genuineness of our debates on this issue. Our amendments have nothing whatsoever to do with Conservative Party prospects under the PR system as alleged in Monday's Western Mail. That article was very wide of the mark. If any party should fear the two-vote system, I believe it is the Labour Party. If the latest BBC poll is to be believed, it stands high in the voters' favour, but of course the Labour Party must wonder just where its supporters' second preference will lie.
My major point is that throughout we have been concerned to ensure the integrity of the PR system proposed in the Bill. In the words of my noble friend Lord Mackay at Third Reading,
"Here is a problem that we all see; nobody denies that it is possible for it to happen. We should do something about it now".— [Official Report, 15/7/98; col. 263.]
The Government have failed to offer a legislative remedy as yet and have contented themselves with the assurances given by all parties that they would not abuse the system. But such assurances, alas, may not endure in the face of obvious party advantage should that occur. We suspect that the assurances given both here and in the other place will barely outlive those who have given them. But we have received assurances, too, from the noble and learned Lord that the Government have given considerable thought to this matter and do not have a closed mind on the issue. We may therefore return to it when we discuss the Registration of Political Parties Bill. Meanwhile, we have no intention of pursuing our current amendments.
Lord Thomas of Gresford: My Lords, I am happy to assist the noble Lord, Lord Roberts of Conwy, as to where the second preference votes are going from the Labour Party according to the BBC poll. They are going to the Welsh Liberal Democrats. One would expect no less in the Welsh community.
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We have consistently supported the provision of two votes under the list system. The suggestion that the people of Wales are incapable of casting two votes has always struck me as entirely ludicrous. We are pleased that the matter has been resolved in the House of Commons and we support the Government's position.
Lord Elis-Thomas: My Lords, I am not ashamed to be standing here as everybody's second preference. I wish to congratulate my noble and learned friend the former Solicitor-General on his elevation. It seems to me that government Front Bench Ministers who are associated with the Wales Bill receive instant elevation. I can only hope that it applies to all of us, whether here or in another place.
I agree with my noble friend Lord Thomas of Gresford and disagree once again with the baron who shares a boundary with me in our baronies in the Conwy Valley. As we say in the valley, he is once again flogging a dead sheep. He is repeating himself in the direction, as my noble friend Lord Thomas said, of trying to assert that the people of Wales are unable to make clear, rational decisions. I shall not refer to the BBC Wales opinion poll. However, I have a feeling about its meaning wherever I go. Its meaning has interest for him and for all parties. But that is not the issue. The issue is about making democracy as inclusive as possible. I was impressed, as I often am, by the statement by my right honourable friend Mr. Ron Davies in the article in the Western Mail that has already been mentioned. He said that it was not the issue whether or not certain parties were benefiting from the poll, because the assembly itself would be inclusive. That is what the polling system is all about. It is about allowing the opportunity for people to make rational choices. Those decisions are made within the electoral system. The attempts of the noble Lord, Lord Roberts of Conwy, and of his noble friend—who is not present because he is preparing yet again for the Scotland Bill—continually to change the electoral system are proving unsuccessful because the arguments, let alone the majority in another place, are not carrying any weight. Therefore, I am pleased that my noble friend Lord Roberts of Conwy intends not to insist on the amendment.
Lord Falconer of Thoroton: My Lords, I am grateful to the noble Lords, Lord Roberts of Conwy and Lord Elis-Thomas, for their kind words of congratulations. Perhaps I may also wish the noble Lord, Lord Callaghan, and Lady Callaghan, many congratulations on their diamond wedding anniversary.
The noble Lord, Lord Roberts of Conwy, has reiterated his views in his characteristically careful and moderate way. Those words were written down in advance of him doing so, to show the respect in which he is held by those who formerly worked for him. However, I do not believe that he brought forward any new arguments to support his case. As has been made clear throughout, following the clear statements made by the representatives of all parties in this and another place, we believe that the type of improper manipulation talked of will not occur. Attempts to deal

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with it in the form of these amendments which another place has rejected produce a much worse result than the alleged problem. I ask the House not to insist on their amendments to which the Commons have disagreed.
On Question, Motion agreed to.

LORDS AMENDMENTS
5 Clause 5, page 3, leave out lines 32 and 33.
The Commons disagreed to this amendment for the following reason—
5A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
6 Page 3, line 40, leave out subsection (5).
The Commons disagreed to this amendment for the following reason—
6A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
7 Clause 6, page 4, line 9, leave out ("electoral region") and insert ("additional member").
The Commons disagreed to this amendment for the following reason—
7A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
8 Page 4, line 16, leave out subsection (2).
The Commons disagreed to this amendment for the following reason—
8A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
9 Page 4, leave out lines 21 to 24 and insert ("for a registered political party under subsection (1)(b) is referred to in this Act as the electoral region figure for that party").
The Commons disagreed to this amendment for the following reason—
9A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
10 Clause 7, page 4, line 26, leave out ("or individual candidate").
The Commons disagreed to this amendment for the following reason—
10A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
11 Page 4, line 28, leave out ("or individual candidate").
The Commons disagreed to this amendment for the following reason—
11A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
12 Page 4, line 39, leave out subsection (4).
The Commons disagreed to this amendment for the following reason—
12A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
14 Page 5, line 6, leave out ("or individual candidates").
The Commons disagreed to this amendment for the following reason—
14A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
15 Page 5, line 13, leave out from ("figure") to end of line 15.
The Commons disagreed to this amendment for the following reason—
15A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
16 Page 5, line 17, leave out ("or individual candidates").
The Commons disagreed to this amendment for the following reason—
16A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
18 Clause 8, page 5, line 24, leave out from ("vacancy") to end of line 27 and insert ("the Assembly member for the Assembly constituency shall be returned under the simple majority system.
(3A) No election held under this section shall call into question the election of Assembly members for the Assembly electoral region in which the Assembly constituency was included at the last ordinary election.").
The Commons disagreed to this amendment for the following reason—
18A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
20 Clause 9, page 6, line 3, leave out from beginning to second ("the") in line 4.
The Commons disagreed to this amendment for the following reason—
20A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
Lord Falconer of Thoroton: My Lords, I beg to move that this House do not insist on their Amendments Nos. 5 to 12, 14 to 16, 18 and 20 en bloc to which the Commons have disagreed for the reasons numbered 5A to 12A, 14A to 16A, 18A and 20A.
Moved, That the House do not insist on their Amendments Nos. 5 to 12, 14 to 16, 18 and 20 to which the Commons have disagreed for the reasons numbered 5A to 1 2A, 14A to 16A, 18A and 20A.—(Lord Falconer of Thoroton.)
On Question, Motion agreed to.

LORDS AMENDMENT
21 Clause 9, page 6, leave out lines 8 to 11 and insert—

("(a) is included on the same list as the last person to occupy the vacant seat,

(b) is willing to serve as an Assembly member for the Assembly electoral region, and

(c) is not a person to whom subsection (3A) applies.

(3A) This subsection applies to a person if—

(a) he is not a member of the party, and

(b) the party gives notice to the regional returning officer that his name is not to be notified to the presiding officer as the name of the person who is to fill the vacancy.").

The Commons agreed to this amendment, with the following amendment—

COMMONS AMENDMENT TO A LORDS AMENDMENT
21A Line 2, leave out ("the same list as the last person to occupy the vacant seat") and insert ("that list").
Lord Falconer of Thoroton: My Lords, I beg to move that this House do agree with the Commons in their Amendment No. 21A to Lords Amendment No. 21.
Moved, That this House do agree with the Commons in their Amendment No. 21A to Lords Amendment No. 21.—(Lord Falconer of Thoroton.)
On Question, Motion agreed to.

LORDS AMENDMENT
22 Clause 9, page 6, line 20, leave out from beginning to ("there") in line 22.
The Commons disagreed to this amendment for the following reason—
22A Because it would unjustifiably restrict the right of voters to choose the persons who are to be members of the National Assembly for Wales for the electoral regions.
Lord Falconer of Thoroton: My Lords, I beg to move that this House do not insist on their Amendment No. 22 to which the Commons have disagreed for their reason numbered 22A.
Moved, That this House do not insist on their Amendment No. 22 to which the Commons have disagreed for the reason numbered 22A.—(Lord Falconer of Thoroton.)
On Question, Motion agreed to.

LORDS AMENDMENT
27 Clause 12, page 8, line 9, at end insert (", or (e) he is a Minister of the Crown.").
The Commons disagreed to this amendment for the following reason—
27A Because it is not appropriate for Ministers of the Crown to be disqualified from being members of the National Assembly for Wales.
Lord Crickhowell Lord Crickhowell rose to move, That this House do not insist on their Amendment No. 27, to which the Commons have disagreed for their reason numbered 27A, but do propose the following amendment in lieu thereof.

MOTION MOVED ON CONSIDERATION OF COMMONS REASON FOR DISAGREEING TO A LORDS AMENDMENT
27C Clause 54, page 28, line 12, at end insert—
("( ) A Minister of the Crown may not serve as an Assembly First Secretary or as an Assembly Secretary for a period of more than 12 months from the first sitting of the Assembly.").
The noble Lord said: My Lords, I beg to move the Motion standing in my name. The amendment that we passed in this House at Report stage would have prevented a Minister of the Crown serving as an assembly member. In another place, it was argued that the amendment went far too wide and that there was no reason why ministers should not stand for election.
However, Mr. Peter Hain, speaking for the Government at the start of the debate on 22nd July 1998, correctly identified the fact that in this House we were particularly concerned with the possibility that the Secretary of State wished to combine that office with that of first secretary of the assembly.
The debate that took place on 22nd July was remarkable. The arguments against the proposition that the Secretary of State might serve in both those offices simultaneously, which I had pressed so hard in this House, found support in all parts of another place. The concerns that I had voiced here were repeated again and again, none more powerfully than by the Minister himself. His contribution was in marked contrast to the words uttered by the noble Lord, Lord Williams of Mostyn, in his response at Report stage in this House.
As congratulations are the order of the day, it is time that I congratulated the noble Lord Williams on having edged his way a little further up the slippery pole. I hope that he hangs on to it well and may, in due course, even climb a little higher. We have enjoyed his contributions during the debate on this Bill. We have admired the way he has handled it and we wish him every success in the future.
Having said that, in moving to my new amendment I cannot possibly present a stronger case than was collectively put in another place. Mr. Hain both opened and concluded that debate. Right at the start, he said:
"I freely acknowledge that quite different constitutional functions will be exercised by the Secretary of State for Wales and the First Secretary of the National Assembly".—[Official Report, Commons, 22/7/98; col. 1173.]
He added, at col. 1174:
"We have never suggested that they could or should be exercised by the same person in perpetuity".
I emphasise "We have never suggested." I do not recall many suggestions from Ministers in this House or another place previously that he would time-limit his holding of the two offices. So that was a welcome step forward right at the beginning.
Mr. Öpik, representing the Liberal Democrat Party, who, like his noble friends in this House, supports the dual mandate in general, was also kind enough to say at col. 1177 that the Conservative Party had raised legitimate concerns and that his party would be willing to try having both roles held briefly by one person. So the Liberal Democrats have now altered the argument and concluded that they were only pressing for the particular dual mandate to be held briefly.
Ms Julie Morgan, the Labour Member for Cardiff, North, had rather stronger feelings on the subject. She said that in her view any dual mandate should be for the shortest possible time. At col. 1178 she said:
"There are strong feelings in the Labour party against any dual mandates".

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She observed, at col. 1179, that, as her honourable friend the Minister had said,
"it is obvious that, in practical terms, a member of the British Cabinet could not be at the same time a Member of the Welsh Assembly or First Secretary for anything other than the shortest transitional period because of the conflicting loyalties that would arise. The First Secretary would be voted in as leader of the Assembly by Assembly Members or by her or his political party—it is a bottom-up approach. She or he would then represent those people. The Secretary of State for Wales is appointed by the Prime Minister and is bound by Cabinet collective responsibility. There is a clear conflict between the two roles, which could not be combined other than for the shortest possible transitional period".
So once again we have a clear statement that the only acceptable way to proceed would be on the basis that any dual mandate should be for the shortest possible transitional period.
Mr. Alan Williams, a well respected senior member of the Labour Party and the Member for Swansea, West, also had strong views on the subject. He regretted that there had been an attempt to dismiss the matter with what he called "some quite irrelevant comments" because he felt that it struck at the heart of the constitutional basis of Cabinet government. He added, at col. 1180:
"Under Cabinet government, there is Cabinet responsibility and Cabinet accountability. If a Minister cannot accept what the Cabinet decides, he or she must leave the Cabinet. With all respect to my right hon. friend, how on earth can he give his full loyalty to a separate Assembly that may have different perspectives—although it may have the same political background—on policy, expenditure and so on. How could he give equal loyalty to each or full loyalty to either? When he steps out of No. 10, and is interviewed by the BBC and HTV, how will we know which hat he is wearing? When he disagrees, how will we know whether he is speaking for the Assembly and when he is speaking for the Assembly how will he preserve Cabinet responsibility and accountability?".
Those were all the questions which I have asked in this House on a number of occasions, being frequently chided by the noble Lord, Lord Elis-Thomas, for having an obsession.
Then Mr. Hain, the Minister, came to wind up the debate. He started with a remarkable statement—I wish it had been made in this House; we might have saved time. He said,
"Nobody seriously argues that the same person can be Secretary of State for Wales and Assembly First Secretary in perpetuity. It would be politically unacceptable and constitutionally undesirable".
He then went on,
"There is a very strong case for a transitional period, particularly at the beginning when the Assembly is bedding down and the order transferring the functions of the Secretary of State has still to be implemented"—[col. 1118.]
He is talking there of a pretty short transitional period—only a few months at the outside. At this point I am bound to say that if we have something which is constitutionally undesirable, it seems to me that there is a case to alter the Bill to make sure that it cannot happen. The things that are politically unacceptable we can perhaps leave to others but, if they are constitutionally undesirable, it would be a mistake to pass a Bill that includes them and makes them possible. However, we shall see a little later how far the Minister is prepared to go in dealing with that matter.
The Minister having said that this should happen for only a short transitional period, he was then challenged by the leader of Plaid Cymru, the right honourable Dafydd Wigley, who asked whether he would accept an amendment limiting the period. Mr. Wigley expressed unhappiness that yet again the situation should be allowed to continue for anything but a transitional period. Mr. Hain said that he would not accept such an amendment, but did not give any explanation for his refusal.
We then had a situation in which all the spokesmen—the Conservative spokesman added his support for the proposition—for all the parties in another place had now said that what was proposed, what was possible in the Bill and the proposition to which I objected was undesirable and should be allowed to happen only for a transitional period.
We then reached the end of the debate on 22nd July in another place when the Minister, Mr. Peter Hain, yet again made a remarkable statement. He said of Mr. Ron Davies, to whom he paid tribute—he quoted my tribute too to Mr. Ron Davies, and reminded the House that I had paid such a tribute—that,
"He is choosing willingly to leave a Cabinet post—one of the highest posts in the Government, to which most Members of Parliament aspire only in their dreams. He is giving that up—at some point in the future—and is prepared to take a salary cut and all the reductions in status that his self-removal from the Cabinet will entail in order to help give birth to Wales's new democracy".— [col. 1184.]
Having said all that, he referred to the assurances that he had given.
We now had the situation that there was general acceptance that the dual mandate should be allowed to happen only for a transitional period. We had a statement by the Minister that indicated that Mr. Ron Davies, after an unspecified period, intends to give up the office of Secretary of State and hold only one office.
I tabled an amendment—I believe generously and reasonably framed—to suggest that the transitional period should be no more than 12 months from the first sitting of the assembly. My noble friend Lord Roberts of Conwy takes a more stringent view and tabled amendments for shorter transitional periods, perhaps on the basis that the Government could make a choice. I know that Mr. Wigley in another place favours a shorter period than I do, but I do not want to be difficult at this stage. If we are going to have a transitional period, we do not need to tie it too tightly. All the things that have been argued for could be covered within 12 months.
I would much prefer to see this limitation put into the Bill. If it is then argued, "That is impossible at this stage. We must not prejudice the Bill. We must pass it and cannot risk losing it", I would say that that is not true. To begin with, even if the Bill was delayed until the overspill period, it would not be a disaster—we need only look at the stage which the Scotland Bill has reached. In any case, it would be possible to introduce an amendment. We do not have to spend days ping-ponging backwards and forwards. I well recall sitting in the House of Commons when we adjourned for a short period having sent an amendment down to this place and waited for it to be "ponged" back. That process could be carried out in a single day.
Therefore, if the noble and learned Lord wished to accept an amendment, it could be done perfectly well and in many ways it would be highly desirable that it should be done. We should not allow things that are constitutionally unacceptable to be permitted by the Bills that we pass. However, I know that Mr. Ron Davies is giving a party this evening on the Terrace to celebrate the passing of this Bill. I would not want to upset his entertainment, though if he is there with all his supporters, they could come in, pass the amendment and then have even greater grounds for celebration.
However, the other place was given certain statements—he called them undertakings—by the Minister. They differ considerably from anything that has been said before in this House by the noble and learned Lord, Lord Falconer. I reread the speech that he made at Report stage. I do not know what my noble friend on the Front Bench will do with his amendments. However, if it is accepted that the period should be transitional—I acknowledge the argument that there may be other transfers with responsibility which might conceivably make it desirable for another Minister to come in with responsibility for, say, broadcasting and serve for a brief transitional period; so I am not limiting the argument to the Secretary of State—if we can obtain a clear statement from the Minister that it is the intention of the Government that any Minister coming in in this way will serve only for a transitional period, and if we can obtain a clear statement from the Minister as to what he thinks the maximum transitional period will be, this House may feel that we can leave the matter there. But we need some clear statements. We have some alternative amendments. I do not know what my noble friend will do with his amendments. If we can obtain categoric statements to satisfy the House, I may well be prepared to withdraw my amendment. But if we cannot, then we should go for one of the shorter periods rather than one of the longer. I would then withdraw my amendment with the suggestion that my noble friend should press his.
We have a situation where there is a clear expression of view in the other place. I am merely asking the House to endorse what Ministers and others have said in another place and to write it into the Bill. I await the Minister's response.
Moved, That the House do not insist on their Amendment No. 27 to which the Commons have disagreed for the reason numbered 27A, but propose Amendment No. 27C in lieu thereof.—(Lord Crickhowell.)
3.45 p.m.
Lord Thomas of Gresford: My Lords, in my anxiety to assist the noble Lord, Lord Roberts of Conwy, in the short debate we had on Amendment No. 3, I omitted to add my personal congratulations to the noble Lord, Lord Williams of Mostyn. His elevation is a matter of considerable personal pleasure; it is a pleasure to the people of Wales, to the Welsh circuit and, if I may say so, to the Members of this House who sit on the Liberal Democrat Benches for the way in which he has conducted this Bill.
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I say also to the noble and learned Lord, Lord Falconer, that he discovered the way to promotion through attending to Welsh affairs. Your Lordships may recall that on one occasion, as a spectator, I referred to the contest that was taking place between "Taffy" Mackay of Ardbrecknish and "Iestyn" Falconer responding for the Government. It seemed to me that they had adopted Welsh identities in putting forward their respective cases.
I turn to the remarks of the noble Lord, Lord Crickhowell. Our position has been clear throughout. We are of the view that after the first assembly it would be right for the dual mandate to cease. The first Welsh assembly is due to last for a period of four years. We believe that during that period it would be sensible for the Secretary of State for Wales to give his great experience—should he be elected to that assembly and become the first secretary—to ensuring that the position of the first secretary is well bedded down.
I feel sometimes that the noble Lord, Lord Crickhowell, is looking to the past and the days when he was the Secretary of State for Wales. I have paid tribute to the way he conducted that office during that time, when he did a great deal of good for Wales. I think that he sees the position through his eyes at that time, where the responsibilities that he held were so great that it would be impossible to take on other responsibilities. The important point is that the role of the Secretary of State in the Westminster Parliament under the devolution proposals will considerably change. No doubt there will be a period of adjustment in relation to the role that the Secretary of State has to fulfil and the role that the first secretary in the Welsh assembly has to fulfil. If the positions are to be held by one person during that period, it will be to the advantage of the people of Wales.
We cannot support the amendment of the noble Lord. We will vote against it if he presses it. We will do the same in respect of the amendments in the name of the noble Lord, Lord Roberts of Conwy.
Lord Elis-Thomas: My Lords, I agree entirely with my noble friend Lord Thomas of Gresford, although he was third in the Western Mail opinion poll. I do so because I am accused, yet again, by the noble Lord, Lord Crickhowell, of accusing him of having an obsession with Mr. Ron Davies. The noble Lord has, once again, proved the point. He has spoken about Mr. Ron Davies for 15 minutes, I think for the third time. His speeches are now apparently written by Members of all parties in another place. Nothing that has been said in another place is different from what I have said in response to him in the debates here in relation to the matter of transition.
My objection to his amendment, yet again, is that he is legislating for one person in a particular circumstance to prevent the people of Wales from making a democratic choice; to prevent a political party and a certain politician from pursuing a career. That is not a matter for this House. This House is legislating for a new democracy in Wales. The former Secretary of State must understand, as my noble friend Lord Thomas of Gresford, said, that we are in new circumstances.

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As I have argued before, the transition that is taking place should enable Ministers of the Crown to move from Whitehall to Cardiff and vice versa. The noble Lord conceded that it might be possible that a DCMS Minister for broadcasting might find him or herself in Cardiff.
Let me remind the noble Lord of what I described in one debate as a "call for Ron" scenario. In other words, a Prime Minister of the United Kingdom might call for a very successful politician from Cardiff, of any party, to join a London administration. That is the order of the day as regards the way that democracies function throughout the European Union.
We are not yet in the Federation of the United Kingdom. Many of us wish we had been at the end of the 19th century. When we are making a democracy of the United Kingdom in its federal relations between nations within that kingdom at the end of the 20th century, let us do it properly. Let us not put on the face of Bills clauses which prevent successful politicians elected to one place from going to serve in another.
Let me declare a personal interest. If this were to become an elected House under a new administration, and if I were elected to Cardiff, I might decide, at the grand old age of 58, after two terms in Cardiff, to test the will of the Welsh electorate to be elected here. The noble Lord, Lord Crickhowell, is against dual mandates, but that is the nature of the position in quasi-federal systems. We should not be trying to legislate again tonight for one person. I understand that the noble Lord, Lord Crickhowell, is already on the record as inviting himself to Mr. Ron Davies' party. I would not want to delay his going.
Lord Swinfen: My Lords, I hesitate to intervene in this Bill. I have not done so before. I wonder whether the noble Lord, Lord Elis-Thomas, is right. When we have a general election for a Parliament in the United Kingdom, it is a new parliament. When there is a general election for the Welsh assembly, it will be a new assembly. Will not this amendment cover each new assembly and not just the very first one?
Lord Dixon-Smith: My Lords, the noble Lord, Lord Elis-Thomas, has rather personalised this debate in a most unfortunate way. Nothing has been said against the question of a dual mandate and a Member being a Member of both the Welsh national assembly and a Member in the other place, or even, if he was fortunate enough—which might indeed become the case—being a Member in this place. The debate is about whether somebody in the Cabinet, with a very specific loyalty, can also serve as the head of the Welsh national assembly at the same time.
We are legislating at a particular point in time. There is only one constitution now involved. It is inevitable therefore that the context is in the context of one person. It is not personal at all. My noble friend Lord Crickhowell is correct: this is a constitutional issue and a matter that stands in its own right. There is no question of personalities being involved.
Lord Hooson: My Lords, perhaps I may briefly intervene here. From the very start of the consideration
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of this Bill, as I said informally to the Secretary of State, I was not in favour, after the first four years of the assembly, of any Member being a Member of the assembly and a Member of the House of Commons or the European Parliament. In principle I am against a dual mandate of Secretary of State and first secretary.
That does not deal with the problem as I see it. We are embarking on a completely new venture, a devolution of power and administration over the distribution of funds which are raised by Parliament here. It is important that the assembly should have the option of appointing as its first secretary a person, whoever he or she may be, who has had experience of administering the very powers that have been devolved to the Welsh assembly. That period will be a settling-in period.
If the noble Lord, Lord Crickhowell, had put down an amendment that after the first four years of the Welsh assembly nobody could hold a dual mandate, I would have supported it. Everybody generally is agreed that in the longer term it is undesirable, politically and constitutionally, that a person should hold both positions. I anticipate that at the end of four years the position will be very much clearer. I suspect that the Prime Minister will decide during that period whether it is politically acceptable; it depends on how things develop in the Welsh assembly. I think it will generally be thought of as constitutionally unacceptable. That does not mean to say that for the first four years, when we are establishing something entirely new, we should not have the option at least of the existing Secretary of State taking on, for a time, the responsibilities of the first secretary as well. I am not saying necessarily that will happen. It may be that the Prime Minister will not approve of it; one does not know, but the option should be there.
4 p.m.
Lord Davies of Coity: My Lords, these three amendments could perhaps be described as a "strategic retreat". Alternatively one could be complimentary and describe them as a "damage limitation exercise". However, I want to challenge the logic of the amendments because in his Motion (No. 27B) the noble Lord, Lord Crickhowell, states:
"That this House do not insist on their Amendment No. 27 to which the Commons have disagreed for the reason numbered 27A".
The reason given by the Commons is:
"Because it is not appropriate for Ministers of the Crown to be disqualified from being members of the National Assembly of Wales".
That reasoning, which has been accepted also by the noble Lord, Lord Roberts of Conwy, is applicable equally to these amendments because it categorically states that it is not appropriate for Ministers of the Crown to be disqualified from being members of the national assembly for Wales. In that wording, whether the period is three months, six months, nine months or four years is irrelevant.
Lord Crickhowell: My Lords, I am grateful to the noble Lord for giving way, but I should correct this point straightaway. If the noble Lord will read my

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amendment, Amendment No. 27C, he will see that it no longer states that that person should be disqualified from being a member of the assembly, but simply from being a member of the executive of the assembly or being assembly first secretary. That is a wholly different proposition.
Lord Davies of Coity: My Lords, I thank the noble Lord for that, but the amendment is not as important as the reasoning of the Commons. They have disagreed to the original amendment for exactly the same reason as they would disagree to the current amendments.
Having said that, I should like to take up the point about the new assembly for Wales. It will be a new democracy. That is what we want for the benefit of the Welsh people, and the assembly and the people of Wales can only benefit if, in the formative years of the development of the assembly, the first secretary is also a Minister. That is my view of the matter. I believe that the position will change within four years, as the noble Lord, Lord Hooson, said. However, we need that time because the assembly, and particularly the first secretary, will face considerable difficulties. Those difficulties may be enormous and it can only be helpful if the first secretary is also a Minister of the Crown.
Lord Roberts of Conwy: My Lords, I am sure that I shall be allowed to speak to all of these amendments now, including my own. I find intriguing, to say the least, the reason given by the other place for rejecting my noble friend's amendment. The Commons state:
"it is not appropriate for Ministers of the Crown to be disqualified from being members of the National Assembly for Wales".
That was a substantial part of the argument that was put forward by the Parliamentary Under-Secretary, Mr. Peter Hain, when the Commons considered our amendments on 22nd July. He pleaded for the right of Ministers to stand for the assembly, as did the noble and learned Lord the Solicitor-General in this House and, indeed, the noble Lord, Lord Sewel, last night during the Committee stage of the Scotland Bill in this House. Of course, he was speaking not of the Welsh assembly, but of the Scottish parliament.
During that debate on 22nd July, the Rev. Ian Paisley pointed out:
"No Member of the European Parliament can hold any office in any Parliament or Assembly".—[Official Report, Commons, 22/7/98; col. 1183.]
The foundation of the Rev. Paisley's comment was Article 6 of the 1976 Act concerning the election of the representatives of the European Parliament, which states explicitly:
"The office of representative in the European Parliament shall be incompatible with that of:
—a member of the Government of a Member State".
The article goes on to list other incompatibilities.
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That and subsequent legislation is summed up by Erskine May as meaning—I quote from page 822:
"members of national governments are generally held to be ineligible"
to stand for the European Parliament.
Lord Elis-Thomas: My Lords, I am grateful to the noble Lord for giving way. He may be a Welsh Presbyterian, but it is hardly relevant to quote the Rev. Ian Paisley in this context because the European Parliament is an entirely different structure from an assembly structure within a member state of the European Union.
Lord Roberts of Conwy: My Lords, I am coming to precisely that point. I disagree with the noble Lord about the Rev. Ian Paisley, who participated and intervened in that debate on 22nd July.
The fact of the matter is that the Government are breaking new ground by allowing Ministers of the Crown to stand for membership of the assembly—or by not disqualifying them from doing so. As the noble Lord said, it will be argued that the European Parliament is different from the assembly—as, indeed, it is. However, I wonder whether the differences that exist between the European Parliament and the assembly justify the addition of this particular difference. I believe that that is questionable. Ministers of the Crown bring powers with them. They will certainly be a cut above the ordinary members of the assembly and they will be better placed to secure election or selection to the executive.
Lord Thomas of Gresford: My Lords, I am grateful to the noble Lord for giving way. Does he agree that the role of the Secretary of State for Wales will be dramatically different following devolution and that at this precise moment no one can foresee in just what way the powers will be curtailed or how they will be exercised? Therefore, does not the noble Lord agree that it makes sense in the logic of events that, for the first sitting of the assembly in its first period of four years, a person of experience should be at the helm?
Lord Roberts of Conwy: On the contrary, my Lords. I do not accept what the noble Lord has said. We know perfectly well what the Secretary of State will be doing. We know that according to Clause 22 he will hand over his functions to the assembly. We also know that as first secretary of the executive, under Clause 56 he will then take up those functions. The question is: how can those duties be reconciled?
The question of holding two government posts, as opposed to representative offices, is entirely different from the matter of which I was speaking earlier. We were discussing the role of the dual representative mandate. We are talking now about the dual ministerial mandate. Again, the Government appear to be breaking

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new ground because paragraph 106 of Questions of Procedure for Ministers 1992 states:
"When they take up office, Ministers should give up any other public"—
I repeat the word "public"—
"appointment they may hold. Where it is proposed that such an appointment should be retained, the Prime Minister must be consulted".
Similar words appear in the 1997 ministerial code. I believe that it was the latter point—that is, the Prime Minister's interest—that the noble and learned Lord the Solicitor-General had in mind when he asked us to consider appointments from that point of view. He said at Third Reading:
"If the Prime Minister takes the view that a particular person, already serving as an assembly secretary, is the best appointee also to be a Minister of the Crown, I do not see that it is our place, by a provision in this Bill, to deny the Prime Minister that choice".— [Official Report, 15/7/98; col. 328.]
It was at that point that my noble friend Lord Crickhowell intervened to indicate that this was a move into very new territory. The noble and learned Lord was quite right to consider the situation from the standpoint of the assembly. He then said:
"If the assembly is content to have as a member of the executive committee someone who is already a Minister of the Crown, or if it is content to retain as an assembly secretary someone who is subsequently appointed as a Minister of the Crown, why should your Lordships seek to deny that by amendment to the Bill?"
We are aware that when there is a dual ministerial mandate there is the possibility of a conflict of loyalties.
In the course of our debate reference has been made to split-ticket voting. Here we are talking about split ministerial responsibilities and loyalties. As my noble friend pointed out in a speech earlier this afternoon, the Parliamentary Under-Secretary of State, Mr. Hain, takes a very different line from the noble and learned Lord the Solicitor-General. His is a very different point of view. He stated that it would be politically unacceptable and constitutionally undesirable to have this kind of dual ministerial mandate.
I shall return to that matter in one moment. I should like to deal with the position in which we now find ourselves, my noble friend Lord Crickhowell having proposed an amendment in lieu of the one with which the Commons have disagreed. He has proposed that a Minister of the Crown should not hold office simultaneously as a member of the assembly executive for a period exceeding 12 months from the first sitting. We have given the Government the further choice of six months or three months. Those proposals arise from the statements by the Parliamentary Under-Secretary of State in the other place on 22nd July and the general knowledge that the Secretary of State for Wales appears to be intent on seeking election to the assembly as first secretary. He has let it be known that his holding of the two posts would be temporary. That was reflected in the remarks of Mr. Hain at col. 1181 when he said:
"Nobody seriously argues that the same person can be Secretary of State for Wales and Assembly First Secretary in perpetuity".
Perhaps he meant "permanently".
"It would he politically unacceptable and constitutionally undesirable".—[Official Report, Commons, 22/7/98; col. 1181]
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Mr. Hain has been left in no doubt about the validity of that last two-pronged sentence not only by the Conservative spokesman in the other place Dr. Liam Fox but by his own Labour supporters Julie Morgan and the right honourable Alan Williams.
Lord Davies of Coity: My Lords, can the noble Lord explain how the conflict of interest will arise? The noble Lord has said that if a Minister of the Crown is first secretary there may be a conflict of interest. However, Ministers of the Crown are allowed to sit in the Welsh assembly, albeit not as Ministers or as first secretary. In that case is there not a conflict of interest in the noble Lord's argument? Does the noble Lord believe that any possibility of a conflict of interest, which would be a disadvantage, would be outweighed by the enormous advantages that would accrue to Wales and the Welsh assembly by having within it a person of stature in its formative years? The assembly is new and we want it to succeed. Is it not better to leave it to the responsibility of the individual concerned rather than envisage the very rare possibility of a conflict of interest?
Lord Roberts of Conwy: My Lords, I hope that my tongue did not slip. I was talking about a conflict of loyalties. A Minister of the Crown belongs to the United Kingdom Government and shares in the collective responsibility of that government. He has to support the decisions taken collectively by that government. If the same Minister of the Crown is also first secretary of the assembly and executive he will have a collective responsibility to that executive and assembly. It is quite clear that there may be a situation in which a conflict of loyalties arises between the functions of the Secretary of State as a Minister of the Crown and a member of the United Kingdom Government and the functions of the first secretary of the executive of the Welsh assembly.
Having acknowledged that joint office-holding of the kind proposed was fundamentally wrong, Mr. Hain went on to say:
"There is a very strong case for a transitional period"—
we have heard that argument this afternoon—
"particularly at the beginning when the Assembly is bedding down and the order transferring the functions of the Secretary of State has still to be implemented. There is a great deal of sense in having some continuity in the interests of stability and good government". [Col. 1181].
That view gained a good deal of sympathy. We all have sympathy with that view. But when the Minister was asked by Mr. Wigley, President of Plaid Cymru, whether the Government would consider a time limit on a dual ministerial mandate the answer was a flat no. It is to be hoped that the Government have had time to reflect on that blunt response and consider the wealth of alternatives that we have presented to them. If all of them are refused—the 12 months, the six months and the three months—I shall not know whether to laugh or cry or launch into the slaves' chorus from "Nabucco". The effect of that on this Bill would be the total negation of devolution in any meaningful sense. It would mean a greater concentration of power in the hands of the Secretary of State-cum-First Secretary. Where would his

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first loyalty lie? Would it be to the assembly and his executive or to the Prime Minister at No. 10? I believe that that would be the reverse of what was intended. We would end up by tolerating what was in effect an elected dictatorship and it would show a complete lack of trust in the judgment of the assembly.
Noble Lords on the Front Bench opposite will realise that our amendment shows a willingness to compromise, even on fundamental principles, in order to ensure a smooth transition of functions from the Secretary of State to the assembly if time alone is required. But one is bound to ask why the Secretary of State is so concerned about the transition of functions and the structure of government proposed under the Bill that he must also hold the first secretaryship. Why is it so important that the two offices should be conjoined even for a time? Are there inadequacies in the Bill? What are the difficulties that the Secretary of State anticipates? Does he anticipate a conflict of wills between himself as Secretary of State and First Secretary—as there was between himself and Mr. Russell Goodway, Leader of Cardiff County Council, about the choice of the location of the assembly? Obviously, it would be desirable for the Secretary of State and the elected first secretary to work closely and harmoniously together. But it is possible that they may not and that in the years to come there will be a clash of personalities. They may end up at loggerheads with each other.
Lord Islwyn: My Lords, is not the noble Lord forgetting about the fact that there are such things as elections? It is certainly not automatic that the present Secretary of State for Wales is going to be leader or first secretary of the new assembly.
Lord Roberts of Conwy: My Lords, the noble Lord is quite right. That is a point that I am coming to as I bring my speech to an end. Perhaps I may just make this point. The relationship between the Secretary of State and the first secretary will, we may be sure, vary considerably over time, but that is no reason for delaying the full implementation of the Bill.
There is a great deal of concern over this matter, as those who have studied proceedings in the other place will be aware. That concern extends far beyond the Opposition Benches both here and there. There is a danger, of course, that the Secretary of State may make a nonsense of devolution by over-centralising power in himself and arrogating too much power to himself. There is also the danger that he may make a fool of himself, as the noble Lord implied, by being thwarted in his ambitions by the will of the assembly and failing to be elected as first secretary. Neither of those scenarios makes for a promising start to the assembly.
Lord Williams of Mostyn: My Lords, I have never approached this question on the basis of personalities. When we discussed this at some length earlier I said that I recognised the principles behind the amendments. I said that I would give them decent regard because I honour the motive that engenders them. That is the way I wish to approach matters.
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The noble Lord, Lord Roberts of Conwy, spoke about the fundamental principle. The fundamental principle for which we contend is that this is a devolution measure. That means the devolution of powers; it means the devolution of discretions, of choices or, to use the phrase that the noble Lords, Lord Hooson and Lord Thomas, used, it means the devolution of options.
The noble and learned Lord, Lord Falconer of Thoroton, and I are both retired lawyers, but we are not so long retired that we cannot recognise selective quotation when it is offered before us on a plate. What Mr. Hain said is perfectly correct and I am happy to say that I can endorse fully the comments and assurances made by Mr. Hain in another place. However, what Mr. Hain actually said—I hate to go to accuracy—was this:
"Nobody seriously argues that the same person can be Secretary of State for Wales and Assembly First Secretary in perpetuity"—
I underline those words.
"It would be politically unacceptable and constitutionally undesirable".—
in other words, a permanent dual mandate, in the same way as the Austro-Hungarian Empire wanted to be a permanent dual monarchy.
The important matter is this: the question was then put by Mr. Wigley to Mr. Hain: would the Government in that House consider a limited dual mandate, in effect, on the face of the Bill? Mr. Hain replied:
"No, we would not be willing to consider that".
He developed his reasons. He said that there might be some circumstances in the future where it would be mutually beneficial to the Westminster Parliament and the assembly in Cardiff if a duality were available.
Two institutions have to agree. The assembly has to agree and Parliament here has to agree. If there were the significant prospect, either of a conflict of loyalties, as referred to by the noble Lord, Lord Roberts of Conwy, or a conflict of interests, as referred to by the noble Lord, Lord Davies of Coity, it is for the two institutions respectively to come to their conclusion.
I believe that the approach of the noble Lord, Lord Crickhowell, was intended to be flexible and helpful, and I hope to respond in exactly the same way. I ally my answer to his approach, if I may, to the questions put distinctly by the noble Lord, Lord Roberts of Conwy. He asked what would be the requirement in the earlier transitional periods. It is not a fearful prospect; it is simply that the purpose of a transitional period is to ensure that those things which ought to be done are done efficiently, appropriately and in a timely way, such as the transfer of functions, the adoption of concordats with government departments and making the necessary financial arrangements. I can say with the specific authority of the Secretary of State that I should be very surprised and disappointed if that transitional period extended even as long as 12 months. I hope that I have responded in the spirit in which the noble Lord, Lord Crickhowell, put his questions.
What we are saying is that we do not see the virtue or the value of saying that it will be three months, six months or 12 months. I do not say this tendentiously, but the original amendment, which was carried against

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the advice from this side of the House, was, as the noble Lord, Lord Davies of Coity, pointed out, a disqualification against the Minister being even a member of the assembly. That has been abandoned. It is possible, and the noble Lord, Lord Crickhowell, very fairly said this, that in the future, if there were transfers of new functions—he gave the example of broadcasting functions—there might be occasions where a duality might be of value to the Westminster Parliament and it might be of value to the Welsh assembly. It works the other way round, of course. There may well be occasions when there are people of outstanding quality, not only holding the function of first secretary—this amendment is wider than that—but of any secretary in the Welsh assembly, and his or her talents might well be wanted in Westminster. Why should we disable the Prime Minister of the day from looking for that source of talent if it would be in the national interest, I readily concede, for a short period of time?
We have discussed over a long period whether there should be a possible duality between being a member of the assembly and any Minister of the Crown. The amendment was not limited to first secretary or Secretary of State for Wales. That has been abandoned or not pursued. What we now have is this position. There is a general recognition, and I do not dissent from it or water it down in the slightest way, that it would not be politically acceptable or constitutionally appropriate for the duality to continue for ever. I do not believe that Westminster would stand for it, and I am quite certain that Cardiff would not stand for it. That, as the noble Lord, Lord Islwyn, said is what elections are for, to correct, if there were any, a tendency towards the elected dictatorship which the noble Lord, Lord Roberts of Conwy, spoke of.
What we are saying is this: if we are approaching this voyage on the basis of trust in devolution we must let the assembly come to its own conclusion. I believe that the questions which have been raised and the amendments which have been put have drawn out sufficient indications, assurances and comments to satisfy the reasonable requirements of those who had conscientious doubts about the scheme of the Bill. The Bill is about devolution. It is about a devolution of options. There might well be a period in five years' time when a short duality, subject to the mandate of both institutions, might well be appropriate. Why should we not trust the assembly to make that choice? In the end, that is the fundamental principle for which I contend. I do not believe that there is a fundamental principle which can be identified in any of the amendments because the internal logical inconsistency cannot be explained away.
4.30 p.m.
Lord Hughes: My Lords, perhaps I may extend to my noble friend dual congratulations. First, I join all other Members of the House in congratulating him on his new appointment. Secondly, although lawyers are not usually accused of brevity, I must congratulate my noble friend on managing to reply to 49 minutes of argument in seven minutes.
Lord Crickhowell: My Lords, in moving the Motion, I paid tribute to the Minister, and repeated a tribute that
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I had paid previously to the right honourable Secretary of State for Wales which I genuinely meant. I take the opportunity of paying it again. I admire the way in which he has carried through the Bill. To take up a point made earlier in the debate, in pressing the amendment nothing was addressed personally against the Secretary of State.
Having paid my tribute to the Minister, perhaps I may say at once that he has responded in the helpful way I hoped he would. I began by giving a text to the House. I referred to the remark by Mr. Peter Hain in another place:
"Nobody seriously argues that the same person can be the Secretary of State for Wales and Assembly First Secretary in perpetuity. It would be politically unacceptable and constitutionally undesirable".
I cited his argument for a transitional period.
As I observed earlier, it was perhaps a pity that some of those points were not made at an earlier stage by government Ministers. However, we had a clear statement in another place from Mr. Hain and I am extremely pleased that the Minister has gone out of his way to endorse fully and comprehensively the comments of Mr. Hain. That means that both Houses of Parliament have now had the assurances that we have been seeking.
I still feel a slight sense of discomfort that something that is constitutionally undesirable might occur as a consequence of the Bill, but because we all want the Bill to be the basis for a successful assembly we should now be prepared to accept the assurances given. The Minister was particularly helpful in what he said. He went perhaps further than Mr. Hain on this occasion. Mr. Hain was almost as warm in his praise for the Secretary of State as I was, and he brought tears to the eyes of those in another place when he spelt out the sacrifices to be made. However, he did not spell out how long those sacrifices might be postponed.
We have now had a clear statement which has been most helpful. We have been told that certain things need to be done. I refer to the transfer of functions; the concordats that need to be put in place; and the financial arrangements to be made. The Minister said that when he spoke of those matters he was speaking with the authority of the Secretary of State, and that he would be surprised and disappointed if the period was as long as the 12 months that I put as an outer limit in my amendment. In those circumstances, it is right to accept those undertakings and the statement that the Government have now made about their position. I express my gratitude for the fact that they have done so clearly in this House—even more clearly than in another place. On that basis, I beg leave to withdraw the Motion.
Motion, by leave, withdrawn.
Lord Roberts of Conwy: My Lords, in view of the assurances given by the Minister in reply to our earlier debate, I shall not move the amendments in my name.
[Amendments Nos. 27E and 27G not moved.]
Lord Williams of Mostyn: My Lords, accordingly, I beg to move that the House do not insist on their Amendment No. 27, to which the Commons have disagreed for the reason numbered 27A.
Perhaps I may rectify a gross canard—in fact I shall try to shoot it—which was unloosed earlier by the noble Lord, Lord Elis-Thomas. Should the noble Lord, Lord Crickhowell, and the noble Lord, Lord Roberts of Conwy, be attending and joining us this evening, they are not intruding; they are there as the result of genuinely well-meant invitation.
Moved, That this House do not insist on their Amendment No. 27, to which the Commons have disagreed for the reason numbered 27A.—(Lord Williams of Mostyn.)
On Question, Motion agreed to.

National Minimum Wage Bill
4.36 p.m.
Lord Falconer of Thoroton: My Lords, I beg to move that the Commons reasons and amendment be now considered.
Moved, That the Commons reasons and amendment be now considered.—(Lord Falconer of Thoroton.)
On Question, Motion agreed to.

COMMONS CONSEQUENTIAL AMENDMENT TO A LORDS AMENDMENT AND COMMONS REASONS FOR DISAGREEING TO CERTAIN OTHER LORDS AMENDMENTS
[The page and line refer to H.L. Bill 87 as first printed for the Lords.]
LORDS AMENDMENT
1 After Clause 1, insert the following new clause—

EXCLUSIONS
(" .—(1) If it appears expedient to the Secretary of State, he may, by order made by statutory instrument, provide for the total or partial exemption from the provisions of this Act of—

(a) any area, sector of employment, trade or industry;

(b) undertakings of different sizes;

(c) persons of different ages; or

(d) occupations or categories of persons.

(2) The power conferred by subsection (1) includes power to make such incidental, supplemental or transitional provision as appears to the Secretary of State to be appropriate.
(3) The power of the Secretary of State to make an order under this section includes the power to vary or revoke its provisions or to limit its operation for a specified period of time by means of a further such order.").
The Commons disagreed to this amendment for the following reason—
1A Because the Commons consider that the national minimum wage should, so far as reasonably practicable, be uniform for all workers in the United Kingdom and that it is not appropriate to make different provision for different areas, sectors of employment, trades or industries, sizes of undertaking, occupations, or ages over 26.
Lord Falconer of Thoroton: My Lords, I beg to move that the House do not insist on their Amendment No. 1 to which the Commons have disagreed for their reason numbered 1A. With the leave of the House I shall also speak to Amendments Nos. 5, 6 and 7.
The new Clause 2 amendment—the power to make total or partial exemption at the whim of the Secretary of State—has been described by the noble Baroness opposite in earlier debates as providing real flexibility, a discretionary power, even—in one of her more fantastic flights of fantasy—trying to save the Government from making an horrendous mistake. It is simply not the case that the clause provides a harmless or helpful bit of flexibility. The clause exposes a fundamental difference between this side of the House and Members on the other side. We want the national minimum wage; they do not, and they have never denied that fact.
Despite what the Liberal Democrats have argued, this clause is not about regional variations. It is about exemptions and exclusions, and about tearing an enormous hole in the Bill. We have made clear both here and in another place that we shall resist any attempts to destroy or weaken the Bill. We are told that it is only a discretionary power. But why is it needed? What would be the criteria? Who might benefit from its use? Certainly not the workers who would have the protection that we have fought so hard to provide removed from them because a Secretary of State thinks it expedient.
I suspect that the clause is a device which will allow the Opposition to promise to the electorate at some time in the future that they will not repeal the National Minimum Wage Act. Indeed, with this clause they will not need to do so. It will be killed by the death of a thousand cuts, sector by sector, region by region. Beginning with the smallest firms, the national minimum wage would disappear. Firms may even be tempted to play roulette with their payroll numbers to remain small enough, or to locate to different regions, in order to be exempted.
The power would allow for a fragmented complicated, unfair system where some people have protection; and others, no doubt those most in need of it because they would be in the lowest paying sectors, would be left with no protection. The noble Baroness, Lady Miller, will, I am sure, tell us that the clause is there as a "just in case" measure. Just in case of what, my Lords? In case workers, in some sectors and regions, are no longer entitled to a minimum standard of pay? We reject that argument entirely.
We have acknowledged before, and I do so again, that the Bill already contains certain powers to exempt or vary the rate. Those are contained in clauses currently numbered Clauses 4 and 5. However, those were drafted carefully and deliberately because of our concern to avoid creating dangerous loopholes. That is why they were limited and did not permit variations by region, sector, occupation or size of business.
The Opposition's consequential amendments remove those limitations. A general power to exempt will have one certain result: endless special pleading from employers who do not want to have to pay the minimum

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wage. Let me remind the House that the minimum wage will be set at £3.60 for the full rate. It is a floor to wages not a going rate; and it is not an enormous sum. For a 40-hour week it comes to £144 a week, and that is before tax. It is important to remember these realities. That is what the Bill is all about. We are talking about gross pay of less than £7,500 a year. I believe it is important that workers have the protection of a national minimum wage. The electorate agree. I urge that the House does not continue to press this amendment. I beg to move.
Moved, That the House do not insist on their Amendment No. 1 to which the Commons have disagreed for the reason numbered 1A.—(Lord Falconer of Thoroton.)
Baroness Miller of Hendon: My Lords, perhaps I, like other noble Lords who spoke in the previous debate, may congratulate the noble and learned Lord, Lord Falconer. I probably have to agree with what was said, namely that his promotion was due to the fact that he was involved in the Welsh Bill. Other Ministers who were involved in the National Minimum Wage Bill were not so fortunate and did not survive the reshuffle.
I am disappointed, but I have to confess not surprised, that the one amendment your Lordships made to this Bill, apart from the consequential ones, has been rejected by the other place. After all, we were told by the Minister of State there that it was a wrecking amendment when it was nothing of the sort. We were told that by a Minister who yesterday in the other place once again described the hereditary Peers as descendants of robber barons and cattle thieves and who chastised the Liberal Democrats for siding with what he described as sweatshop owners and backstreet exploiters. He suggested that those who came in to vote on that occasion came in leaving their Ferraris and Mercedes in the carpark with the engines running. I suggest that he has never looked in our carpark. It seems to be that the only new cars there are the government cars.
I am totally amazed that the right honourable gentleman the Prime Minister left that particular Minister in place while he dismissed the noble Lord, Lord Clinton-Davis, and his Whip, the noble Lord, Lord Haskel, both of whom so courteously and ably dealt with this matter in this House. Clearly, the Minister of State in the other place does not understand this place in using the words that he did. Nor do I believe that he understood my amendment. It was a purely permissive amendment that gave the Secretary of State reserve powers to modify the application of the Act which would never be used unless the Secretary of State chose to do so.
I heard with interest what the noble and learned Lord, Lord Falconer, said a few moments ago, that bit by bit, sector by sector—I am not sure whether he said area by area—but whatever he said, the Bill would be eaten away. It certainly would not. Unless there was a need for the Secretary of State to implement any of these sections, he certainly would not need to do so and the powers my amendment gave could quietly remain in
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their pigeon hole gathering dust. Only the Secretary of State could decide to exercise the powers, and nobody could force him to do so.
However, what the amendment did wreck was the excuse that the Secretary of State could make if he was faced with an overwhelming case to modify the national minimum wage, the excuse that "Yes, you are quite right, but unfortunately I cannot help you because the law does not permit me to do so".
The amendment, I admit, would have wrecked the cosy pre-election deal with the unions that in return for their giving up Clause 4 and the power of their block vote within the Labour Party, and in return for not requiring the Government to repeal all the trade union legislation passed by the previous government, they would get the national minimum wage as a consolation prize.
I should like to remind your Lordships, as I have done on several occasions in the various stages—
Lord Davies of Coity: My Lords, the noble Baroness is not correct in her history. Policy within the TUC and the Labour Party to introduce a national minimum wage was in 1986. Certainly the question of Clause 4 did not come about within the Labour Party until 1994.
4.45 p.m.
Baroness Miller of Hendon: My Lords, it may well be that the noble Lord has more knowledge of these matters than I have. If I have said something that is incorrect, of course I apologise for that.
All other countries which have a minimum wage also have exemptions of various sorts to cover various local circumstances. The Government have consistently claimed one essential reason for refusing various amendments. They said that the Bill was sufficiently flexible as it was. This clause gave the Secretary of State the greatest degree of flexibility possible. The Government's refusal of my constructive amendment shows a degree of obstinacy and inflexibility that defies description.
On the occasion of Second Reading I said:
"we … fully respect and honour by virtue of the Salisbury convention, the Government have a mandate for introducing … a minimum wage, however misconceived we believe the idea to be. We are, however, entitled to invite the Government to think again on some of the details".—[Official Report, 23/3/98; col. 1035.]
Well, we have invited the Government to think again on just one detail and they have adamantly refused to do so. Only yesterday I appealed to the new Secretary of State to think again, but I have received only a stony silence.
Your Lordships have the power to refuse to accept the Commons' rejection of our amendment, which would considerably delay the passage of this Bill. But I will certainly not invite you to do so. I would not do so over this particular issue; an issue where the Government, I believe, are making a grave mistake which I have no doubt they will come to regret at a later date. Certainly, I hope that I am wrong. I hope that young people in certain occupations or in certain parts of the country do not suffer and do not feel the pinch as the recession,

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which is undoubtedly coming, starts to hit home. I believe that is a mistake which will eventually force the Government to come back to Parliament with fresh primary legislation wasting valuable parliamentary time.
No, this is a case where most definitely we should allow an intransigent Government to stew in their own juice. I therefore advise your Lordships that we should, with every degree of reluctance, accept the decision of the other place.
Lord Razzall: My Lords, as your Lordships are aware, from these Benches we have taken a completely different approach to this Bill from the approach that has been taken by the noble Baroness, Lady Miller. We have consistently argued in support of the Government's position that the era of sweatshop wage rates should be over for ever. We support completely the principle of the minimum wage. It was in the Liberal Democrat manifesto in the same way as it was in the Labour Party manifesto at the last election.
The only area where we have parted company with the Government has been the area touched on by this amendment. We believe that the Government should enshrine permanently into the legislative structure the permanent status of the Low Pay Commission. We believe that the recommendations of the Low Pay Commission should in future years be virtually automatically accepted by the Government and that the Secretary of State should have the power by way of regulation to bring in its recommendations without having to go back to primary legislation.
That is where we have parted company with the Government. The Government's position has consistently been that they are in favour of one national minimum wage rate; that should apply to the whole country and if at any future stage there should be any variation of that, a government should need to come back to Parliament with primary legislation to change it.
We have argued consistently in the other place and here that the Government should have the power to look in the future at regional variation. We accept that the first rate will be on a consistent basis throughout the country. We accept that the report of the Low Pay Commission, when it touched on regional variation, did not make the case for regional variation. However, we think that when we get to future years, into the millennium, it may well be that the changing economic circumstances of this country, in particular following our entry into European monetary union, may require the Government to look again at that issue.
However, I am somewhat surprised by the arguments that were used yesterday in the other place against the Liberal Democrats. I have no knowledge of whether I am the descendant of a thief or a robber baron, as was suggested by the Minister in the other place. Whether I am or not, I know that it is not the basis of my attendance in your Lordships' House. I certainly did not arrive in a Ferrari or a Mercedes in order to vote on the amendment and I have never been regarded as naïve.
However, the fundamental point made by the Minister in the other place, and which I find difficult to cope with, is that the substantive reason why the Government
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are not prepared to accept the amendment—which, after all, only empowers a Secretary of State to take action and is not prescriptive—is that there appears to be a naïve belief on the part of the Government that at some future stage we shall have another Conservative government. They do not trust a future Secretary of State in a Conservative government not to emasculate the national minimum wage by the operation of this clause. That is where I part company with the Government. It is beyond my credibility that in my lifetime there will be another Conservative government. Therefore, I find naïve the Government's reluctance to agree the clause because of the fear of the power they might put into the hands of the noble Baroness when she becomes Secretary of State for Trade and Industry. However, having shared that view I shall not press the matter.
Lord Falconer of Thoroton: My Lords, I am grateful to the noble Baroness for her kind words of congratulations. Perhaps I may pay a genuinely felt personal tribute to my noble friends Lord Clinton-Davis and Lord Haskel for their considerable part in piloting the Bill through this House. I thank them for the great personal kindness that they have shown to me in guiding me on this complicated issue. The Bill owes its passage through this House much more to them than to me.
I shall not reiterate the arguments that have been put forward on many occasions as to why we object to this amendment. I say simply that we have made it clear that, save in relation to the limited circumstances put forward by the Government in their Bill, we do not believe in anything other than a national minimum wage. This amendment would permit such a principle to be breached and breached repeatedly. Moreover, it would give any other government a power to destroy the national minimum wage by a thousand cuts. We therefore believe that it is not right as a matter of principle and it goes against what we set out in our manifesto. I ask the House not to insist on their amendment to which the Commons have disagreed.
On Question, Motion agreed to.

LORDS AMENDMENTS
5 Clause 2, page 2, line 34, leave out subsection (7).
The Commons disagreed to this amendment for the following reason—
5A Because it is consequential on Lords Amendment No. 1 to which the Commons have disagreed.
6 Clause 3, page 3, line 4, leave out subsection (3).
The Commons disagreed to this amendment for the following reason—
6A Because it is consequential on Lords Amendment No. 1 to which the Commons have disagreed.
7 Clause 4, page 3, line 18, leave out subsection (2).
The Commons disagreed to this amendment for the following reason—
7A Because it is consequential on Lords Amendment No. 1 to which the Commons have disagreed.
Lord Falconer of Thoroton: My Lords, I beg to move that the House do not insist on their Amendments Nos. 5, 6 and 7 to which the Commons have disagreed for the reasons numbered 5A, 6A, and 7A.

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Moved, That the House do not insist on their Amendments Nos. 5, 6 and 7 to which the Commons have disagreed for the reasons numbered 5A, 6A and 7A.—(Lord Falconer of Thoroton.)
On Question, Motion agreed to.

LORDS AMENDMENT
25 Clause 42, page 26, leave out line 18.
The Commons agreed to this amendment and proposed the following consequential amendment to the Bill—

COMMONS CONSEQUENTIAL AMENDMENT TO A LORDS AMENDMENT
25A Clause 42, page 26, line 30, leave out ("or paragraph (a) above").
Lord Falconer of Thoroton: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 25A. It is a consequential amendment to the Bill.
The amendment to Clause 42, which the Government tabled on Third Reading in this place, left a drafting anomaly which needs to be corrected. It is minor, but I shall take this opportunity to explain why it is necessary. Without the amendment, there would be an erroneous cross-reference to "paragraph (a) above" in Clause 43 which would not make sense. It refers to the previous paragraph (a) which the Government amendment removed. This is an error which we ask the House to support us in putting right. We do not wish the Bill to contain cross-references which do not make sense and will lead to confusion.
Moved, That the House do agree with the Commons in their Amendment No. 25A.—(Lord Falconer of Thoroton)
On Question, Motion agreed to.

Finance (No. 2) Bill
4.54 p.m.
Lord McIntosh of Haringey: My Lords, I beg to move that this Bill be now read a second time.
This is the second Finance Bill of the new Government that your Lordships' House has considered. It continues the process of modernising the British economy with the objective of raising the sustainable rate of long-term growth and ensuring that everyone has a share in rising prosperity.
It implements the Government's second Budget; a budget which will help turn ambition into achievement and which encourages work, promotes enterprise and supports families. And this Finance Bill, as with the Budget, takes an unashamedly long-term view. There are no quick fixes. Instead, this is a radical reform package designed to bring about long-term gain for the country.
First, we need economic stability, a commitment to low inflation and sound public finances. This is the essential foundation for building long-term growth and rising prosperity.
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Last May, the Government inherited an economy showing all the signs that yet another short-term inflationary boom was in prospect, reflecting the previous Government's failure to heed the advice of the Bank of England and take the necessary action. Inflation was way above target and the public finances were in substantial deficit.
Since coming to power, this Government have set out new long-term economic frameworks for both monetary and fiscal policy and taken immediate and tough decisions to prevent a consumer boom and a return to the stop-go cycles which characterised the economy under the previous government. The decisions that we have made since coming to power will achieve the necessary economic stability to ensure that Britain gets back on track for steady and sustainable growth.
Secondly, we are determined to promote enterprise. This Bill introduces a range of tax initiatives to boost investment, help small firms and promote research and development.
Thirdly, I turn to welfare reform. In order to help sustain growth, we need a highly skilled and trained workforce. We are determined to end the waste of resources when people want to work but face barriers to doing so. We will therefore encourage work by making work pay.
Fourthly, in order to create a fairer and therefore more efficient society, we are introducing measures to support families, to protect the environment, and to improve public transport.
These four themes underpin the current Bill, and I will say a little more about specific measures in a moment.
First, I should say a few words about our Comprehensive Spending Review. The public sector will spend over £330 billion this year. That is equivalent to over £5,000 for every man, woman and child in the UK. The CSR has taken a radical root and branch look at how this money is spent to ensure that departments meet the Government's priorities. The Government are investing in reform; investing for the long term.
The new spending plans announced in the Comprehensive Spending Review focus spending on the Government's priorities and root out waste and inefficiency. Over the next three years, there will be £19 billion more for education; over £20 billion more for health; £1.7 billion more to improve public transport; and £4.4 billion more to regenerate our cities and housing.
As I said a few minutes ago, the essential precondition for long-term sustainable growth is economic stability and a commitment to openness and transparency in the management of the economy. That is why over the cycle we are committed to ensuring that the Government meet the golden rule; borrowing to invest, not to fund current spending. And we will make sure that debt is kept at a prudent and stable ratio. Indeed, from now the Government will plan on the basis of reducing debt to below 40 per cent. of GDP.

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Clauses 155 to 157 of the Bill implement the Code for Fiscal Stability. The code puts Britain at the forefront of economic policy reform and represents an important step forward in the modernisation of our economic policy framework.
It complements the Government's reforms to the framework for monetary policy by building on that disciplined, transparent and accountable approach, this time in the context of fiscal policy. In the global economy, transparency provides an essential underpinning of a successful economy. And it allows Parliament and the public to scrutinise policy to ensure that it is set in the UK's long-term interests.
As a result of the code, the Government will be required to conduct fiscal policy with regard to a clear set of principles, set down in legislation. Detailed reporting arrangements—such as the requirement to produce an annual economic and fiscal strategy report—and proper accounting standards, including a move towards resource accounting and budgeting, are also integral parts of the code.
The Government will be required to state their fiscal objectives explicitly. And the Bill also establishes a formal role for the National Audit Office in assessing the assumptions and conventions that underpin the projections of the public finances. These changes will ensure that fiscal policy contributes to the economic stability which is necessary for growth and employment to prosper.
I also described how the last Budget was a Budget to encourage work and to make work pay. Measures will be brought before Parliament to implement the working families tax credit which will make work pay. And our reforms to the national insurance system will mean that barriers to work which faced so many people in the past have been removed, encouraging employment. The New Deal will be extended to provide new employment opportunities to the long-term unemployed, partners of the unemployed, the long-term sick and disabled and the disadvantaged communities.
The working families tax credit is a major reform to the tax system. And it is necessary because the labour market has changed almost beyond recognition from that of 20 or 30 years ago. Up and down the country, firms are reporting skill shortages. At the same time, there is a huge pool of unused talent—people who want to work. That is why we are determined to give them the skills and opportunity they need. So the working families tax credit, the reform of the national insurance system, together with our increased investment in education, training and skills, will all begin to ensure that we have the labour market to meet the needs of the 21st century.
The Budget also demonstrates our commitment to fairness. Clause 25 keeps our election promise to hold the basic and top rates of income tax. The married couple's allowance will be restricted to give relief at 10 per cent. in April 1999, which will enable us to channel more support where it is needed most; that is, to families with children. Pensioners who benefit from enhanced allowances will have the value of those
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allowances protected. What matters is need. That is where resources will go. Our primary aim is to support families through supporting children.
We inherited the situation where one child in three grows up in poverty. And the Budget, together with this Bill, increases support for all families with children to begin to tackle child poverty. So, from April 1999, child benefit for the eldest child goes up by £2.50 a week, and there is an equivalent increase for poorer families. Indeed from November this year, child premium, income support and JSA are increased by an additional £2.50 a week for each family under 11 with the result that families on income support with two children under 11 will be better off by £7 a week. That demonstrates the Government's commitment to target help where it is needed most.
And the new childcare tax credit in the working families tax credit will pay up to 70 per cent. of the cost of childcare, up to a limit of eligible costs of £100 a week for one child or £150 for two or more children.
Side by side with labour market reforms goes the need to promote enterprise which is an essential part of an economic policy. The Bill further reforms the corporation tax regime. Clause 29 reduces the main corporation tax rate from 31 per cent. in 1998 to 30 per cent. next year—the lowest rate ever. And the Bill abolishes advanced corporation tax from 1999. This will simplify the corporation tax regime and encourage investment. From 1999, about 20,000 large companies out of 700,000 in total, will start to pay their corporation tax by quarterly instalments, bringing the UK into line with other major industrial countries. We consulted extensively on these reforms, which have been widely welcomed.
As the Chancellor has said, both the main and small corporation tax rates will be held at the new levels or less for the lifetime of this Parliament. When our reforms are in place, companies will pay around £1.5 billion less in corporation tax each year.
This Bill introduces a capital gains tax taper to reward risk taking, promote enterprise and encourage long-term investment by taxing more favourably gains on assets that have been held for longer periods, particularly gains on business assets. When it is fully in place, it will represent a significant simplification to the tax system. The taper, which is introduced by Clause 121 of the Bill, will produce an effective 10 per cent. rate for business assets held over 10 years.
That is on top of other measures to boost research and development. The Budget introduced a new university challenge fund, a private-public partnership, to provide £50 million in venture capital to help turn good research into good business. And we are looking at other ways of improving our record on R&D.
Clause 84 extends the enhanced first year capital allowances which we introduced last year. First year allowances will be set at 40 per cent. rather than 25 per cent. for spending by small and medium sized businesses during the year to 1st July 1999. More than 99 per cent. of small and medium businesses may

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qualify for one form of enhanced allowances or the other which will improve their cash flow and help them grow.
Clause 83 contains the legislation for part of the package of measures which the Chancellor announced on 12th May aimed at creating a new framework of prosperity in Northern Ireland. During the four years starting with 12th May this year, expenditure on machinery or plant incurred by a small or medium-sized business for use in Northern Ireland will be eligible for a 100 per cent. first year capital allowance; in other words such expenditure may be written off for tax purposes in full straightaway.
Encouraging saving is also an essential part of our strategy. This Bill introduces the new individual savings accounts making it easier for people to save, extending the savings habit to more people than ever before. We now have a savings regime that is sustainable and where tax relief is fairly distributed.
The Budget also delivers our commitment to close tax loopholes, which taken together with measures from our first Budget will yield £2.8 billion over the next three years.
We are also committed to protecting the environment. Clause 7 increases road fuel duties in line with our commitment to an annual increase of at least 6 per cent. in real terms, having met the targets agreed at Kyoto. For this, credit too must go to the last government who of course were committed to increasing duties by at least 5 per cent. every year. They will no doubt welcome our continuation of their policy. Clause 16 reduces vehicle excise duty for lorries and buses which meet low emission standards.
We recognise that car ownership is necessary in very many parts of the country. That is why we will be consulting on new measures to reduce vehicle excise duty on smaller and more environmentally friendly cars. The use of cleaner fuels like ultra-low sulphur diesels and road fuel gases are also being encouraged. Vehicle excise duty for lorries and buses which meet a low emission standard will also be reduced under Clause 16. This is a Budget that is looking to the future.
This Bill implements many important parts of the Budget, a Budget that was designed to promote long-term sustainable growth, encourage work, encourage entrepreneurship and increase fairness. I commend the Bill to your Lordships.
Moved, That the Bill be now read a second time.—(Lord McIntosh of Haringey.)
5.8 p.m.
Lord Boardman: My Lords, Finance Bills tend to pass through this House rather unnoticed because we cannot either amend or vary them. Therefore, I shall avoid dwelling on any of the details of this Bill, some of which are welcome and some less welcome. But it would be more helpful to confine my remarks in the main to the trends which are apparent in the Chancellor's general strategy.
A useful starting point was to look back at the Budget Speech—the Financial Statement—made in March. I read that with some interest last night. I noticed that
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the Chancellor gave the due ration of blame to the previous government and to his inheritance. That occupied quite a large part of his speech. But generally speaking, he made the speech with consummate skill. It was the sort of speech that every Chancellor of the Exchequer of whatever party makes to put his goods on display in best form but it was rather short when it came to the delivery of the goods. I regret that that is the case here.
I give just one example of something which was rather misleading and I am sorry that the noble Lord repeated it just now with regard to corporation tax. In his speech, the Chancellor referred to the fact that companies would pay more than £1.5 billion less in corporation tax each year as a result of the changes he had made. Of course, there were reductions in the corporation tax. However, what he did not refer to at all was payment by quarterly instalments. I am told that the effect of that will be to increase the bill for corporation tax in the future very substantially. Indeed, instead of being a reduction of £1.5 billion, there will be a very substantial increase in corporation tax over the lifetime of this Parliament. That is quite apart from the other taxes which are falling upon corporations. Leaving aside the windfall tax which was forecast well in advance, I am told that some £20 billion in additional taxation will fall on corporations during this Parliament.
There are many other matters that I should like to mention; indeed, the Minister referred to savings. The effect of the Budget will be adverse to savings. The noble Lord did not refer to pensions, although the Chancellor the Exchequer did, but the effect of the Budget will be adverse to them.
There is only one small matter that I should like to refer to; namely, retirement relief. That relief has been abolished, but it was of great benefit to small businessmen in enabling them to retire. Throughout the proceedings in the other place, both in Committee and on the Floor of the House, not a single Labour Member—many of whom must have gone searching for the votes of small businessmen in May of last year—made any protest about the possible effects of the decision on retirement relief falling upon their constituents.
I should like to mention one other matter in the Budget speech—the differentiation between capital and current expenditure. It is a great idea and absolutely right. I am sure that every Chancellor of the Exchequer, and certainly every Chief Secretary, has endeavoured to bring this about during his time in office. But every time he will no doubt have received conflicting advice as to what is capital. The one that I remember is a battleship, but many other examples are given. The Treasury has a portfolio, which I am sure is pulled out and shown to every Chancellor of the Exchequer who suggests such a division—at least I hope that that is so. Of course, in principle, that is absolutely right, but capital and current expenditure is different in government from capital and current expenditure in industry.
Perhaps I may refer to the big picture for a moment. The Budget speculates on what growth there could be for the rest of this Parliament and commits all of it, lock,

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stock and barrel, for expenditure over the next three years. Indeed, that is all set out in the Economic and Fiscal Strategy report which we debated yesterday. To make that degree of commitment when the world economy—that is, the Asian economy and many others, including our own—is perhaps less strong or optimistic when looking towards the future than was the case back in March, constitutes a high risk. I hope that the Chancellor of the Exchequer is right. But if he is not, in my view there will be an awful lot of blood on the carpet.
My main concern relates to the overall strategy which the Government and the Chancellor of the Exchequer adopted from the word go. The Chancellor is responsible for the economic management of the country. Until last year, he had two vital controls: he had a lever controlling his fiscal policy and a lever controlling his monetary policy. Those two levers enabled him to endeavour to steer the ship of state in the direction in which he believed it should go. Right or wrong, it was not always a success; indeed, I do not claim that it was. However, the Chancellor of the Exchequer then surrendered one of those levers—his monetary policy lever—to the Monetary Policy Committee. He is now powerless to do what I am sure he must want to do, and what many others want him to do, in order to balance the economy, the exchange rate and to deal with our overseas trade.
Many people may refer to the examples of the National Federal Bank and the USA Government on the one hand, and the Bundesbank and the German Government on the other, where independent banks operate in a happy and usually fairly successful manner. I could make many distinctions in that respect, but I shall not detain your Lordships by going through them now. Indeed, evidence submitted to a Select Committee from the former president of the National Federal Bank and from the Bundesbank shows many of the differences which arise between their systems of monetary and fiscal policy and the one now in operation in this country.
Prior to last May, there had not been a Chancellor of the Exchequer who had ever approached his Budget, or thought through the economic policy of the nation, without considering what his monetary and fiscal policy should be. Sometimes it is necessary to go in for a touch of taxation or a reduction in interest rates, and so on. I believe that the Chancellor of the Exchequer has made a great error in that direction. It is sufficient to ask how he can possibly produce a balanced budget when he has no control over his monetary policy.
In the past, the Chancellor of the Exchequer always had guidance and advice from the Governor of the Bank of England. That guidance and advice was no doubt greatly respected and mainly accepted. Of course, if the Governor of the Bank of England disagreed strongly enough, he always had the power to resign from it. However, now we have the position where it is not a matter for the Governor of the Bank of England but one for the Monetary Policy Committee, which is made up of a group of unelected but extremely able men. They are able to decide the monetary policy which I believe
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is central to our economy. I dread the consequences of that sort of control moving over to Frankfurt if this country should ever take a further step down the road to monetary union.
5.16 p.m.
Lord Barnett: My Lords, I shall not follow everything that the noble Lord, Lord Boardman, has said. I am happy to say that we served together at one time. Indeed, he was a member of my committee on the European Central Bank on which we produced a report. I know that the noble Lord did not agree with every single dot and comma of that report, but we were unanimous in the end. We all heard some of the evidence to which he referred from major world bankers. Like the noble Lord, I shall not refer to the Finance Bill in detail because, in this House, we normally talk about its economic consequences.
I should like to point out to my noble friend that not only have I heard what he said today, but I also took note of what he said yesterday. Indeed, at col. 1425 of Hansard, I was delighted to see that he said that he believed the single currency "will" work. I emphasise that for the benefit of my noble friend Lord Bruce of Donington. In replying to my committee on the European Central Bank, the Chancellor of the Exchequer did not exactly say the same. Since the reshuffle, I am pleased that my noble friend is able to be so free with his choice of language and that he agrees that the single currency will work. Of course, that is not directly related to the Finance Bill, but he did say that. I hope that he will not withdraw those remarks when he responds to this debate.
Before I comment on the tax and spending plans, perhaps I may say a few words about monetary policy and about giving the powers, to which the noble Lord, Lord Boardman, referred, to the Monetary Policy Committee. I should stress that I completely disagree with the noble Lord in that respect. I support the Government's policy in giving such powers to that committee. If I may say so, I would rather at least have the benefit of one woman who was better than most of the men on that committee; indeed, I would rather they had the power to decide interest rates and monetary policy on entirely non-political grounds than leave it to Chancellors of the Exchequer. With respect, we all know—indeed, it is quite clear—that the previous Chancellor of the Exchequer should have increased interest rates and taken control of what would happen to inflation long before May 1997. Anyone looking objectively at the situation would be bound to agree with that view. Therefore, I agree with the Government's decision to give the power to the Monetary Policy Committee, provided there is full accountability. I think that is crucial. Your Lordships may not have appreciated that today this House approved the appointment of a Select Committee to look at the work of the Bank of England's Monetary Policy Committee. I hope that will provide the kind of accountability to which I have referred.
I think all the men on the Monetary Policy Committee have been wrong to increase interest rates in the way that they have. It would have been better if they had

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deferred to the woman member of that Monetary Policy Committee who clearly was rather more sensible about this matter. Having conceded power on monetary policy, I do not think the committee should have acted in the way that it has. However, both Houses of Parliament agreed to that. Section 11 of the Bank of England Act 1998 refers to maintaining price stability. I would add,
"and subject to that, support the Government's economic policy".
In other words, the Government's economic policy comes a bad second to control of inflation. My noble friend Lord Peston and myself moved an amendment to delete the words "and subject to that" to enable the Monetary Policy Committee to consider both inflation and the Government's economic policy. That seems to me the more sensible course, but few people in your Lordships' House or in another place supported that. The fact remains that the legislation is as it is, and I am afraid we are left with the situation that the Government's own economic policy comes a bad second to considering the policy on inflation.
As we have no control over monetary policy, let me turn to fiscal policy where the Government have control, subject, of course, to what is happening in the rest of the world and—I know that many of my noble friends and noble Lords opposite will appreciate this—also to what happens in the European Union, whether we are members or not. I refer to the three-year expenditure plans that we have had recently. If I may say so, the totals are somewhat misleading. That is probably an understatement. I assume that was done quite deliberately by adding the three years together and then adding inflation. At the end of the three years you get quite a big figure. I assume that my right honourable friend the Chancellor did his calculations in that way because the totals look better. They certainly appear to be larger sums of money. Nevertheless in my view the idea of having a three-year policy for expenditure is sensible. However, I am not clear whether cash limits apply. No doubt my noble friend will be able to tell me about that. The words "cash limits" seem to have been lost since I introduced them some 20 years ago. The Barnett formula still exists, but the cash limits seem to have disappeared. If the rate of inflation is higher than has been assumed over the three years, would departmental budgets then be cut in real term figures? I hope that my noble friend can answer that question and that I have made myself clear. If inflation is a little higher, or a lot higher, than the 2.5 per cent. given to the Bank of England—or the 2.25 per cent. that has been assumed—will there be a cut in the real term expenditure of departmental budgets?
The case against the three-year expenditure plans was put succinctly by the noble Lord, Lord Boardman; namely, that we are, as it were, spending before we know what the revenue will be. The logic of that, of course, is that one would never spend anything because one does not know for sure what the revenue will be over the next three years. There has to be an assumption—not guesses—about what the growth of revenue will be over the next three years. My noble friend Lord Desai would have a guess, as would hundreds of other economists. They would not all agree. However, on the whole question of economic growth,
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and therefore revenue, the argument is—this is the point the noble Lord made—that the Government have been too optimistic in planning to spend all that money before they had it. I leave aside any party political questions about what one would cut if one did not have that expenditure. That is a matter for another place. We are more serious in your Lordships' House. The consequences of such a policy is that the revenue would be short so we would need either higher tax or higher borrowing. That is the argument that is advanced. If we do not receive the revenue that the Government have assumed over these three years, something would have to give. Either there would be higher taxes, or higher borrowing, or a cut in expenditure. You cannot have it all ways.
Personally, I would not object if expenditure was a little higher. That may seem an odd statement from a former chief secretary but I never enjoyed having to cut expenditure for all those years because I did not enter public life so to do. I wanted to improve public services. But the pessimistic view advanced by the noble Lord and by many others both inside and outside your Lordships' House, and the pessimistic assumptions on growth, are serious and must be taken seriously. I have to accept it is possible that the growth in the economy will be slower if the inflation target that the Monetary Policy Committee has been given is to be met. I should have thought that most people would accept that there has to be a slowing of the economy if inflation is to come down to a reasonable figure.
I wish to show my noble friend that I have read every detail of his speech yesterday. He said yesterday at col. 1426 of the Official Report that 45 independent forecasters and the Government's forecasters are not miles out of line on this matter. There may be one forecaster here and there who may disagree, but they are not wildly out of line. Even the gloom mongers or "doomsters" are still forecasting that the borrowing requirement will be 1 per cent. of GDP at the end of the three years. That may be slightly worse than the Government's forecast, but it is hardly a disaster. Some 1 per cent. of GDP for borrowing is well below the Maastricht criteria in the European Union, which is 3 per cent.
Noble Lords: Oh!
Lord Barnett: My Lords, I like to give my noble friend Lord Bruce of Donington something to amuse himself with. The figure I have mentioned would be well below the Maastricht criteria.
I have always envied the so-called experts—especially those in the Monetary Policy Committee—who argue that you need to increase interest rates by a quarter of 1 per cent. to be able to say with any certainty that in two years' time inflation will be 2.5 per cent. I find it odd that anyone can know with such certainty what will happen. I confess to being what might be called a "don't know" because I do not know what will happen tomorrow, let alone in three years' time. Nevertheless we have to manage an economy. That is the Chancellor's job. If he is to meet the golden rule to which my noble friend referred again today—I agree

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with that—that current income should meet current expenditure; namely, at 2.25 per cent. over the three years, that is fine. However, it is not altogether clear what will happen if the current income that I have mentioned turns out to be slightly lower than has been assumed in the golden rule. Will the Government then cut public expenditure? Is that what they would have to do?
I know my noble friend will say that that is a hypothetical question. He will say that that will not happen and we shall not really have that problem. I hope he is right. However, as he has shown since yesterday's "shuffle", he is prepared to be rather more open and not just read his brief, and tell us the truth. Will he tell us—I hope he can—that the Government have not ruled out the possibility of increasing tax or borrowing if the revenue growth is not as high as forecast in the Government's plans? I know that my noble friend will be able to answer those two small questions.
To sum up, I believe that the Chancellor has over-stated the modest annual growth in expenditure. I note that even that is subject to performance targets, which are to be overseen by the new Cabinet committee chaired by the Chancellor, not the Chief Secretary to the Treasury. I am beginning to wonder, and to worry somewhat, about what job the new Chief Secretary will do. So far as I can see, there is not much left for him to do. I thought that the reshuffle might remove the post of Chief Secretary to the Treasury. I put that question to my noble friend the other day. He replied effectively that the Chief Secretary will have plenty to do. So the post of Chief Secretary has been retained. I gather that the new occupant of the post is very bright—even if he cannot do his multiplications.
Inevitably, the figures are uncertain when we are talking about a period of three years. But they are clearly set out. This is not a matter of creative accounting. Indeed, it is to do a disservice to creating accounting to call it such. The plain fact is, all the figures are there. They may be wrong, but they are there, as are the assumptions behind them.
If my right honourable friend the Chancellor has over-stated the position, as is clearly possible, the critics over-state the consequences even more. If the Chancellor has been too optimistic, he will still achieve a modest growth in expenditure with a borrowing requirement well below any crisis levels on any kind of historic comparison. So, on balance, it is more likely than not that the growth targets will be met. Indeed, I should have preferred even higher growth targets; and I should have been prepared to accept a 1 per cent. higher borrowing requirement. If my noble friend takes the inflation figures for the European Union, this country is already well below 2.5 per cent., because a different method is used to calculate inflation, and quite a nice one. The figure for this country is about 1.7 per cent.
The Bank of England Act as it stands requires a change in the way the so-called independent Bank of England and the Monetary Policy Committee are able to work. I should have preferred to amend the Act itself, but it is now too late. I ask my noble friend to pass on
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to the Chancellor a request from me, which I am sure he will accept; namely, to give the Monetary Policy Committee greater flexibility in regard to the inflation target—let us say, to use the European Union target—or give the committee a better chance of achieving the perfectly reasonable objective on growth and income and expenditure by making the inflation target in the Bank of England Act rather more flexible.
5.32 p.m.
Lord Marlesford: My Lords, in the early months of this Government being in power, one was quite often asked whether or not it really was a "New Labour" Government. My answer used to be: I do not think, frankly, we can judge them on the first Budget, but we should judge them on the second Budget. I believe that the Government have passed the test so far on that second Budget. The Government are doing pretty well on most of the major economic policies for which they have been responsible.
I have a worry, not unlike that expressed by the noble Lord, Lord Barnett. I shall turn to it presently. First, I issue a reminder to the noble Lord, Lord McIntosh of Haringey. During debate on the Statement on the Comprehensive Spending Review I mentioned the inheritance of this Government, and the noble Lord began attacking the Conservatives for wasting North Sea oil revenues. I would remind the noble Lord, and colleagues on both sides of the Chamber, of the astonishing legacy inherited by this Government. The exciting thing was that for the first time in my life, and perhaps in the lives of all of us, socialism was off the political agenda in this country. We had actually elected a Government who believed in capitalism and sought to make it work. That is a huge and enormously encouraging change.
I return briefly to the Government's inheritance: taxation down from top rates of 75 per cent. on earned, or 98 per cent. on investment, income to a top rate of 40 per cent. on all personal income; corporation tax down; a much more sensible structure for capital taxation; and trade unions, which used to run the country, now relegated to the much more important job of trying to improve the lot of their members. Privatisation has been a huge success. Had it not been thought a huge success, there would have been attempts to reverse it, which is not the case.
I remind the noble Lord, Lord McIntosh, of the extent of the restructuring which took place in the British economy over the 18 years of Conservative government. I shall take as examples eight major industries in this country in which the number of jobs has fallen by 1½million. The most dramatic fall is in the vehicle manufacturing industry, where, in 1978, 755,000 people were employed, and in 1996, 200,000. Yet with half a million fewer people half a million more vehicles were produced.
We all know that such restructuring is the product of two factors: international competitive forces and the opportunities provided by technology. It may all seem so easy, obvious and necessary now, but in 1978 it was not. At that time people were fighting to preserve those jobs.

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The second biggest change I have identified is in retailing where there are 426,000 fewer people. Has the efficiency of the service that retailing offers to the people of this country declined over that period? The third is in textile manufacturing with 300,000 fewer people employed.
I have always thought that underground coal mining was the most awful job and that the sooner people could be liberated from it, the better. The numbers employed in coal mining have gone down by 260,000. In the steel industry there are 200,000 fewer people; on the railways, 170,000 fewer; and even in agriculture, where there have been huge increases in productivity, there are 83,000 fewer employed. In the ports and docks there are 34,000 fewer people.
We have wonderful docks such as Felixstowe. It has to be compared with the old docks of east London. I remember that the first time I went there I saw dockers loading baked beans in small cartons which they were wedging together with motor car tyres. So there has been a huge change. The noble Lord, Lord McIntosh, said that North Sea oil revenue was wasted. The revenue from North Sea oil was used to make that structural unemployment tolerable. There could not have been a better use for that revenue.
Turning to today's problems, first, one must not forget that this Government presently appear to regard inflation as the number one economic priority, in the way the previous government did. That is very important. Inflation is a systemic problem in this country in a way that it has not been in other countries. There is an expectation here, and has been for generations, that no one should suffer from inflation, and that income should always be made up to compensate for it. As we all know, that merely leads to more inflation. It is a wholly unsustainable approach. The Government are doing right in keeping inflation as their top priority.
I agree with the noble Lord, Lord Barnett, that it is basically a good thing that monetary policy has been delegated to those splendid men and women on the Monetary Policy Committee of the Bank of England. It is the right policy. Given the particular problem that Britain has in regard to inflation, it is very hard for politicians to be brave enough to do the right thing about interest rates. To remove those temptations must be a good thing. My noble friend Lord Boardman said that he could think of differences between the United States and the Fed. and the Bundesbank and our system. But the paramount requirement to control inflation through the central bank is a greater similarity than whatever differences there may be.
We are now facing a real problem. There are recessionary forces facing us, yet we must keep interest rates high. And the high pound is a serious problem for British industry. Unemployment is now arguably too low in quite a lot of areas in the country. In November 1944, when Beveridge produced his Full Employment in a Free Society, he defined full employment as 3 per cent. or less. That was to allow for the structural problem. Every month, a document is produced, available in the Library, giving unemployment by
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constituency. I find it much the most useful indicator of unemployment. At present, out of about 650 constituencies 200 in this country have unemployment of 3 per cent. or less. Mostly that is in particular geographical areas in the south. The balance is a crucial problem, one which any government have to handle. In the 35 constituencies with the highest and the lowest levels of unemployment thank goodness none is now over 20 per cent. All the lowest are under 2 per cent. It is a remarkable situation. But there is a problem in knowing how to deal with both the problems that come from recession and the problems that always exist with inflation. At the moment the Government are probably doing the right thing.
I am however somewhat worried about the rate of increase of earnings. It is currently about 6 per cent. When earnings rise as a result of more overtime being worked, it is good because it probably means more efficient use of labour. What I am not sure about is how much of that 6 per cent. is due to unit wage costs and how much to increased use of labour through overtime. So it is a difficult figure to examine.
We must remember that manufacturing in this country is now only about one-fifth of total output. That is a huge change and yet in some ways it makes the economy easier to manage.
I wish to refer to two other points: first, EMU. I think the Government have taken the right line. I must admit that I am basically a sceptic on EMU for the simple elementary reason that the exchange rates take the strain. If we lose the ability of the exchange rate to take the strain, it means we must have either unemployment or cross-subsidisation. We know the difficulties that the Italians have in being prepared to subsidise the south and the difficulties west Germany has in being prepared to subsidise east Germany. There may be built-in problems which will emerge with the single currency. I hope they do not; I hope it is all a great success. But we are right to wait until we see how it works before we consider joining. It may be a cliché, but the decision that we will join when it suits Britain to do so is a sound position to take. I wish my own party would take a similar position. There would be no loss in doing so, in my opinion.
We must remember that we have the big advantage of having restructured our country in a way that France, for example, has not done. The French economy has still not been restructured. Every time they try to do it and people take to the streets, French governments tend to give in. That is unlike Britain where, when people take to the streets, public opinion tends to support the Government in power. It does not like people making nuisances of themselves on too big a scale on the streets. Sometimes that does not apply—with the poll tax, for example—but it did with the miners' strike. Public opinion in Britain seems to fall in behind the Government when they are trying to do something sensible. In France, I suppose it is because they do not have a parliament which will protect their citizens in the way our House of Commons is seen as protecting the individual. It is a different scene.

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Finally, I will say a word about public spending. It is a little unclear exactly what rate of growth has been assumed. I remember when it was raised, the noble Lord, Lord McIntosh, said that it was a rate significantly below some of the predictions. I fear that we may be going into a more rapid decline, but not because of our situation. I suppose Japan is the biggest single worry: no one knows who runs Japan. Probably it is no one; its prime ministers certainly do not. Possibly the civil servants do, but they do not do it well. They thought they could keep the Nikkei at 30,000 when it had fallen from 40,000, by intervening, but the Japanese ignored the axiom of my noble friend Lady Thatcher, "You can't buck the market". These are real worries and will be a problem.
I wish to conclude by underlining two questions which the noble Lord, Lord Barnett, asked the Government. Given that they have decided to put in these three years' expenditure figures, which may be dangerously high—the cash limit is an important point—I would hate to go back to Plowden. The noble Lord will remember that in 1953 there was invented the brilliant Plowden system which would allocate expenditure in resource terms. That led to Parliament being asked, year after year, for more and more supplementary estimates automatically because it had been agreed. That led to the situation in 1976 when the noble Lord, Lord Barnett, helped by the great Treasury mandarin, Sir Leo Pliatzky, realised the need to introduce cash limits. Those limits are still important and I hope that the expenditure pattern will be subject to them. Perhaps most important I hope it will also be subject to the growth rate which is actually achieved.
5.46 p.m.
Lord Northbrook: My Lords, the Chancellor's Budget was delivered against the background of uncertainty of the overall effect on the world of the Asian crisis and in the UK, particularly over the health of the manufacturing sector. The Treasury forecasts of GDP growth that accompanied the Budget suggested a slower rise of 2 per cent. to 2.5 per cent. in calendar year 1998 compared with 3 per cent. in 1997 and 1.75 per cent to 2.25 per cent. in 1999, followed by 2.25 per cent to 2.75 per cent. in 2000.
More recent government forecasts such as those contained in the Economic and Fiscal Strategy Report 1998 show that the forecasts for 1999 and beyond have been brought back to the low end of the range. I believe they may yet have to be revised lower still.
Meeting the inflation target of 2.5 per cent. remains the Government's key priority. However, I have to disagree with the two previous speakers, in that the Monetary Policy Committee has in my view failed to take properly into account that the economy is slowing of its own accord, especially affected by the Asian crisis, and has continued to raise interest rates unnecessarily. To support my view, I note that the respected London Business School holds a similar opinion in a report published today stating that the MPC has greatly underestimated productivity improvements
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made by manufacturing companies in the past few years and so exaggerated wage inflation. The result of the MPC's interest rate increases has been to make sterling appreciate substantially, especially against European currencies. As a consequence, there is a great danger that due to our weakening competitive position we will be led into a recession. This is a word much more talked about recently, as companies even like the bell-wether ICI disclose how difficult life is.
Turning to more detail in the Budget, there were sensible measures to abolish advance corporation tax, to reduce mainstream corporation tax by 1 per cent. from April 1999 and to increase capital allowances for businesses in the first year in certain cases. The national insurance increases were, however, unwelcome, especially for service industries as they raise costs for employers in a sector where employment costs can be high anyway and the break-even point of £23,000 is not particularly generous.
Turning to personal tax, there was a pleasant surprise that income tax was broadly unchanged, although on the indirect tax front the increase in fuel taxes was an unnecessary additional blow to rural communities already suffering from hardship in other areas.
While at first glance the capital gains tax proposals were welcome, once the details were revealed it made an already complex tax a nightmare. Consider, briefly, a situation where an investor has held a share at 1982 and bought further shares since. If that share has a rights issue now and the shares are then sold subsequently to 6th April 1999, the calculation of the tax becomes immensely complex. First, you have to divide the shares into different pools pre-1982 and post-1982. Then you allocate the rights issue to those different pools and index them separately up to 5th April 1998. Finally, you apply tapering relief according to a complex sliding table—different of course between a business and non-business asset—not forgetting of course the free bonus year. If you do not know whether you are a basic or higher rate taxpayer you really are in trouble. The only beneficiaries of this complexity are the accountants, for whom it will be a dream. This desire to confuse can only be due to general ignorance of the mechanisms of the tax. It is certainly not simpler than the previous regime.
With regard to inheritance tax, I wish to make a comment on the plans to give the public better access to heritage assets which are currently available to be seen by written appointment. I have to declare an interest in that I am the owner of some heritage assets. It is apparent that the new access proposals will be a burglars' charter, since they may be able to gain access to a house under false pretences. It is my belief that the current regime is perfectly adequate for heritage assets access, especially as very full details are already available on the Internet which fulfils the need for security without deterring the genuinely interested person from locating and seeing the items concerned. In addition, wherever possible I encourage all interested local societies to visit. However, having recently been a victim of a burglary where heritage assets were lost, I feel I speak with experience on the problems of unlimited access. The proposal could well encourage the

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disposal of heritage assets as their owners, especially where they are elderly or housed in small flats where access is difficult, may feel that the Inland Revenue demands are too onerous.
An event which has taken place since the Budget but which will affect future government financial calculations is the Government's Comprehensive Spending Review. As a recent editorial in the Economist magazine stated, while growth rates of GDP cannot be predicted, one thing can. The Comprehensive Spending Review will mean comprehensively higher spending.
While the Chancellor and the spending Ministries have been bingeing after their 15-month fast, behind them is drifting the smell of the books being lightly sautéed. As alluded to in the short debate in this House last night on the Government's Economic and Fiscal Strategy Report 1998, the Comprehensive Spending Review is full of accounting tricks which may permit departments to raise spending by more than the overall figures suggest; for example, by allowing them to net off extra spending against fees and levies they collect. For instance, as mentioned in yesterday's debate, family credit—which currently amounts to around £2 billion of the social security bill—is to be replaced with a more generous subsidy called the working families tax credit. But because the working families tax credit is a tax relief, the Government argue that it should not count as social security spending. Thus it is presented as a £2 billion cut in benefit bills.
Potentially more seriously, the Government are changing the rules about dealing with departments' outside income. At the moment, if a department makes money from, say, renting land, the income is handed over to the Treasury. That will change. In future, many departmental receipts from rents, levies, fines and dividends will be for departments to keep and spend. And because the receipts will count as negative public spending, the extra money can be spent on top of the budgets agreed with the Treasury and will not show up in spending plans. The Government are therefore taking a gamble that buoyant economic growth will compensate for this departmental largesse which could be a dangerous policy if we face a serious slowdown.
The Chancellor earmarked £21 billion more to be spent on health and £19 billion on education over the next three years. There will be more for pensioners, more for scientific research, more for the poor in the Third World and more for the BBC World Service. It was difficult to think of a deserving cause that the Chancellor missed out.
The Chancellor promised to deliver big spending increases without sharp increases in taxation or borrowing. He stated that, although public spending would rise by 2.75 per cent. in real terms between 1999–2002, he will nevertheless keep the books in balance throughout the period. Can that be a correct assumption?
While last March the Chancellor's economic assumptions could have been called sensible, the subsequent actions by the MPC and the Comprehensive Spending Review now mean that there is a serious danger that his sums will not add up. By setting out his
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expenditure plans so far ahead, he leaves himself little room for manoeuvre if his forecasts are seriously wrong. And even though the Government believe they are being cautious, there is serious scope for error. Take, for one instance, social security. Note that this is the department where expenditure has not been fixed for the next three years. No wonder the Minister told to think the unthinkable resigned. His plans to cut welfare payments clearly failed.
In summary, the Finance Bill contained several sensible measures for businesses. It is what has happened since in terms of loosening the purse strings that may well make future Budgets much more unpalatable. To pay for all the promises in the Comprehensive Spending Review must involve higher taxes if my analysis of the slowing economy is correct, or higher borrowing, returning us to the "stop-go" economy that the Chancellor is so anxious to avoid.
5.56 p.m.
Lord Bruce of Donington: My Lords, if there is one thing that the country may be grateful to the present Government for, it is their vitality. I have been in politics for a long time and have seen governments come and go. I have watched the vicissitudes of Ministers, some of them high and some of them low. But this much I know about Her Majesty's present Government. They have brought a new vitality to the whole of government. It involved and is still involving a detailed investigation into most areas of our national life. In my experience, this is the first time that it has happened in this way and on such a scale.
The Government appointed—and correctly appointed, though sometimes one may query their composition—various task forces, committees and bodies with vastly different terms of reference, granting them every facility to go into practically every aspect of the affairs of the country as a whole. And that is most welcome. Of course, it sharpens the responsibilities of those—fortunately or otherwise—who have been around for quite a time. It makes it extremely difficult to do anything that will in any way inhibit the terrific vitality of the present Government.
The Government are going to need every bit of that vitality. Ministers have had only one year to accomplish detailed reviews of their departments; to be able to know and become more certain of the way in which the whole system of administration works. That presented them and will continue to present them with considerable difficulties. Therefore I applaud the production—albeit in sketchy form; albeit heavily reliant on figures, not all of which are reliable—of a three-year forecast. That should commend itself to the country as a whole because the difficulties facing the Government are enormous. They reflect perhaps the difficulties of our country.
The Government may be optimistic—sometimes they have to be—even though they may know that there are what are called "dangers impending". Nevertheless they are right to express as favourable a view as they can and to put the best possible construction upon events that are taking place not only in the British economy but in the world as a whole.

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The difficulties are indeed formidable. They are set out in terms and from sources that should command considerable attention. For example, according to Dun and Bradstreet, business confidence has sunk to a five-year low in the wake of the Bank of England's unexpected decision to raise interest rates and to go on raising them. The group's survey of 1,400 finance and managing directors showed that confidence is falling in the service, retail and wholesale sectors as well as in manufacturing. Expectations of profits are at their lowest since 1993 and confidence in export prospects at its lowest since the survey began 10 years ago.
I speak of matters which your Lordships know, which you have read and which you may or may not have discounted. Oxford Economic Forecasting expects that business investment will fall from a growth of 10 per cent. in 1997 to 5.5 per cent. this year and less than 1 per cent. in 1999. Moreover, it will not have escaped your Lordships' attention that the balance of payments, the balance of trade, is once again in deficit—mainly of course involving our trade with the European Union countries. This is not at all comforting.
Today's CBI survey called upon the Bank of England to cut interest rates as manufacturing and business confidence fell to its lowest level for seven years. This is on page 8 of the Financial Times; it is not an irresponsible source. The survey also found that domestic orders in manufacturing fell in the last quarter for the first time in more than two years, while export orders dropped at the fastest rate for 12 years. The strength of sterling has worn down exports.
These are not matters of imagination. It is clear that opinion is virtually unanimous in the business circles that matter that the slow-down in the economy, which is now manifest and cannot be denied, is due to the high level of the pound, which squeezes exports, and a slowing of domestic demand from consumers following last year's rise in interest rates.
There are dangers ahead. I venture to suggest that when these vigorous and wholly admirable inquiries which are now in progress are complete there will be changes in policy. There have to be changes in policy. To hope to keep down inflation by slowing down growth is the silliest proposition that can ever be put. Yet there is an apparent acceptance of the inevitability of growth going down, not up. Surely any accountant knows perfectly well that the higher your output the greater the overhead recovery; the lower therefore the relative cost. If you start lowering production, the first thing you get is a rise in costs. This is known to all accountants—certainly it is well known to my noble friend Lord Barnett, who is an eminent accountant to my certain knowledge.
How do we deal with these problems? Certainly not by ignoring them. We will not be helped in any way until we get a more accurate presentation of the figures. At the moment—as my noble friend Lord Barnett will confirm—the figures are presented as a mixture of cashflow figures on the normal cash-in, cash-out basis, plus, but only partially so far, the introduction of resource accounting. That, as my noble friend well
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knows, will bring the Government closer into conformity with the accounts produced by business enterprise.
I have read through the papers on resource accounting and how it will be introduced. It is clear that for a time our figures will not be as reliable as we would like. Nowhere is this better illustrated than by our reliance on completely unreliable unemployment figures. The noble Lord, Lord Marlesford, referred to 2 per cent. and 3 per cent. unemployed. He is quite right of course. In the coalition White Paper of 1944, 3 per cent. unemployment was reckoned to be full employment. It is much higher than that now.
On the basis of the claimant count, unemployment was low at 1,400,000. When it came to the ILO category, which covers people who had looked for work in the past four weeks, the figure was 1,807,000. If you take into account the Labour Force Survey as carried out by the Government, the total number who are economically inactive, which is the official definition for people who wanted a job but had not looked for one in the past 12 weeks, was 2,387,000, giving a total without a job of somewhere near 4 million.
Over the past few years—and everybody knows it—I have taken the liberty, without contradiction from many sides of the House, of putting forward the accurate figures produced by the Royal Institute of Statistics. These have not been queried. We are not dealing with a situation in which there is any leeway on the question of unemployment. We are dealing with an economy which, whatever people in the City think—and they tend to think that they are the whole economy; that if they are doing well everybody else is—is doing very badly indeed. We have to do something about it.
What shall we do? First, we shall have to re-examine the doctrine put forward by the Chancellor of the Exchequer in his Statement on 14th July, when he said:
"To achieve this"—
that is, the Government's objectives—
"two fundamental economic reforms have been undertaken for the long term: to take monetary policy out of party politics through operational independence for the Bank of England".—[Official Report, Commons, 14/7/98; col. 187]
I repeat that the Chancellor referred to taking monetary policy "out of party politics". But what are the politics of the bankers? My experience not only in this House but also in another place has indicated to me that bankers tend to have politics of their own and that they are most certainly non-party. Party politics as such are vital in a democracy. Democracy is exactly about dissent, about putting forward proposals and having them criticised. One need only consider the way in which the debating Chambers of this House and another place are set out to realise the truth of that. Our Chambers anticipate the clash of progressive argument.
Was the Chancellor saying to himself, "I must put temptation behind me. I fear that I might be weak enough to produce a Budget which favours one party or another. Am I confident in my judgment?" If he was really saying, "I don't trust myself. I don't trust my judgment", that was grossly insulting to himself because I am sure that he is a man of considerable intelligence

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and dedication. The Chancellor referred to taking monetary policy "out of party politics", but that is exactly what happened in the 20 years immediately after the war and immediately before we entered the then European Economic Community or the Common Market. We had run out of ideas. We were bored and we were tired. It was exactly because party politics did not exist then that we got ourselves into that intellectual inertia. I am all for argument.
The Earl of Dartmouth: My Lords, I thank the noble Lord for giving way, but how would he feel about our interest rates being determined by a central bank in Frankfurt?
Lord Bruce of Donington: My Lords, I believe that my feelings on that are already known—
Noble Lords: Hear, hear!
The Earl of Dartmouth: My Lords, I do not know them.
Noble Lords: Oh!
Lord Bruce of Donington: My Lords, my feelings on that are already well known, but the answer is in the negative. I would most certainly not approve. My noble friend Lord Barnett made the observation in his recent report on the single European currency—he is bound to regret it sooner or later—that some, if not all, economists were in agreement with having the single currency. I venture to think that that is a slight exaggeration.
Let us have vitality of argument. Let us not assume always that our opponents are wrong and that we are always right. Let us have a real examination of the real facts. We shall then be able to find the solutions, by discussion, as we have always done in this democracy of ours. I am most reluctant to suggest to the House that the Chancellor of the Exchequer could not make his own decisions—
The Earl of Dartmouth: In the case of Europe?
Lord Bruce of Donington: My Lords, I am coming to that, fear not.
I am most reluctant to suggest that the Chancellor is eventually coming round to agree. In his latest speech, to the News International Conference on 17th July last, he concluded with these remarks:
"Great causes to argue and fight for".
That is probably good news not just for those who believe that to be the case, but for a global media which I hope will continue to be interested in what we say. I repeat that the Chancellor referred to:
"Great causes to argue and fight for".
Let us do just that.
6.14 p.m.
Lord Lucas: My Lords, the noble Lord, Lord Bruce of Donington, hymns the vitality of the new Labour
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Government. Should they ever reach the level of the old vitality displayed by the noble Lord and perhaps even combine that with his command of, and attention to, detail, the Government will have made real progress.
I share the noble Lord's concern about the accuracy of the figures on which the Government are operating. On a previous occasion, I treated the noble Lord, Lord McIntosh of Haringey, to a long diatribe on why I feel that the inflation rate, for technical reasons, is overestimated by perhaps 2 per cent. The noble Lord, Lord Bruce, has today questioned the unemployment figures on which the Government are operating.
The noble Lord also addressed the question which interests me almost as much, which is: how is the level of wage inflation estimated? Wage inflation is inflation only if it means that increased wages are being paid for the same output for the same job. I believe that we are in danger of creating in people's minds the impression that wage inflation is running at 6 per cent., although that is a long way from the truth of the actual level of wage inflation.
As is usually my custom on these occasions, I do not wish to engage in a long and general speech. I should like to address one particular aspect of this Finance Bill—with any luck an aspect on which the noble Lord, Lord McIntosh, will find that he has not been briefed. On this occasion, however, I am not seeking an answer, although I would be grateful for a gentle smile of approval. What I would really appreciate is a considered and complete letter at some stage over the next couple of months addressing the points that I raise.
Clause 155 sets out the basis for the code of fiscal stability. It includes the words:
"The key principles are transparency, stability, responsibility, fairness and efficiency".
Under Clause 156, provisions are made for annual reports to be made to Parliament under the code. That is an interesting and worthwhile approach to economic management. What I want to do today is to urge the Government to expand those principles and practices to the ordinary taxpayer and to commit themselves to making the ordinary taxpayer's life simpler and easier. More and more, the ordinary taxpayer is being asked to take on responsibility for his own tax affairs. Self-assessment is but the most recent aspect of that.
More and more lower paid and unsophisticated people are coming within the tax net. Someone can be a taxpayer if they are paid only £2 an hour, let alone the minimum wage. There are almost 4 million self-employed people, about half of them with profits of less than £7,500 a year. The Government are encouraging self-employment as a way out of unemployment for people who are otherwise unable to make use of their present skills. Many people have a couple of part-time jobs going at any one time. People may move from one job to another in rapid succession. For ordinary people, the existing tax system is ill adapted to both of those practices.
Those who have complicated financial affairs are generally wealthy enough to employ accountants. As part of the great union of accountants in this House, I applaud the Government for introducing capital gains

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tax legislation which is so complicated as to increase their earnings! That seems to me to be a very worthy part of what the Government are doing! My concern is for the ordinary taxpayer, for someone who is certainly not rich enough to employ an accountant and whose basic affairs are simple. However, as the Chartered Institute of Taxation's low income action group pointed out, the taxation arrangements that are applied to that income can be fiendishly complicated.
Like, I suspect, many Members of your Lordships' House, I do not understand how the Inland Revenue arrives at my PAYE coding. It is an obscure system. The figure just arrives from the Inland Revenue and I suspect that few among us question how the Revenue arrived at it. It sets out to reconcile a system of deductions and a system of credits—and they do not match particularly well. That is complicated by the Revenue's commitment to trying to deal with any past under or over-recovery of tax rather than adopting an end-year position. All of that makes PAYE coding extremely complicated for people who are changing jobs or have a succession of part-time jobs. That can result in people being substantially over taxed. That can be a great inconvenience to people who do not earn a great deal of money, although they may get it back in the end.
The taxation system that is applied to the married couple's allowance combines odd rates, odd rules and frequent changes and is difficult to comprehend. The additional personal allowance for children is horrendously convoluted. It has difficult forms and it is difficult to understand how to take advantage of it. Even before the recent changes in dividend tax there were considerable difficulties in relation to pensioners' savings.
I understand how these complications arise. When the Chancellor is putting together a Budget the underlying legislation cannot be written because the civil servants do not know exactly what is in the Budget. The process of getting a finance Bill through so that the Government can be financed does not allow for complications and the smoothing out of the system to be addressed in the way that it might be. I also understand why finance Bills do not seek to redress past inconveniences and difficulties. One always has winners and losers and one is merely creating unhappy people without achieving any great benefit at the time.
I urge the Government to recognise that there is a difficulty here. A good number of people are being asked to take responsibility for their tax affairs while being faced with an unnecessarily complicated situation. I urge them to follow their own principle in Clauses 155 and 156 and make a declaration that tax laws shall follow the same five principles: transparency, stability, responsibility, fairness and efficiency. I add to that simplicity and comprehensibility so that the ordinary taxpayer has some hope of improvement over the years. I also ask the Government to commit themselves to making an annual report on progress. The Government have put in place a system to ensure that they improve the whole economic management of the nation and it is one in which clearly they believe. What works for the nation may well work for the tax system. There is no
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particular imposition or anything that binds them to any particular course of action, but over time the interaction between the ordinary citizen and the tax system should improve.
I have some immediate and practical suggestions to the same end. First, from time to time various people have urged that there should be two separate finance Bills: one dealing with the immediate matters emerging from the year's Budget and one dealing with technical matters. That would perhaps allow the technical Bill to be published in advance and certainly to be discussed over a longer period, because it would not incorporate matters of fiscal urgency for the Government. If the Government pursued that policy I believe that it would be a good vehicle for rules and regulations to be simplified. They could be exposed and considered at length and comments could be received from the public. The whole process of simplifying the tax laws could be taken out of the mad rush in getting through the Finance Bill.
Secondly, one of the final acts of the right honourable Harriet Harman was to initiate the setting up of a team to provide benefits advice to the elderly. I believe that that would be a perfect vehicle to provide taxation advice to the elderly. The Inland Revenue estimates that over 1 million old people get taxation wrong and lose out every year. The Chartered Institute of Taxation points out that the elderly have particular problems with their tax. Many of them deal with more than one tax office and most of them are reliant on hard-to-follow Inland Revenue literature. The various bits and pieces of the Inland Revenue have an inconsistent strategy for dealing with elderly people. The Inland Revenue has settled on the telephone as the means of communication, whereas old people need to be communicated with in writing so that they can consult others and take time in reaching their decisions. The taskforce that is to be set up by the Department of Social Security appears to be a perfect vehicle for the Treasury to make use of to alleviate some of the admitted Treasury iniquities which older people suffer in dealing with their tax affairs.
Thirdly, I suggest to the Government that they follow the US and Australian examples and support voluntary groups that give free tax advice to those on low incomes. The Inland Revenue is notably friendly to the small taxpayer. Generally, the Inland Revenue is helpful, courteous and does its best, but staff numbers have been falling. A voluntary group staffed by experts who give their time freely is likely to be more efficient and cost-effective than if the Inland Revenue takes on the job itself. In addition, a voluntary group would be seen by the individual taxpayer as being independent of the Government. That must be an advantage. The Inland Revenue cannot completely escape suspicion. However nice it may wish to be on the surface, there is always the element of the "traffic warden" about it. There is already in existence an excellent small charity that provides that service. I refer to Tax Aid, which is a charity of which the noble Lord, Lord Barnett, is a patron. In its own small way it does an excellent job and provides a nucleus upon which the Government may consider building to make advice available to the low paid on how to sort out their tax affairs.

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As I said at the beginning of my speech, I do not expect a detailed reply from the noble Lord today. However, I should be grateful to receive a detailed letter.
6.26 p.m.
The Earl of Dartmouth: My Lords, I humbly apologise to the noble Lord, Lord Bruce of Donington, for my ignorance of his views about the desirability or otherwise of Britain joining the single currency. By way of extenuation, he may well be ignorant of my views on the same subject.
I am very grateful to have this opportunity to speak on the Finance (No. 2) Bill because this is an area in which I have some small knowledge. Monetary policy has been very ably addressed by the noble Lord, Lord Barnett, and by my noble friend Lord Boardman. My noble friend Lord Marlesford has been more than eloquent in outlining the golden economic legacy of which this Government are the inheritors. I intend to restrict my remarks to drawing the attention of the House to three specific taxation measures in the Bill and their constitutional aspects. From these I shall draw some general and, I hope, interesting conclusions.
First, I address the abolition of retirement relief for small businessmen. This has been a long established relief whereby the proprietor of a small business can sell up, retire and pay no capital gains tax on the first £250,000 of proceeds. The Bill proposes to phase out that relief completely within four years. In four years' time the proprietor of a business in this category will be liable to capital gains tax at the full rate. People make rational decisions especially when encouraged to do so by the tax system. The inevitable effect of this abolition will be to encourage many proprietors of businesses in this category to sell up immediately before the tax relief begins to be phased out.
This clause in the Bill enables me to make a very important general point about the economy. The government party has been tremendously successful in getting some chairmen of big corporations to support them, or at least to acquiesce in what they are doing. However, when one looks at the pattern of employment over the past 15 years the fact of the matter is that big corporations have been reducing their activities and contracting out—they call it down-sizing—and therefore they have substantially reduced the number people they employ.
The maiden speech yesterday of the noble Lord, Lord Alli—he is not in his place today—who is a principal in a substantial independent television production company, enables me to give a graphic illustration of the point. Only 10 years ago Yorkshire Television and Tyne Tees Television employed, as independent companies, over 2,000 people. Today both companies have been merged and are owned by Granada. A good estimate of the numbers that Yorkshire Television and Tyne Tees Television together employ today is fewer than 300. The government party and the Chancellor are right to be concerned about unemployment and jobs. But they will not be getting the new jobs in television that they want from their new
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friend, Gerry Robinson, Chairman of Granada. On the other hand, they may just get some of these jobs from the noble Lord, Lord Alli, and his other colleagues in the independent television production sector. Likewise, in other industries and in other sectors it is not the Government's new friends who are chairmen of big corporations who will be providing jobs. The jobs for the millennium will come from small businesses and small businessmen, some of whom will be the big businesses of tomorrow. I submit, therefore, that it is extraordinarily ill-judged for the Government to put forward this measure in the Finance (No. 2) Bill, phasing out retirement relief. This simply gives a built-in incentive for proprietors of small businesses to sell up forthwith.
The next area I want to address is the proposals for capital gains tax. I very much to want to be constructive in what I say, and I must credit the Chancellor for re-establishing the distinction between short-term and long-term capital gains for taxation purposes. However, his proposals abolish the indexation of capital gains for the purpose of establishing the tax liability. There is a very important principle at stake here. Since indexation was introduced it has meant that the taxpayer has had to pay tax only on the real gain made after taking into account inflation. The effect of the abolition of indexation means that the taxpayer is now potentially liable to have to pay tax on artificial gains. This means that, should the Government make a mess of managing the economy so that once again we get roaring inflation, perhaps because of excessive Government expenditure, it is the Government who would then benefit from their own mismanagement. The taxpayer will be paying tax on the illusory gains created by the very inflation for which the Government would have been responsible. This is a very serious point which I suspect will give great concern to many taxpayers in the future.
The further aspect of the Bill's proposals for taxing capital gains is, as ably described by my noble friend Lord Northbrook and my noble friend Lord Lucas, their breathtaking intricacy. I, too, am a Fellow of the Institute of Chartered Accountants and I should declare what might be termed a reverse interest. Many of my fellow accountants will in future years be kept in a style to which they have hitherto not been accustomed because of the sheer complexity and difficulty of the Government's proposed rules on capital gains tax. I would therefore characterise the entire section on capital gains tax as ill-thought out.
The next aspect of the Bill which I propose to address—and this will be the last specific measure I shall cover—is the Government's new plans for taxing the corporate sector. The headline rate of corporation tax remains mercifully low. However, the Government are requiring corporations to bring forward tax payments so that tax payments will now be made on a quarterly basis. There is nothing particularly wrong with this in principle and it is indeed a practice in other countries. However, the immediate effect is the cost to the corporate sector of an additional £2 billion per year based on the principles of net present value and discounted cash flow.

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As my noble friend, Lord Howell, stated yesterday with his customary knowledge and eloquence, there are storm clouds brewing in the Far East about which we should all be very concerned. It looks very much as if a downturn in the British economy is imminent, not least because such a downturn is also imminent in the United States economy. As I showed yesterday in another debate, the cycle of the British economy mirrors that of the United States. It is not a question of whether this is a good or bad thing; the fact is that it does so already.
The Government are currently and quite rightly looking to the corporate sector to create, among other things, new jobs, to increase investment and increase productivity. There is almost never a good moment to heap another £2 billion in concealed taxation on the corporate sector, but I submit to the House that the fiscal year 1998 could hardly be more ill-timed to do that very thing.
Finally, there is in the Finance (No. 2) Bill a constitutional aspect which I feel will be of great interest to your Lordships. I made my maiden speech just over two months ago, although it seems much longer, in an important opposition debate which related to the impact of the Government's policies on the authority of Parliament. I certainly never suspected that it might be appropriate to return to this subject in the context of the Finance (No. 2) Bill. However, what is interesting about the Finance (No. 2) Bill is not so much what is in it but what is not in it. There is nothing in it, for example, about the Government's welfare-to-work programme, which is a centrepiece of their entire economic programme. There is nothing in it about expenditure, which is in any case now separate. Most worrying of all, there is nothing in it on large sections of the tax changes which are to be presented by means of statutory instruments and secondary legislation. These have not even seen the light of day, let alone been scrutinised by either House. The Government is bypassing Parliament yet again.
I would categorise that aspect of today's Finance (No. 2) Bill as being thoroughly evasive. This is important. Everybody is affected by tax, not least very low paid people, as ably stated by my noble friend Lord Lucas. There is enormous expertise on this subject in both Houses of Parliament. It would be highly desirable if the Government would take full advantage of that expertise; otherwise the taxpayer will be the loser.
In summary, therefore, and this is my closing statement, I believe that this very brief tour of a few specific areas of the Finance (No. 2) Bill enables the House to come to a conclusion about the whole Bill. As I have demonstrated in relation to certain of its specific parts, this Bill is ill-judged, ill-thought out, ill-timed and evasive.
6.37 p.m.
Lord Desai: My Lords, we customarily debate the Finance Bill after it is no longer relevant because circumstances have changed. I should like to urge the Government to adopt a practice which I believe I can claim to have started about four years ago so that we
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debate the Budget Statement, if not the Finance Bill, in the very week in which the Budget is presented. Since we cannot amend it, we might as well discuss it. What is the point of not allowing us to discuss the Finance Bill? I believe that it was possible until last year, but this year it was not possible. As I expect the present Government to be in power for a long time and that we shall get to some sensible management of parliamentary business, I believe it will be a good thing to have the Budget Statement debated early on. Then we would not need to bother about the technicalities of the Finance Bill.
Secondly, I also very much welcome the suggestion made by the noble Lord, Lord Lucas, about dividing the Bill into its more technical and less technical aspects. I am perhaps the only person to speak in the debate who is not an accountant. I am not an expert in taxation. I am much more interested in the economic messages that the Budget sends out. We should be able to discuss those after the Budget much more quickly and sensibly. The technical parts can be left to people who actually understand them and who can amend the Bill properly.
My right honourable friend the Chancellor has made a number of major statements. In this debate we have discussed the Budget and the Comprehensive Spending Review. We have also referred to the independence of the Bank of England and have looked forward to the single currency.
Change has rightly been made in the setting out of the economic framework of Her Majesty's Government. That change began under the previous government. We now have consensus about the economic framework to be set out. My right honourable friend has sharpened it by hiving off monetary policy to an independent Bank of England, leaving himself only the fiscal policy.
I wish to draw attention to another change. At the same time he has taken the view—he and I disagree on it—that fiscal policy is an instrument only for long term growth of the economy. Fiscal policy should not be used for short-term stabilisation purposes. Monetary policy should be used for short-term stabilisation purposes. I am not a great friend of an independent Bank of England, but I am not willing to go to the stake on the issue. I am not worried about the independence of other central banks but about their competence or otherwise. I have never been quite sure about the Bank of England; I have said this before. It is a competent body. However, once the Monetary Policy Committee is set the task of controlling inflation, it cannot be asked to do other things. Monetary policy has only one instrument—interest rates. A monetary authority can fix either the quantity of money or interest rates.
Lord Higgins: My Lords, I am grateful to the noble Lord for allowing me to intervene. He talks of the Bank of England controlling monetary policy. Would it not be more accurate to say that it is controlling interest rate policy? The two are not the same. As regards monetary policy—the control of the money supply—that appears still to be under the Treasury.
Lord Desai: My Lords, I thank the noble Lord for that intervention. In modern financial markets no one

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controls money supply. It is very much influenced by what various financial institutions decide to do with financial innovations. As we discovered during the great monetarist days of the 1980s, with M1, M2, M3, M4, and so on, the monetary authority is no longer in charge of the money supply—perhaps base money but very little else. But it can control interest rates. However, it is only one instrument. Therefore it can have only one objective. Once one sets inflation as a target, it will use interest rates to control inflation. But one cannot add other objectives. The Bank of England or the Monetary Policy Committee does not have the instrument to pursue other objectives.
One of the few things we know in economics—we do not know many—is that one has as many instruments as one has objectives. Unless one hands over economic policy completely to the Bank of England Monetary Policy Committee, that committee will not be able to achieve more than one objective. It may be that the objective should not be control of inflation; that is another issue. The objective may be to ask the Bank of England to achieve full employment. I do not know how it will do that, with the only instrument being interest rates. That is not a good instrument for pursuing that objective. But given that the brief of the Bank of England is to control inflation by interest rates, there is still a role for a fiscal policy for short-term stabilisation.
This is an intellectual argument; it is not a party political point. There is a substantial body of theory in favour of what the Chancellor is doing, although I disagree with it. I believe that there is still scope for fiscal policy in the short term to do various things that monetary policy cannot do to stabilise the economy. I think that the disagreement will continue until some future date.
In the Comprehensive Spending Review my right honourable friend rightly set out the long-term public finance framework—what economists call the steady state. But there is a great deal of misunderstanding about this. The Comprehensive Spending Review does not tell you what will happen year on year. For example, the cyclical component is longer anyway. The cyclical component will obviously be rather large. The surpluses of £7 billion, £9 billion and £11 billion are the long-term steady state surpluses. I would expect—I am sure my right honourable friend knows this too—that the outcomes on both expenditure and revenue will not be as laid down in the Comprehensive Spending Review because that is a long-term picture.
As the Chancellor pointed out in his November Statement, we shall have a slow down of the economy. The recession in the economy was forecast as long ago as November. It has nothing to with the Asian crisis but with other issues. However, given that there will be a slowing down of the economy—we do not know whether it will be a soft or a hard landing—some of the surpluses may be absorbed by cyclical spending and we may have to borrow. Alternatively, the surplus may be larger than expected. But the Comprehensive Spending Review involves the steady state picture of the economy for the next three years; and I believe that the actual outcomes will be different because the economy will not be in a steady state. It never is. If my right honourable
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friend achieved his great dream of eliminating boom and bust, I suggest to the noble Lord, Lord Marlesford, that he would be eliminating capitalism. Perhaps it will require socialism to have an economy of no boom and bust, but while capitalism lasts we shall have a cycle—and a cycle will be our problem.
Today we face the difficulty that we are not sure whether the recession will be a soft or hard landing. Some noble Lords may have seen an excellent article by Mr. Gavyn Davies in the Independent on Monday. He pointed out that it depends on whether one thinks of the long-term rate of growth of the economy as 2.75 per cent. or 2.25 per cent. Noble Lords often make critical remarks about economists. They must understand our problem. Even meteorology has more resources for data collection than the economists. We shall not find out where the economy was in July 1998 for about six months. One is asking economists to drive a car on a rainy night with fog, with no steering wheel and almost no indication of the speed of the car. When I was young I used to think that I could build mathematical models that would precisely control the economy. The older I get, the less faith I have in such things.
Lord Howell of Guildford: My Lords, the noble Lord is making a fascinating speech. I appreciate a great deal of what he says. But if, as I am sure is right, the measurement of the economy is becoming more and more obscure, in particular in a global context, how can short-term fiscal changes—changes in taxation—influence it? That is what he argued at the beginning of his speech.
Lord Desai: My Lords, I am grateful to the noble Lord for that intervention. I always give the analogy of climbing a mountain in a fog: one step at a time is all right; I know where the next step is.
In my car I can do the next 10 feet or 10 yards but beyond that I do not know. We are asked to write out this fantastic map from here to eternity and say, "The short term will take care of itself." The long term is much clearer because we make assumptions—for example, 2.25 per cent., 2.75 per cent.—and draw nice little lines.
A myopic decision-making rule would perhaps be better if one is trying to stabilise the economy. I am not against making long-term plans but the basic problem for the British economy has always been that short-term stabilisation has defeated Chancellor after Chancellor.
I should like to say a word in that respect. I referred to the article by Mr. Gavyn Davies. He said that much depends on what we thought the long-term rate of growth would be. To say that if the economy is fast-moving it will be a soft landing and if it is slow-growing it will be a hard landing, is correct but not good enough. I should like to argue that mere micro-economic aggregates are misleading us about where the economy is. It is not that the economy is growing faster or slower but that there are imbalances in the economy. Consumption is growing too fast and

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investment is not growing fast. Services are growing and manufacturing is not. The south east is prospering and the north is not.
Monetary policy cannot tackle these problems. It is not possible for the Monetary Policy Committee, even given infinite wisdom, to do anything about that with a single interest rate. We need a combination of a variety of regional policies and environmental policies and perhaps a little thinking about the exchange rate if we are to tackle the problem of unemployment in the economy to which my noble friend Lord Bruce of Donington drew attention. I do not believe that there is a single natural rate of unemployment in the economy. There are a variety of natural rates in the economy and they depend on what we are able to do by way of structural policies.
In conclusion, I should like to say that it has been argued that somehow unemployment could rise because of wage bargaining. Many noble Lords have pointed out that it is not wage growth that matters but wage growth relative to productivity growth. So it is the growth of unit labour costs that matters rather than wage bargaining.
I believe that Professor Robin Maths pointed out, when the Monetary Policy Committee last met, that the growth of earnings depends very much upon technical matters, like how one treats bonuses. If one strips bonuses out, the wage growth is much lower than if one keeps bonuses in. What really matters here is not wage growth but whether the economy is able to sustain outward growth and employment growth. As soon as we stop having employment growth one may suspect that something is going wrong.
I believe that one of our problems is an over-valued exchange rate. I do not think we should start debating the lack of productivity growth in manufacturing. Even with the best of productivity growth you would not be able to employ people if the exchange rate is over-valued. That, perhaps, is something we cannot do much about. But I believe that if we are ever to join a single currency, we will not join at the present level of exchange rate. We may be able to join when it gets nearer to 2.70. I know that my noble friend is becoming impatient and so I shall sit down.
6.55 p.m.
Lord Jacobs: My Lords, I understand that I am speaking in what is known as the gap. I have only been here for nine months and I only learnt about it today. I apologise and I shall not detain your Lordships for long.
I should like to begin by saying that I echo the words of the noble Lord, Lord Desai, concerning the time when this House debates the Finance Bill. It was a great shock to me, when I arrived nine months ago, to discover that Finance Bills, monetary matters and even main economic matters play a small role in this House and that there is no authority or power for us to do anything other than perhaps occasionally debate them, as on this occasion, far too late to have any influence.
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That came as a surprise to me. This House probably has more industrialists and business people of experience than the other place. Therefore, I should have thought that they would at least have something to contribute. That is as it is, but maybe it will be possible to debate such matters at an earlier time in future.
Broadly speaking, I agree with the Government's budget policy. I approve of their economic stance from the day they took power. They were still faced with a £20 billion budget deficit and their prime objective was to maintain a tight fiscal stance and to reduce that deficit as rapidly as they could.
The Government have been criticised in some quarters—not, I am glad to say, here tonight—for proposing to increase public expenditure at a significant rate for the next three years. Having maintained a tight fiscal stance for two years, their rate of increase is not that great, taken over a five-year period. The previous Government increased over five years by 2¼ per cent. a year. This Government are proposing taking five years overall to increase public expenditure at the rate of 1¾ per cent. a year. So their growth in public expenditure is slower. But what they are doing is at least letting public expenditure grow when the budget is in surplus rather than deficit. That is something for which I strongly commend them.
I have one criticism of the budget. I should like to echo the words of the noble Earl, Lord Dartmouth, regarding capital gains tax. I confess that I, too, am a chartered accountant, although not practising these days. However, I helped to advise one or two people on the new provisions for capital gains tax. Frankly, the principles that they proposed were extremely good, that is that we should have a short and a long-term capital gains tax. With that I heartily agree.
However, when they take away indexation of capital gains tax they might as well have left it alone. The net effect of the two, if you compare one with the other, is very little indeed. This is a country of fairly low direct taxation. It compares favourably with America except in one respect, which is capital gains tax. There, we are now significantly worse off. We were not when we had indexation; we compared reasonably, although we had a much higher rate of tax. I hope, come the next budget, that the Government will have had enough representations—or rather will have listened to those representations, as they will certainly receive plenty—and will improve the situation next time.
The area that I should like to comment on does not directly come into the budget but has been referred to by several noble Lords earlier; that is, the question of the role of the Monetary Policy Committee.
Lord McIntosh of Haringey: My Lords, I hope that the noble Lord will forgive me. The Companion says that any speaker in the gap should confine his remarks to four minutes.
Lord Jacobs: My Lords, having been informed that I was entitled to speak, I was not told of that fact. I therefore apologise. Would I have permission to speak for one more minute?
A noble Lord: Please.
Lord Jacobs: Thank you. My Lords, I should like to say that the approach of the MPC regarding wage

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inflation is quite unrealistic. It says that if wage increases continue at a higher rate it will have to slow them down. It does not have regard to the fact that all negotiations on wage increases are based on the headline rate of inflation. That is what unions look at, and what all negotiators look at. It is impossible to get around that point.
7 p.m.
Lord Newby: My Lords, this has been a most extraordinary portmanteau of a debate covering a broad sweep of macro-economic policies and detailed issues and technicalities of business taxation. The point made by a number of noble Lords about the way in which this House discusses such issues bears further consideration. It has been demonstrated again today that within this House there is significant expertise on all these matters. Yet in a debate which will last less than three hours we are attempting to cover issues which in the Commons are dealt with in the Budget debate and on Second Reading and at all subsequent stages of the Finance Bill. In my view, that is unsatisfactory. As was suggested by the noble Lord, Lord Desai, we could discuss the Budget Statement within a week of it being made.
As we come next year to look at the composition and functions of this House, we should look again at the way in which it addresses economic and financial matters. The proposal made by the noble Lord, Lord Lucas, which has been around a long time, about a second technical tax Bill would be worth considering at that stage.
I turn, first, to the overall economic position, the way in which the Chancellor has formed his judgment and the future of the economy. It is crystal clear from our debates today and yesterday that we are at a stage in the economic cycle when it is uniquely difficult to see any far distance into the future. The fog on the mountain described by the noble Lord, Lord Desai, is particularly thick at the point when the economy is turning from a period of sustained growth into the downturn and vice versa.
That is noticeable, for example, if one looks at the point when the noble Lord, Lord Lawson, as Chancellor, was forming his Budget judgment in 1986 at the beginning of what subsequently became known as the "Lawson boom". The advice he was getting both internally from the Treasury and externally was not that he should be preparing for a boom but that the economy was faltering and that he should be stimulating it rather than dampening it down. That demonstrates the difficulty of the position in which we find ourselves not least because there is the major external uncertainty over which we have no control; namely, the short to medium-term future of the Japanese and the other Far Eastern economies.
A great deal of discussion has been directed today at the workings of the Monetary Policy Committee and its specific decisions. We on these Benches have supported the establishment of that committee. Some of the criticisms we have heard today remind me of the position in which a football manager sometimes finds himself when the team is not doing as well as people
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might expect and there is a star player or another team selection to be made. There is perhaps a sense that he should be bringing on Beckham or Owen, but the manager believes that perhaps now is not quite the time. That is an analogy to the Monetary Policy Committee.
There is a widespread sense shared by many Members of this House that now is not the time to be putting up interest rates but probably the time to be bringing them down. Like the football manager who has become used to a longer term series of decision making and who has to live by the decisions, there is greater caution on the part of the Monetary Policy Committee. My preference would be to give it the benefit of the doubt for the time being. Although it would not be the unanimous view of the House, we on these Benches believe that the committee is but a transitional body between the Chancellor of the Exchequer setting interest rates, having been advised by the Bank, and interest rates being set for a European single currency in which the UK will be playing a full part.
We welcome many aspects of the Government's overall fiscal stance and budgetary policy. As my colleagues in another place have been ready to point out, we have some concerns about the vulnerability of the Chancellor's plans and about a number of risks contained within them. I shall mention only three. The first relates to inflation and the extent to which the Chancellor's expenditure plans depend on the inflation targets being met. The noble Lords, Lord Barnett and Lord Marlesford, asked whether in setting out cash limited expenditure for the next three-and-a-half years the Chancellor really did mean that it was cash limited or whether, if inflation were to rise beyond that set out in the Government's plans, the cash limit would be relaxed. So far, the Government's statements have been confusing.
In the Economic and Fiscal Strategy Report, the Chancellor stated that the cash figures would be reviewed if inflation varied substantially from the forecast. Yet on 18th July, when he appeared before the Treasury Select Committee, he said:
"I am not proposing to make any additional cash payments. These are budgets that they have to work within".
I suspect that the truth is that if inflation exceeds the targets the Government will take all the options open to them in part and slightly increase the expenditure to take account of increased inflation. They will somewhat increase borrowing so that it takes some of the strain and they will probably raise taxes in order to make up any remaining shortfall. But given that the inflationary outlook is not wholly clear, and given that the Government have not met their inflation targets, there is an implied risk in the Government's forward inflation figures.
The second point—I apologise to noble Lords who heard me make it yesterday evening—relates to the contingency reserve, which is now at a negligible level. It stands at more than £8 billion over a three-year period to cover government spending of £1.1 trillion. In the first two years of that three-year period, those amounts are 0.5 per cent. and 0.7 per cent. respectively of government expenditure. I am not sure what the level was when the noble Lord, Lord Barnett, was

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Chief Secretary to the Treasury, but I suspect that it was 2 or 3 per cent. rather than less than 1 per cent. I do not believe that a contingency reserve of less than 1 per cent. can be described as a prudent figure. There is a risk.
The third risk—the risk we have spent most time discussing—relates to growth and to what happens if the Government's plans on growth are not met. Clearly, the Government are making plans for a soft landing. As the Minister reminded me yesterday evening, the majority of commentators are predicting that. He also accused me of being unduly gloomy about the prospect. I was not doing that. I was pointing out that because of a number of decisions which the Government have already made they have tightly boxed themselves in in terms of their response to any downturn in growth without breaking election pledges on taxation, the golden rule or the other constraints which individually would make sense but when taken together provide a tight fiscal box for the Government to remain in.
Those are the three risks that we feel are inherent in the Government's fiscal and growth plans. As I said last night, we are not hoping that those risks prove to be realities. When we are assessing the Budget and forming our views on the Chancellor's overall stance, it is fair to take those plans into account.
I turn briefly to three specific matters in the Finance Bill which cause us concern. In one or two cases, I should welcome a ministerial response. We have had a limited discussion on ACT today. It is clear that, whatever the merits for the overall abolition of ACT, a whole raft of anomalies has arisen which the Government have so far failed to rectify. In another place, amendments were moved to attempt to deal with the problem of the impact of the change on members of the public who are non-taxpayers and who have to pay tax for the first time on their dividends. It amounts to about 300,000 people paying on average an additional £75 per year. By definition, those people are poor and that is an impost which I am sure the Government did not intend as one of the consequences of the abolition of ACT. However, it is an impost which has flowed from it. While the Paymaster General in another place has accepted that the situation is unsatisfactory, nothing has so far been done about it. I should welcome anything which the Minister will say about how that may be tackled next year.
Another matter which has been raised by a number of noble Lords, including the noble Earl, Lord Dartmouth, and the noble Lord, Lord Boardman, was the abolition of capital gains tax retirement relief. We totally support the concerns raised in that regard. It is extraordinary that a tax-neutral change which has to do with the laudable aim of encouraging people to hold capital for a longer period has the effect of benefiting those whose assets are extremely high and hitting those whose assets are very low, with a cut-off at about £0.5 million.
Again, that seems to be an outcome which the Government cannot have desired. A number of suggestions have been made, not least from the Forum of Private Business, about how a transitional relief could
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be introduced and how an additional taper could be put in to ensure that no small business was worse off. That is an issue to which we should return in another year.
The final tax change to which I should like to refer which has not been discussed at all this afternoon relates to the introduction of the individual savings account. We welcome the ISA proposals in general and welcome also the process by which the Government have sought to introduce what is a complicated and technical change. Quite a significant change has been made as a result of the consultation and the more recent consultation on the CAT marks. The principle behind having a simple CAT mark is entirely laudable. Some of the arguments which have been made against the proposals on behalf of the independent financial adviser industry do not bear too close a scrutiny, given the recent history of bad advice to low-income earners. However, it is quite clear that significant changes could be made to the proposals contained in the Treasury discussion document on CAT marks and I hope that they will be taken into account.
In that consultation document, the Treasury said that it will be publishing draft regulations this month. I understand that that is not the case. I am not surprised because so many suggestions were made and to accommodate them all, or even a large proportion of them, will take time. But perhaps the Minister will give an indication of when those regulations may be forthcoming. As it is almost certainly the case that they will be published during the Recess, will he give some idea of the subsequent parliamentary timetable which may be followed? They are peculiarly important regulations in terms of a significant tax change which will affect potentially very large numbers of small income earners.
This has been a fascinating debate. As I said at the start, in some ways it has been unsatisfactory because it has tried to do too much. I hope that as one looks to our further debates on those issues, they can be conducted with a rather more rational division between a macro-economic discussion and the technical matters contained in any future Finance Bill.
7.13 p.m.
Lord Higgins: My Lords, it will come as no surprise to your Lordships' House that I disagree fundamentally with the opening remarks of the Minister with regard to the Government's economic inheritance, both for the reasons which my noble friend Lord Marlesford put forward with regard to structural changes over the past 20 years or so and for the other reasons put forward by, for example, my noble friend Lord Dartmouth. I take the view that this Government had the best economic inheritance of any government since World War II.
What surprised me was the Minister's remark that there had been an inflationary boom in prospect and the Chancellor had taken firm fiscal action to stop a consumer boom. If there is one thing which this Chancellor has failed to do it is to take action in relation to the consumer situation. Not only that, but he has also taken action which has tended overall to deter savings, which is the other side of the coin to consumption. The

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two go together. I do not know what the Minister was talking about when he spoke of that firm action to curtail consumer expenditure.
The reality of the situation is that after two budgets, two Finance Bills, an economic and fiscal strategy report and a Comprehensive Spending Review, I fear the situation now is that the position which the Government inherited is being frittered away. On top of that we have clearly had a complete reversal of the Government's declared strategy in a number of important respects, in particular as regards a major U-turn on public spending and more specifically on social security spending. I note that in his opening remarks the Minister referred to many increases in public expenditure but significantly did not mention the extremely substantial increase in relation to social security expenditure.
Since I have not spoken before in one of these debates, I thought it appropriate to carry out some research into earlier debates. I was struck by a remark made by, I believe, the noble Lord, Lord Desai, when he said that the House of Lords debates Finance Bills after it is too late to do anything about them. That is probably the reality of the situation as regards the specific tax proposals. As the noble Lord, Lord Newby, pointed out, the debate this afternoon has contained a number of speeches on specific tax matters, but in addition to that we have had a wide-ranging debate on the state of the economy. Therefore, I wish to make one or two remarks on the specific proposals before I turn to the broader issue.
I have great sympathy with the view expressed by both the noble Lords, Lord Desai and Lord Newby, as regards the future structure of this debate. There is a strong case for us to have an opportunity to debate the Budget soon after it takes place.
In that context, I wish to say also, and again agree with the noble Lord, Lord Newby, that the case for a separate taxes management Bill is overwhelming. It is not all that long ago that the Finance Bill was contained in a single volume. It then became two volumes. We now have 409 pages of volume II entirely devoted to schedules. That is at a time when I understand that a committee under the chairmanship of my noble and learned friend Lord Howe of Aberavon is trying to simplify the existing structure of tax legislation. It is going far faster than my noble and learned friend and his committee can possibly hope to keep pace with. Therefore, the case for those matters being debated quite separately—on the one hand, the Chancellor's proposals as far as they affect the economy and, on the other hand, the technical stuff, which I am almost inclined to describe as "garbage", which turns up in the other more esoteric aspects of the matter—is overwhelming.
As regards the specific measures, my noble friend Lord Boardman referred specifically to corporation tax and challenged the Government on the overall situation. The Minister gave the impression that the overall effect of the Chancellor's proposals over the lifetime of this Parliament would be to reduce corporation tax and the revenue derived from it. My understanding is that that is not the case. No doubt the noble Lord will correct me if I am wrong. If I am correct, I hope he will say that
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the overall impact will be to increase corporation tax, taking all the measures into account, rather than otherwise.
Similarly the noble Lord, Lord Newby, and my noble friends Lord Lucas, Lord Northbrook and Lord Dartmouth all referred to the capital gains tax changes with regard to retirement relief. I share the views which they expressed in relation to that. The issue of ACT has been debated already at considerable length and I do not wish to detain your Lordships' House on that subject now.
However, as we are talking more and more about the overall economic situation in terms of a three-year period, I should like to draw your Lordships' attention to the matter which we debated at some length during the proceedings on the Social Security Bill some while ago; namely, the Budget Statement made by the Chancellor of the Exchequer on 17th March in another place, in which he said:
"Further reforms will also ensure that no one pays national insurance for the first £81 of their weekly earnings. All employees earning between £64 and £81 will have their rights to benefits protected".—[Official Report, Commons, 17/3/98; col. 1106.]
Noble Lords will recall that in the debate on the social security legislation there was much dispute about whether the Chancellor of the Exchequer referred to "further" or "future" reforms. However, at all events, it was a major feature of the Budget speech and was certainly picked up in press reports. Nevertheless, your Lordships will look in vain to find any reference to it in this Finance (No. 2) Bill. As this is a matter involving some £1.3 billion, we should at least ask the Government whether this will happen at any time over the three-year period which we are considering, or whether it is simply some aspiration for a time far into the future which will not be relevant to our discussion of the overall economic situation.
I should like to pick up on another point that I raised yesterday; indeed, I have raised it three times now but have not as yet received an answer. I refer to the way in which the figures are presented and the extraordinary way in which the substantial sum of money involved in the working families tax credit—some £5 billion—has been shifted out of the budget of the Social Security Department and put into a so-called "accounting adjustment", together with a further £10 billion covering various other items. Clearly, the overall effect is very important. The Minister was kind enough to say last night that he would give me a clear answer in that respect.
The Minister referred to a particular response that the Government had given which he described as evidence that had been given to the Treasury Select Committee in another place. However, I have managed to obtain a copy of the relevant document and it does not cover the point that I was making originally; namely, whether it is the case that the Office for National Statistics does not approve of the way in which this matter has been handled. Indeed, the amount has been shifted out of the social security budget into the so-called, "accounting adjustment".

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From time to time there are occasions when one can say that such matters are a tax reduction or a public expenditure increase. But this is not a matter of that sort. Although it is to be handled by the Inland Revenue, the reality is that something like 80 per cent. of the working families tax credit will actually be cash which is handed out. One cannot conceivably regard that under any possible rules as a tax reduction. I am sure that the noble Lord, Lord Barnett, would not take that view. It is only if one assumes that everything that everyone has belongs to the Government that such a handout could be regarded as a tax reduction. Therefore, it is most important to clear up the issue. Equally, it is clear that, as far as concerns the reality, one ought to add back the figures into the social security budget.
I have one further point to make on public sector borrowing. Again, I hope that we will receive an answer tonight. The Government's objectives have changed significantly since the Budget was announced in March and this finance Bill has stemmed from it. We were told in March in the Red Book that, from the year 2000, there would be a budget surplus in each year until the end of the planning period. My understanding is that that is not so. We were told that there would be a reduction in the national debt; but again my understanding is that that is not so. We were also told that there would be a reduction in the percentage of national income taken by the state from now onwards to the end of the period. Again, my understanding is that that is not so.
My noble friend Lord Lucas referred to Clause 155 of the Bill. That deals in some considerable detail with the code for fiscal stability which is actually embodied in this legislation. Had that code been formulated in March, it would have had to be radically rewritten by now. Quite clearly, there has been some fundamental change in the Government's overall policy between then and now. That brings me to the major point; namely, the major reversal which has taken place.
The declared policy of the Government before the election and immediately afterwards was very clear: it was to pay for increases in the budget of the education and health departments from savings on social security. That simply has not happened; indeed, it has been a demonstrable failure. Regrettably, in some ways, we have seen that reflected in the decisions as far as concerns the composition of the Government during the past few days. In passing, I feel bound to say that I greatly regret the fact that Mr. Frank Field felt unable to go on serving in the Government. Certainly government of any quality and of any party need people with the kind of expertise and experience that he has.
However, the proposals which were made were clearly not implementable and, therefore, were not implemented. But what strikes me as quite extraordinary is that we now have a new Secretary of State for Social Security, Mr. Alistair Darling, the former Chief Secretary to the Treasury. As Chief Secretary to the Treasury, Mr. Darling was presumably trying to achieve the Government's objectives of reducing the amount of money which was spent in the social security budget. As far as one can see, he ought to have been pressing
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on an open door as regards social security Ministers. However, between them, they failed to cut the welfare budget and, correspondingly, there has been a massive change in the Government's overall policy. We have been assured by the Prime Minister and others during the past few days that it has all been a terrible mistake but that now Mr. Darling will sort it out. It is not simply a case of him being a poacher turned gamekeeper or a gamekeeper turned poacher; indeed, in effect, he is a gamekeeper turned gamekeeper. But the birds have already flown.
We have been told time and time again—indeed, by the Minister last night and again today—that the Government are now planning public expenditure over a three-year period. Unlike periods in the past when previous governments always looked at such matters over a three-year period but did not seek to set them in concrete, such plans are now fixed and cannot be changed. But those plans include a massive increase in social security expenditure. Therefore, I hope that the Minister will be able to tell us today what the actual outcome will be. Will it suddenly be the case that these plans are not as set in concrete as they were before, or will we have a cut in the social security budget which Mr. Darling, having failed to achieve it as Chief Secretary, will now manage to do as Secretary of State for Social Security?
That brings me to the overall situation with regard to public spending in relation to this Finance Bill. It is sometimes said that the danger lies in the increase which is now planned, in contrast to what was thought to be the case last March when this Finance Bill was coming to fruition. We were told then that there was a danger that there might be spending into a recession. Of course, it is always possible to do that if one has a boom or bust and stop-go policies, which the Government have declared they are not going to have. We are told that there will be a sustainable rate of economic growth, and I shall turn to that point in a moment. However, the Government have really short-circuited that boom and bust process.
I turn now to certain points which many noble Lords have raised during the course of this debate; namely, the situation as regards the independence of the Bank of England. Many press statements issued in the past few days have indicated that the Chancellor of the Exchequer is supporting the policies of the Bank of England. But, in that context, it is important to realise that the Bank of England, independent though it may be—or at any rate is said to be—can only operate within the context set by the Chancellor of the Exchequer.
That brings me to the points made by the noble Lord, Lord Desai, with regard to fiscal policy. The Government's failure to do what they said they would do in the comprehensive spending policy document means that there is bound to be upwards—not downwards—pressure on the Bank of England Monetary Policy Committee to increase, not to decrease, interest rates. The Chancellor cannot wash his hands of the whole affair. What he is doing is setting the framework; what the Bank of England is doing is simply spelling out the consequences.

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It is tempting to go into the point, which I made in an intervention to the noble Lord, Lord Desai, as to whether the Bank of England is concerned only with interest rate policy and not monetary policy. My feeling is that monetary policy is still in the hands of the Treasury as regards the funding of the PSBR. However, it is unfashionable to talk of M1, M2 or M3, which used to preoccupy many of us some years ago. Therefore I shall not pursue that point. However, I shall pick up a point which a number of noble Lords have made, for example, the noble Lord, Lord Barnett, my noble friend Lord Northbrook and my noble friend Lord Birdwood, with whom I have discussed the matter. He had hoped to be present this afternoon but was unable to be here. I refer to the point of whether the guidance to the Bank of England should be changed and whether the Chancellor of the Exchequer should ask it either to change its timescale on this matter—that point was made recently in Mr. Kearn's National Westminster review—or should tell it that inflation is important but it must also take into account growth and the overall economy.
This debate has been rather divided between economists and accountants. I declare myself in the first camp rather than the second. In that context I think there is a problem here as regards the way in which the Bank of England operates. I take the point of the noble Lord, Lord Desai, with regard to one instrument and one objective. I suspect that point may have been missed by some of the accountants. In all events I think it would be difficult for the Bank of England to change its remit in the way suggested because effectively it would take over the whole of economic policy, not just the determination of interest rates.
The overall effect of this Finance Bill, and particularly the public expenditure change, gives one real cause for concern with regard to the future of the economy. That is a matter which all of us must regret. That situation has manifested itself more and more. I refer to recent statements by the board of Rover, or the CBI, or this morning's statement by the London Business School. I refer also to the points made by the noble Lord, Lord Bruce of Donington, with regard to productivity and the exchange rate. It is extraordinary that the Chancellor of the Exchequer should have attacked particular companies on their productivity without really examining whether they were service companies or manufacturing companies. I do not think there is any doubt that the effect of the public expenditure exercise, combined with the effects on monetary policy and the effects on interest rates, and the upward rather than downward pressure on the exchange rate, will have a serious effect on many sectors of the economy. I fear that we are heading for "stagflation", to use an old-fashioned term.
While the Government have said that they are aiming for a high and sustainable rate of economic growth, the reality is that the rate of growth which they now anticipate is, by historic standards, remarkably low. I declare an interest as a governor of the National Institute of Economic and Social Research, which has suggested that the rate of growth may be minimal for the remainder of this year and probably only about
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1.5 per cent. or so the following year, and not much higher the year after. By historic standards those are low rates of growth. We may avoid a recession—although I fear that may not be the case for reasons I have mentioned—but we are in no great danger of a boom or bust situation because the rate of economic growth I have mentioned does not indicate any major change. I believe we face the prospect of higher interest rates, more borrowing, and—as a number of noble Lords have suggested—higher taxation, too. That, after a year of the new Government is a gloomy picture.
Certainly there is one thing which is true: forecasts of all kinds are extraordinarily unreliable. I see that the Minister nods his head in agreement. Just 18 months ago I said in another place that I was making my final speech on a finance Bill. That was after 33 years of speaking on finance Bills with the noble Lord, Lord Barnett, and others. As there is often more than one finance Bill in a year, I suppose I have spoken on more than 40 finance Bills. They have varied greatly in quality but this one gives me considerable cause for concern for the future.
7.36 p.m.
Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Higgins, ended his speech by saying that forecasts are notoriously unreliable. I nodded approval because I was reminded of Casey Stengel, the manager of the New York Yankees, who said exactly what the noble Lord has said. He said that forecasts are notoriously unreliable, particularly when they concern the future. They are the worst kind, he said.
We have been criticised for the timing of the debate on the Finance Bill. I was interested to hear the point made by my noble friend Lord Desai, which was echoed by the noble Lords, Lord Jacobs and Lord Newby, and finally by the noble Lord, Lord Higgins. As my noble friend will remember, we had a debate on the economic situation soon after the Budget because that was in Opposition time. If there is any lesson to be learnt perhaps it should be learnt by the Opposition Chief Whip, who might wish to devote some Opposition time to a debate on the economic state of the nation immediately after the Budget when your Lordships' undoubted expertise may have greater influence than it is likely to have some two days before the Summer Recess.
Noble Lords complain that we do not have an input into taxation matters but that was, after all, the result of the Parliament Act 1911. That Act was enacted because Lloyd George's "People's Budget" of 1909, having been debated in all-night sittings in the House of Commons all through August and September with Cabinet Ministers speaking in relays to defend the budget, was then overturned by the House of Lords, plunging the country into chaos. I do not think that we want to go back to that situation. I think we should maintain our inferior status as regards taxation.
The debate was of great interest to me. As has been said, so many noble Lords who took part are accountants and economists. I am a mere market researcher and therefore I must do my best to keep up. I was interested to note that, for once, overall approval for the Budget

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and for the Government's economic strategy came from both Opposition Benches. Not all Members of both Opposition Benches approved of it, but it was useful to have support from the noble Lords, Lord Marlesford and Lord Jacobs, for what we are trying to do.
I have listed 14 topics that I must cover. Therefore I shall race through as best I can. First, there is the fundamental issue of growth forecasts and whether we are being prudent in our spending plans and in our taxation plans. The noble Lord, Lord Boardman, said that the spending review commits everything that we have available. My noble friend Lord Barnett said that we should take pessimistic forecasts seriously. The noble Lord, Lord Newby, made the same point. My noble friend Lord Bruce referred to the CBI surveys indicating a downturn in business expectations. All of those things are true. It is true that we should take a particularly prudent view of public expenditure and public revenue in the light of the likely future for the economy. That is exactly what we have been doing. Indeed, in the Comprehensive Spending Review and the Economic and Fiscal Strategy Report, we have down-sized expectations on the previous position. The result is that our expectations are very much in line with the expected growth of the average independent forecasts and, importantly, our spending projections are based on the lower end of the ranges. We continue to expect growth of 2 to 2½ per cent. this year and 1¾ to 2¼ per cent. next year. Our spending projections are based on the lower end of those ranges.
But in many ways there are still buffers between us and the disaster that so many noble Lords take some delight in forecasting. First, we are over-achieving on the golden rule. The margins on the current Budget build up with surpluses of £7 billion, £10 billion and £13 billion. Our short-term projections, as I said, are on a lower growth path than they were before. Let me be precise about what they are now—what I have given are the earlier figures. The figures are: 2 per cent. in 1998 and 1¾ per cent. in 1999. That is in line with the latest view of most independent forecasters.
We have made cautious assumptions which have been audited by the National Audit Office, including: a 2¼ per cent. trend growth instead of the previous 2½ per cent; only direct effects of our Spend to Save programmes; a modest downward trend in VAT receipts as compared to the flat trend that we assumed before; and reserves in both the Annually Managed Expenditure and managed Departmental Expenditure Limits. I say to the noble Lord, Lord Newby, that there are significant reserves. However, they are less necessary when public spending has been set out in a firmer way for three years than when it is for only one year. The opportunity for departments to plan their expenditure more effectively is very much greater with three-year planning. I simply do not accept that our expenditure plans or expectations of revenue are unsustainable. Of course departments must stay within the cash limits, as they have always had to do. But the buffers that I have described are enormously important.
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The noble Lord, Lord Higgins, returned to the charge that he has made before about social security expenditure. I say to the noble Lord again that social security expenditure, at 2 per cent., is below the expected rate of growth and below the expected rate of inflation. That is a reduction in real terms.
But, more importantly, social security expenditure is not so much the kind of hand-out expenditure that we had, given the higher unemployment in the 1980s and early 1990s, but is much more positively family related expenditure. I mentioned that in my opening remarks. Our deliberate intention is to reduce child poverty. We believe that to be a profoundly important investment in our future. If that counts as social security expenditure, then so be it. Whatever our plans are, they are to cut spending in areas of failure, not spending on positive benefits. The aim is to cut child poverty and poverty among the disabled and the long-term poor.
We talked about the role of the Monetary Policy Committee and the respective role of monetary and fiscal policy. Although there was disagreement, it was not particularly on party lines. Some of the distinction made between monetary and fiscal policy has been too facile. Of course the Monetary Policy Committee considers fiscal matters, and the Treasury considers monetary matters including the question of money supply. But delegation of decision-making on short-term interest rates to the Monetary Policy Committee means that the Government cannot, as in the past, rely on fiscal drag, an inflation tax to cover up a poor control of public expenditure. That is important in relation to the remarks made by the noble Lord, Lord Lucas.
I say to my noble friend Lord Desai that in that respect we have not abjured using fiscal policy for short-term ends. What we are saying is that it should be used, if necessary, for short-term ends but always within the context of the golden rule for the economic cycle as a whole.
I now turn to the issue of the golden legacy to which the noble Lords, Lord Marlesford and Lord Higgins, appear still to adhere. I find that increasingly extraordinary as we move away from the election. Thanks to the boom-bust policies of the party opposite, the past 20 years have seen the two deepest recessions and one of the largest booms since the war. It cannot be denied that that is the case. They have damaged growth, held back investment and cost jobs. Last May we inherited an economy that was in the middle of another short-term inflationary boom caused by the fact that the then Chancellor refused to accept the advice of the Governor of the Bank of England and take the necessary action. We inherited a history of excessive government borrowing and rising public debt, while public investment had been neglected. The burden of public debt under the previous government doubled from 1991 to £350 billion; that is about £15,000 for every family in the country. It cannot be said that that was a golden legacy, however one attempts to massage the figures.
We were criticised by the noble Lord, Lord Higgins, who has raised the matter before, for the treatment in the accounts of working families tax credit. The situation is very straightforward. Income tax credits count as

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government expenditure when payments to an individual exceed that individual's total income tax liability. As the noble Lord said, that is money that is handed out. The position of mortgage income relief at source (MIRAS) or life assurance premium relief at source (LAPRAS), is exactly the same as it was under the previous government. In other circumstances it is negative revenue which reduces government receipts. But 80 per cent. of working families tax credit will count as government expenditure. It will appear in Annual Managed Expenditure and therefore it will appear in Total Managed Expenditure. There will be no departure from previous practice. All the definitions have been approved by the National Audit Office and the Office of National Statistics, which will make a final decision about the accounts when they receive the European System of Accounts update for 1995, in September this year. Nothing underhand is being done. Nothing is being concealed. There are no smoke or mirrors of any kind.
Lord Higgins: My Lords, I am deeply grateful for the trouble that the Minister has gone to so far as this matter is concerned. Is he saying that 80 per cent. of the working families tax credit will appear as part of the social security budget?
Lord McIntosh of Haringey: My Lords, I did not say it would appear as part of the social security budget; I said it would appear within the Annually Managed Expenditure. Frankly, I do not know the answer offhand as to in which category it will appear, but it will appear as public expenditure. Anyone can aggregate or disaggregate the figures as they wish.
We then had some debate about wage inflation. The conflict between the fears of the Treasury Select Committee which reported today and the London Business School which reported this morning is significant. We do not in any way underestimate the dangers of wage inflation. We systematically seek to separate out wage increases which are the result of increases in productivity from those which are not. We are properly concerned about the latter category.
Noble Lords also referred to the unemployment figures. The noble Lord, Lord Marlesford, expressed great interest in the constituency figures, which are only claimant unemployment, whereas, as my noble friend Lord Bruce rightly recognised, we have moved from emphasis on the claimant unemployment to internationally recognised figures for employment based on the Labour Force Survey. I believe that that is a recognised improvement. There was criticism from the noble Lord, Lord Boardman.
Lord Marlesford: My Lords, that may well be but the fall in the figure of unemployment is quite remarkable. In the United Kingdom between the years 1996 and 1998—a period for which, in terms of unemployment, the previous government had some responsibility—total unemployment fell by 37 per cent.
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It may be that absolute figures are different, depending on whether you use the ILO or the claimant measure. The proportion of the fall is very considerable.
Lord McIntosh of Haringey: My Lords, of course, and no one denies that there has been a fall and the two sets of figures go in parallel. I remember the late Lord Wyatt of Weeford accusing me of throwing 500 people onto the dole by using higher figures derived from the Labour Force Survey. He said: "Where shall we find the money for them?"
I turn now briefly to the remarks of the noble Earl, Lord Dartmouth, about secondary legislation. There has been no change in the practice. The same proportion of tax legislation arises in secondary legislation or primary legislation as in the past. Secondary legislation is useful because it allows for proper consultation with the professions and business and other interested bodies.
As for corporation tax, there was general agreement that we ought to get rid of advance corporation tax. Doing so meant that we had to change the method of payment of corporation tax. We did so by phasing in over four years the system of instalments. That change applies only to 20,000 out of 700,000 companies in this country.
The change means an increase in corporation tax take in one single year, but after that the figures are the same as they would have been in previous years, except that, as I made plain in my opening speech, corporation tax is at a lower level than ever. I repeat to the noble Lord, Lord Higgins, that in total we shall take £1.5 billion less in corporation tax over the period of this Parliament than would have been the case under the old system.
On capital gains tax, I do not accept even the view of accountants that the situation will in the longer term be more complex. Of course, while we have indexation and the taper for investments which cover both periods, we have to calculate on both bases. But in the longer term, first, the indexation calculation is frozen and will never change again. Secondly, in the longer term there will be fewer and fewer indexation calculations and more of the simpler taper calculations. The most important point about capital gains tax—I refer to those who mentioned the abolition of retirement relief—is the distinction which is made between business assets and other assets. I believe that that is an important change for small businesses. I sold the majority share in my business in 1988 after 25 years. Because I was under 60, I did not receive any retirement relief at all. Retirement relief was subsequently improved, although it was extremely difficult to get.
However, with the taper, all the investments which I had had in a business asset over more than 10 years would have been taxed only at 10 per cent. That is a real improvement for small businesses. Therefore, I do not accept the charges which have been made.
On heritage assets and conditional access, we shall be quite flexible. For example, the conditional access requirement could well be fulfilled not by a "burglar's charter" but by having the assets exhibited in a local museum or gallery for part of the year. That has been generally welcomed and negotiations are still going on about it.

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Starting with the noble Lord, Lord Boardman, there have been criticisms about the distinction between capital and current expenditure. I must insist that the distinction which we are making—and we are doing it, not just talking about it as it has been talked about for 40 years—is consistent with the national accounts. It will be consistent with the European System of Accounts and it will be made to work. The important point is that when there is any disposal of assets, whether directly by central government or by local government, the receipts from that disposal of assets will be required to be used for investment purposes and not for tax cuts or for current expenditure, as they were under the Conservative government.
I must correct something I said earlier about growth projections in the Economic and Fiscal Strategy Report. I misread something that I had been told. In fact the growth projections for the Economic and Fiscal Strategy Report and the CSR were the same as those in the Budget. I apologise for that mistake.
I have dealt with working families' tax credits. I must reply to the noble Lord, Lord Higgins, about his understanding that it is not the case that we are continuing to plan for a surplus on current Budget accounts. I have given the figures. We are still planning for a surplus on the current Budget of £7 billion, £10 billion and £13 billion over the next three years. Government plans show net debt falling to less than 40 per cent. of GDP, which is exactly what we were saying before. It is only sensible to look at the debt in relation to the size of the economy, not in cash terms.
Some doubt was expressed as to whether there would be upward pressure on interest rates as a result of our spending plans. The Monetary Policy Committee has met since our spending plans were published and it did not raise interest rates. So I believe we can be assured of that.
The noble Lord, Lord Newby, expressed concern about advance corporation tax abolition and the effect particularly on elderly shareholders. The Paymaster General has undertaken to review the position of shareholders of modest means who are non-taxpayers. He has met Age Concern to discuss it and will announce his decision as soon as possible.
I shall write to the noble Lord, Lord Lucas, about the issue of tax simplification to which he referred. But it is a general concern. We recognise its importance. We think that self-assessment, after the first year, will make life much easier for taxpayers rather than the reverse. For tax returns submitted by September, self-assessment will not be required. Therefore, anyone who is in any fear of being confused by complicated tax has only to submit his return by September to get out of it. We have even won prizes for our instructions from the Campaign for Plain English, and that surprised me as much as it will surprise your Lordships.
Lord Higgins: My Lords, I do not underestimate for one moment the difficulty of replying to a debate like this and I apologise therefore for interrupting the Minister again. However, were we not told in March
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that there would be a reduction in the National Debt during the course of this Parliament? Is that still the case?
Lord McIntosh of Haringey: My Lords, we were told that there would be a reduction in the National Debt as a proportion of GDP, and that is what will happen. That is what I understood the noble Lord to be talking about.
A specific point was made by the noble Lord, Lord Higgins, in relation to CAT marks for individual savings accounts. We have just completed the consultation exercise on that and shall be considering the responses and announcing the decisions in due course. Therefore I ask the noble Lord to be patient on that matter.
I am sure that I have omitted many other aspects of this debate. It has been extremely complex, long, and well informed. I am grateful to all noble Lords who took part in it. If I have missed out any points that I ought to have covered, I shall certainly write to noble Lords, though whether I shall do so in the next two days is another matter.
I believe that, on the whole and with few exceptions, there has been some consensus that the Government are tackling the economic problems of this country with a degree of seriousness which the country, in due course and now, will commend, recognise and respect. I commend the Bill to the House.
On Question, Bill read a second time; Committee negatived.
Then, Standing Order No. 44 having been dispensed with (pursuant to Resolution of 9th March), Bill read a third time and passed.

Special Immigration Appeals Commission (Procedure) Rules 1998
8.2 p.m.
The Lord Chancellor (Lord Irvine of Lairg)The Lord Chancellor (Lord Irvine of Lairg) rose to move, That the draft rules laid before the House on 2nd July be approved [40th Report from the Joint Committee].
The noble and learned Lord said: My Lords, the draft rules provide the necessary procedural framework for the new commission created by the Special Immigration Appeals Commission Act 1997. That Act, which received Royal Assent in December 1997, established new appeal arrangements for the small number of cases where the Home Secretary exercises his powers to deport or to exclude someone from the United Kingdom on national security grounds or for other public interest reasons.
The commission replaces a non-statutory advisory panel, known as the Three Advisers, which had existed for the previous 25 years. Its role had been to review the case against a person liable to deportation, and to advise the Home Secretary before he made a final decision. However, in 1996, the European Court of Human Rights found that the arrangements for

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challenging the Home Secretary's decision in cases involving deportation on national security grounds were in breach of the European Convention on Human Rights. The court's judgment followed an application by Karamjit Singh Chahal.
Mr. Chahal had been made the subject of a deportation order. As that decision had been made on national security grounds, he had no right of appeal against it, nor against the refusal of his claim for asylum. The case against Mr. Chahal was considered by the advisory panel. Then, having exhausted his domestic remedies, including judicial review, Mr. Chahal applied to the European Court of Human Rights.
The court found that the remedies available to Mr. Chahal did not comply with Articles 5(4) and 13 of the European Convention on Human Rights. Article 5(4) entitles a person to have the basis of his detention reviewed by a court. The advisory panel was not considered to be a court because, for example, individuals were not entitled to legal representation and it had no power of decision. On the other hand, the domestic courts were not in a position to review whether the decision to detain a person was justified on national security grounds.
Article 13 entitles a person whose rights under the convention are violated to an effective domestic remedy. However, the substance of the decision refusing Mr. Chahal's claim for asylum could not be considered either by the advisory panel or on judicial review.
By establishing the Special Immigration Appeals Commission, the Government are remedying the deficiencies identified by the European Court of Human Rights. In addition, it has given a right of appeal to the commission to those who are excluded from the United Kingdom in cases where European Community law is relevant—either because the person to be excluded is a European Economic Area national or because he is otherwise exercising his rights of free movement under the Treaty of Rome.
The commission is significantly different from the advisory panel. Its members are appointed by the Lord Chancellor, who also makes its procedural rules. Its decisions will be published and will be binding on the Home Secretary. It will also be able to deal with bail applications. The appellant will have the right to be represented. There will be a right of appeal from the commission to the Court of Appeal on a point of law.
Nevertheless, because of the need to safeguard highly sensitive material, the commission's procedures depart from what would normally be required to satisfy natural justice. It is for that reason, and because the procedures are not set out in detail on the face of the Act, that the Government decided that the rules should be subject to affirmative resolution.
During the passage of the Act, draft rules were made available to give a flavour of the procedures which were likely to be adopted. Since then, the draft rules have been developed and improved. Interested organisations and individuals have been consulted. Changes have been made as a result of their suggestions. The Government are indebted to those who responded for the care with which they considered the proposed procedures.
The European Court of Human Rights acknowledged the need for safeguards in cases involving confidential material, and that what is needed is a remedy which is as effective as it can be, given the obvious risk to national security. The court commended the procedures adopted by Canada, which were drawn to its attention during the Chahal case. Those procedures were taken as a starting point, and we acknowledge our debt to Canada, but I believe that the rules before the House today offer even better protection to appellants because their interests will be more effectively represented.
The conflict in these cases is obvious. There is both a need to ensure that a decision is properly reviewed as well as a need to secure that information is not disclosed contrary to the public interest. I am satisfied that the rules satisfy both requirements.
The commission will have three members—a High Court judge, a legally qualified senior member of the Immigration Appellate Authorities and a member with knowledge of national security issues. As far as it is possible to do so, without disclosing confidential information, the appellant will be allowed to attend proceedings. Where he cannot, he will be given a summary of the case against him and the reasons for the commission's decision. If the case involves an asylum claim, the United Kingdom representative of the United Nations High Commissioner for Refugees will be treated as a party if he so requests.
The commission has to be able to exclude the appellant, his representative and the UNHCR representative, when it is considering confidential material, or an objection by the Secretary of State about the disclosure of material. Whenever that happens, however, the appellant's interests will be safeguarded by a special advocate appointed by the Attorney-General.
The special advocate will see all of the Secretary of State's material. He will be able to test it; for example, by cross-examining witnesses. He will be able to make representations to the commission; for example, about the material to be withheld from the appellant. He will not, however, be able to communicate with the appellant as a representative normally would. There is a risk of inadvertent disclosure through an apparently innocent remark. He will be able to apply to the Commission to seek specific information from the appellant.
The role of the special advocate is different from that envisaged in the draft provided during the passage of the Bill. Then, it was expected that he would act more as if he were counsel to the commission. We have now created a much more pro-active role on behalf of the appellant.
The Attorney-General will be invited to appoint a special advocate as soon as it becomes apparent that the appellant is likely to be excluded. For this to happen at the earliest possible stage, the rules require the Secretary of State to notify the Attorney-General that he intends to object to material being disclosed to the appellant. This brings me to one of the most significant changes made following the consultation exercise.
The special advocate and appellant will not have a traditional 'client-representative' relationship. However, during consultation, respondents suggested that, before

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he sees confidential material, the special advocate ought to be able to communicate freely with the appellant. We have adopted that suggestion. We have imposed on the Secretary of State the requirement to notify the Attorney-General of the potential need for appointment of a special advocate at the time he decides to oppose the appeal. In that way, the special advocate will have the maximum time possible to communicate freely with the appellant. Once he has received the Secretary of State's material, the special advocate's access to the appellant will be restricted, but he will be able to apply to the commission for authority to seek information, in connection with the proceedings, from the appellant or his representative.
There is one further point to which attention should be drawn. If the Secretary of State objects to the disclosure of material to the appellant, the commission may overrule that objection. The Secretary of State will not be forced to disclose this material provided he does not then rely upon it in opposing the appeal. As in any case in the courts, the commission will ignore entirely any material it has seen but which is subsequently withdrawn.
Inevitably, the rules have to underline the commission's responsibility to ensure that information is not disclosed contrary to the public interest. I am satisfied that the rules achieve this objective in a proportionate manner and provide important safeguards for the rights of the individual.
The noble Lord, Lord Lester of Herne Hill, whose interest in the subject matter of these rules is well known, cannot be with us tonight. If he were he would strongly endorse the rules. I know that he is happy for me to bring his support to the attention of your Lordships. I invite your Lordships' approval of the rules.
Moved, That the draft rules laid before the House on 2nd July be approved [40th Report from the Joint Committee].—(The Lord Chancellor.)
Lord Kingsland: My Lords, Her Majesty's Opposition would like warmly to congratulate the noble and learned Lord the Lord Chancellor for contriving such an imaginative solution to a seemingly intractable problem.
On Question, Motion agreed to.

Criminal Appeal (Amendment) Bill [H.L.]
8.14 p.m.
Lord Ackner: My Lords, I beg to move that this Bill be now read a second time. The case of Iain Hay Gordon is the stimulus behind the Bill. He was tried on indictment in Northern Ireland in 1953 for the crime of murder. The jury returned a special verdict under the Trial of Lunatics Act 1883 that he was guilty of the act charged against him but was insane when he did that act. He was committed in consequence to an institution from which he was released in 1960. He made an application to the Criminal Cases Review Commission,
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set up under the provisions of the Criminal Appeal Act 1995, seeking to have his case referred to the Court of Appeal of Northern Ireland with the object of having the jury's verdict reviewed.
The commission took the view, after giving full consideration to its jurisdiction, that it did not have power to refer such a case to the Northern Ireland Court of Appeal under Section 10 of the 1995 Act but decided to seek the assistance of that Court of Appeal in order to get its view on the issue of jurisdiction. The Court of Appeal of Northern Ireland decided that the commission's decision was correct.
Your Lordships may recall that Section 3 of the Act of 1995 abolished the power of the Secretary of State, previously exercisable under Section 12 of the Criminal Appeal (Northern Ireland) Act 1980, to refer cases to the Court of Appeal. The Criminal Cases Review Commission was established by Section 8. Its powers to refer matters to the Court of Appeal were set out in Section 10. Section 10(1)(a) provides that:
"Where a person has been convicted of an offence on indictment in Northern Ireland, the Commission may at any time refer the conviction to the Court of Appeal".
The commission's powers in respect of cases involving insanity are contained in Section 10(6) which reads:
"Where a finding of not guilty on the ground of insanity has been recorded in Northern Ireland in the case of a person, the Commission may at any time refer the finding to the Court of Appeal; and a reference under this subsection shall be treated for all purposes as an appeal by the person under section 12 of the 1980 Act against the finding".
Mr. Gordon submitted to the commission that it had power to consider and refer his case since the wording of Section 10 was sufficient to cover a case in which the verdict was one of guilty but insane. The subsequent issue therefore was whether a specific verdict under the 1883 Act is a conviction, sentence or finding of a nature which comes within the scope of Section 10 of the Act, so empowering the commission to refer it to the Court of Appeal of Northern Ireland for review.
I can take the reference to the historical situation of the legislation quite shortly. Where a defendant is of unsound mind he is regarded by the common law as unable to form the guilty mind required to found a conviction. Before 1880, when the jury found that a defendant had committed the act but was insane, it could either return a general verdict of not guilty or a special verdict that he had committed the act but was non compos mentis in which event the court would enter a verdict and judgment of acquittal. The judges had power to order him to be detained in custody as a dangerous person although it appears that this practice was not always followed.
The practice was made mandatory by the Criminal Lunatics Act 1880, under which if a defendant was found not guilty of a felony by reason of insanity the jury had to return a special verdict to that effect; then the court was obliged to order the defendant to be detained during His Majesty's Pleasure.

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The terms of the special verdict were changed by Section 2(1) of the Trial of Lunatics Act 1883, which prescribed that it was to be to the effect that,
"the accused was guilty of the act or omission charged against him, but was insane at the time when he did the act or made the omission".
The special verdict under the 1883 Act was no different in substance from that given under the 1880 Act. There was, of course, no right of appeal.
The general law governing mental health was modernised in Northern Ireland by the Mental Health Act 1961 which brought into law a range of powers for dealing with persons suffering from mental disorder. Section 56 enacted new provisions for persons found to be insane. Subsections (2) to (4) of Section 56 are close to the provisions of the 1883 Act, which was repealed in its application to Northern Ireland in the following terms:
"(2) Where upon the trial on indictment or on an information of any person charged with the commission of an offence—

(a) evidence is given that the person charged was insane at the time the offence was committed; and

(b) the jury find that although the person charged did the act or made the omission charged, he was insane, so as not to be responsible according to law for his actions at that time;

the court shall direct a finding to be recorded to the effect that the person is not guilty of the offence charged on the ground of insanity".
The special verdict under the 1883 Act was accordingly replaced by a finding, a term echoed in Section 10(6) of the 1995 Act to which I have referred.
The current provision relating to findings of insanity is contained in Article 50 of the Mental Health (Northern Ireland) Order 1986, as amended by Article 50 of the Criminal Justice (Northern Ireland) Order 1996. It is basically similar in terms to that contained in the Mental Health (Northern Ireland) Act 1961 and provides for a finding to the effect that the person is not guilty of the offence on the ground of insanity.
Thus, the primary submission advanced by Sir Louis Blom-Cooper on behalf of Mr. Gordon was that Parliament, in enacting the words in Section 10(6) of the 1995 Act,
"not guilty by reason of insanity",
intended to include the phrase "guilty but insane". His thesis was that the two phrases are interchangeable in essence and intent and that the change from the first to the second and back again was no more than terminological.
However, the Court of Appeal of Northern Ireland concluded that the wording of Section 10(6) of the 1995 Act is on its face clear enough, that only a finding of not guilty on the ground of insanity recorded in Northern Ireland may be referred by the commission to the Court of Appeal.
The Court of Appeal considers that there is not a sufficient reason to depart from the plain meaning of the words of Section 10(6) of the 1995 Act that a reference can be made in respect of a finding of not guilty because of insanity, which applies only to cases decided since
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1961, and not in respect of cases where there was a special verdict under the 1883 Act of "guilty but insane".
In my submission, the omission of the verdict of "guilty but insane" is a simple error in drafting, but it has created the long-standing and tragic absurdity that Mr. Gordon cannot have his case investigated. That outcome was never intended by the Runciman Commission, the work of which established the commission. I understand that the commission has expressed the wish for the law to be changed. Mr. Gordon is not the only "guilty but insane" case. It is generally recognised that it would be absurd for "guilty but insane" verdicts to be excluded. Their effect was the same. Only the nomenclature of the verdict changed. Not to include them, and not to amend the Act, would be to perpetuate in those cases the lack of appellate rights and to perpetuate what could be a violation in that respect of Article 6 of the European Convention on Human Rights. It would certainly be to obstruct justice in the particular case to which I referred. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Lord Ackner.)
Lord Williams of Mostyn: My Lords, I have notified the noble and learned Lord, Lord Ackner, the noble Lord, Lord Kingsland, and the noble Earl, Lord Portsmouth, to whose interest in this matter I pay tribute, that the Government agree with the intention of this Bill and accept that the 1995 Act should be amended to extend the commission's powers in this way. I hope that that is helpful.
The Earl of Portsmouth: My Lords, I had intended to speak in support of the Bill moved by the noble and learned Lord, Lord Ackner, but in view of the assurances that I have been given by the Minister, I have nothing further to say except to express to him my gratitude for his co-operation and understanding.
Lord Kingsland: My Lords, there is nothing that I can usefully add to what the noble and learned Lord, Lord Ackner, and the noble Earl, Lord Portsmouth, have said. I am delighted that the Minister has intervened in the way that he has. The Bill has, of course, the full support of the Opposition.
Lord Williams of Mostyn: My Lords, I am most grateful. The Government accept that there is a gap in the law. It is important to maintain confidence in the criminal justice system. It is important, above all, to individuals who believe that an injustice has been done that there should be an avenue of appeal or some other mechanism to review the verdicts of the courts.
By today's standards it is an injustice that someone who has been found guilty but insane should have no possibility of appeal and it remains an injustice, despite the fact of, and no less for, being a long-standing injustice.
The noble and learned Lord, Lord Ackner, may wish to reintroduce this Bill into the House in the next Session. If he does, and if it is of assistance—I have

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indicated this to him privately—I should be most happy to ask officials to discuss the drafting with him. It may be that a Private Member's Bill could be introduced in another place. The Government themselves will give further consideration to what legislative vehicle might be appropriate for the introduction of such a measure.
Lord Ackner: My Lords, I am most grateful to the Minister. I commend the Bill to the House and respectfully ask that it be given its Second Reading.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
Baroness Farrington of Ribbleton: My Lords, I beg to move that the House do adjourn during pleasure for five minutes.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 8.29 to 8.34 p.m.]

Civil Procedure Rules
The Lord Chancellor The Lord Chancellor rose to move, That this House take note of Her Majesty's Government's proposals for Draft Civil Procedure Rules (contained in the document Access to Justice dated July 1998) as part of their proposals for civil justice reform.
The noble and learned Lord said: My Lords, in April 1999 I shall be introducing the most fundamental reform of the civil justice system since the Judicature Acts of the 1870s. That last great reform of the civil justice system took place under the direction of Lord Chancellor Selborne. It was driven by public dissatisfaction with the cost, delay and complexity involved in bringing cases before the courts. The majority of my civil servants who work directly to me do so out of Selborne House in Victoria. It is of course named after Lord Selborne. My programme of reform is motivated by the same concerns as affected him. It stems from the distinguished work undertaken by the noble and learned Lord, Lord Woolf, in his historic Access to Justice report. No one is more welcome than the noble and learned Lord to contribute to this evening's debate.
The reforms aim to provide a single system of civil justice based on the fundamental principles of proportionality, clarity and efficiency. The Government believe there should be an end to different procedures for the High Court and the county courts and greater consistency among county courts. The unified system will be the key which will unlock the door through which we will show out our enemies, excessive cost and complexity, and welcome in our allies, greater speed, fairness and certainty.
This is a rolling programme of reform. Uniformity will first be achieved in April 1999 with the introduction of the first phase of the Civil Procedure Rules—the unified code which will incorporate the newly drafted plain English rules that will apply both to the High Court and county courts which has been developed from
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the initial text provided by the noble and learned Lord, Lord Woolf, more familiarly known as "Brown Book 1" published in July 1996. I intend the rules to be interpreted and applied as a complete code of civil procedure to implement the expressed objectives of the new system. Judges and lawyers must resist any temptation to look back unnecessarily at the old words, old case law and the old ways.
When in Opposition, as Shadow Lord Chancellor I tabled an amendment to the Civil Procedure Bill (Hansard, 20th November 1996; col. CWH26) aimed at ensuring that the Civil Procedure Rules would be approved by Parliament by affirmative resolution before they came into force. I was content to settle for the pragmatic compromise of my noble and learned predecessor, made in response to a report from the Delegated Powers Scrutiny Committee, that drafts of the new rules would be debated before they were signed off by the Rule Committee and the Lord Chancellor.
Tonight I am pleased to be able to deliver what I pressed for all that time—an opportunity for this House to debate the new draft rules. I shall not try to respond to all the points noble Lords will make this evening. I am here primarily to listen to your Lordships' views. I shall also make sure that the Rule Committee is aware of them and can take them into account before the rules are finalised.
The rules that I have brought before the House tonight reflect the most essential part of my reforms. These rules have been informed by the policy I settled after wide consultation with judges, legal practitioners, consumer groups, whose contribution has been most valuable, and individuals. I welcome the active role that many have played in helping to develop the rules and procedures and the support given to the reforms. I am particularly indebted to the Bar Council and the Law Society and their various working groups for the time and effort they have devoted to help ensure the reforms are a success.
I know that some consider that implementation should be delayed, particularly as full IT support will not be available from day one. However, I will not continue for any longer than is necessary systems which have shown themselves to be slow, inefficient and expensive. I have been persuaded by the noble and learned Lord, Lord Woolf, that we could gain a significant advantage by introducing the new rules in April 1999, even though the case tracking IT system will not be on stream before 2000. There would also be considerable risks in introducing the new rules at precisely the same time as new IT systems.
Litigants and practitioners should benefit at the earliest opportunity from a quicker, more predictable civil justice system, enhanced by all the improvements that increased case management will bring. It must also be remembered that any further delay in implementation would risk losing the momentum created so far. That was the view of the noble and learned Lord, Lord Woolf, and it is my view too. The timetable is challenging but achievable.
The Civil Procedure Rule Committee has worked tirelessly over the last year on the draft rules. It recently decided to increase the frequency of its meetings to once

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a week so that it could meet its deadlines. This involves not just spending more time attending the meetings but also requires as much time for preparation outside the meetings as the meetings themselves occupy. The willingness of members to give up more of their own time—I emphasise, their own time—to the committee's work is impressive evidence of their commitment and dedication to public service and their determination to achieve an excellent end product which will work.
This supreme effort has made possible the transformation of the rules governing civil proceedings—a transformation which has two parts. The first is a coherent set of rules to provide the framework for a wholly new approach to dealing with civil cases. The second is to achieve greater simplicity and clarity than has ever been achieved before or, I would add, attempted. The bid to turn some of the most technical aspects of the civil justice reforms into plain English is to be applauded. I know this aspect of the committee's work owes much to the influence of the representatives from the voluntary advice sector and consumer organisations. Their involvement in a committee of this kind is an innovation, and one that has proved highly successful.
The committee still has much work ahead of it before it seeks my approval and signature to the new rules, prior to laying them before Parliament. But the fundamental principles within these drafts are sufficiently settled for me to wish to invite your Lordships' views.
Before I do so, let me say a little about the key issues dealt with by the rules. Recognition of the principles of the reforms is given expression at the very beginning of the new rules. Part 1 articulates the overriding objective: to enable the court to deal with cases justly. This includes dealing with a case expeditiously and fairly in ways which are proportionate, and saving expense. The court must seek to give effect to this overriding objective when it exercises any discretion given to it by the rules or interprets any rule.
There will be a major transfer of power from lawyers to judges so that cases can be closely managed. For example, judges will be required to monitor the progress of a case by setting timetables and controlling compliance with those timetables by applying sanctions. They will ensure that cases will be heard by the appropriate level of judge. This increased level of responsibility for the control of cases and the maintenance of proportionality is vital to the overall success of the reforms.
Control and proportionality appear again in the rules dealing with evidence, witness statements and disclosure. New powers will allow the court to direct that evidence may be given by one expert only. Adapting to this will require a culture change. Rules will also spell out the expert's overriding duty to the court. These are all elements which will assist in the control of the amount of work done proportionate to the needs of the case.
Proportionality will be achieved by greater control over the content of witness statements. They must cease to be lawyers' reconstructions, bearing no similarity to the evidence the witness could give unaided from the
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witness box. A statement will in future contain only the evidence that a person would be allowed to give orally at a hearing.
Part 27 includes powers which will enable courts to limit or even dispense with disclosure of documents. This will help judges bear down on work which is unnecessary for the value or complexity of the case.
My reforms provide three routes to justice through the courts. I am increasing the number of people who can benefit from the small claims jurisdiction by raising its limit to £5,000, while recognising the particular needs of those with personal injury, housing disrepair, harassment and unlawful eviction claims. For example, it should be possible for a litigant to pursue a claim for a minor injury—and we are speaking of cuts and bruises—without recourse to lawyers and legal representation. I consider the full-blown processes of the law disproportionate and unnecessary to this type of claim. Similarly, while the small claims regime is appropriate for the disposal of low-value housing disrepair cases, higher-value claims are likely to involve substantially more complex issues both of law and fact. As a result, the small claims limit for personal injury and housing disrepair claims has been set at £1,000. Housing-related harassment and unlawful eviction claims are to be excluded from the small claims regime altogether.
I am introducing the fast track for most types of claim between £5,000 and £15,000. Its features include a 30-week timetable from allocation to conclusion and a presumption against the use of oral expert evidence at the hearing.
I am introducing the multi-track for higher value, or more complex cases, where strict judicial control will govern the volume of work done by the parties in preparation for trial in line with the needs of the case.
To proceed to one or other of these routes, however, a case will need to be appropriately allocated when it is defended. Part 24 provides judges with the power to do just that. This is the point at which judicial case management commences and judges should take control of a case. This might include ordering a stay of the proceedings to allow the parties to attempt resolution of the dispute by alternative means or to attempt settlement. A judge's responsibility is to ensure that the case proceeds in the most effective way possible to secure a just resolution of the dispute. That resolution must be achieved with regard to proportionality of time and expense, or it is not just.
The rules are one part of the armoury judges will have to bring about the civil justice revolution. Practice directions, giving litigants and their representatives the details of what they must do to comply with the rules, are being developed under the supervision of the Vice Chancellor, Sir Richard Scott, and will be published with the final versions of the rules.
I expect to be able to include in that published package protocols which will regulate pre-action behaviour for some types of case. Tough sanctions for non-compliance with protocols, where proceedings are issued, will be a further weapon to support tight case

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management. Judges should recognise that material non-compliance with the protocols should result in heavy sanctions.
There is one omission from the package which I am putting before you. You will not find draft rules relating to fixed costs in the fast track, an issue which I know and acknowledge is very important for practitioners. I have deliberately taken time to consider how to approach that issue. I commissioned research to assist me in forming my view. I regard the issue as so important that in June I issued a consultation paper seeking views on a range of options. That consultation process is not yet complete. I am not yet able, therefore, to ask the Rule Committee to consider rules on this.
I have given your Lordships a flavour of the radical nature of these reforms. Let me now invite you to give me your views on the drafts I have brought before you for your consideration. I beg to move.
Moved, That this House take note of Her Majesty's Government's proposals for Draft Civil Procedure Rules (contained in the document Access to Justice dated July 1998) as part of their proposals for civil justice reform.—(The Lord Chancellor.)
8.50 p.m.
Lord Hunt of Wirral: My Lords, I welcome the words of the noble and learned Lord the Lord Chancellor in setting the background to the debate. We welcome the opportunity to give our views. I have been involved in the day to day administration of the law for over 30 years. As I explained to the House last week, I acted for plaintiffs for the first 10 years and for the past 20 years I have acted almost exclusively for defendants. Anyone who has been so involved would join the noble and learned Lord the Lord Chancellor in saying that the system of civil justice has long been in need of reform. There is much to praise in what has been achieved so far by the noble and learned Lord the Lord Chancellor and his predecessor.
From the outset I pay tribute to the work of the Master of the Rolls, the noble and learned Lord, Lord Woolf, who has approached the task with the clarity of thought which makes so much of his report Access to Justice seem like obvious good sense despite its revolutionary approach. In particular, the idea of cutting away the adversarial culture and encouraging dispute resolution through judge-led case management has deservedly gained wide acceptance in the legal profession and among the public at large.
Moreover, the report's "big idea" is supported by a range of good practical ideas such as a combined set of rules for all civil courts, written in plain English and comprehensible by all. What a tremendous ambition, and one very close to being achieved. But it is in the context of those rules which now come before your Lordships' House for consideration that I wish to sound three notes of caution, not criticism. Now is not a time for detail, as the noble and learned Lord the Lord Chancellor said. Conscientious committees are combing through not only the rules but the practice directions and forms associated with them to make the detailed wording as clear and effective as possible.
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My three points concern broad issues of principle. First, I hear fears in many quarters now about the danger of a piecemeal introduction of the new rules. I reflect immediately the irony of urging delay in implementing a process the very purpose of which was to remove delay from the system. But partial implementation of the rules without adequate time for preparation is likely to make the eventual outcome far worse.
The noble and learned Lord, Lord Woolf, has always made clear that the reforms must be regarded as a package, and I have sat at his feet listening to him on many occasions saying just that. The wisdom of that approach is self evident. The timetable for implementation now looks decidedly optimistic. With a commencement date of 1st April 1999—I am not sure why that day of the month has been chosen, but wiser minds than mine have selected it—it is worrying that the final version of the new rules is not expected to be available to the profession and the public until January next year.
Moreover, there are significant changes planned to the procedures followed before proceedings are issued. I greatly welcome that. They are a fundamental part of the new reforms. But the protocols which will cover that have only just been published, as the noble and learned Lord the Lord Chancellor pointed out. The one for general personal injury claims is still marked "draft" so that we cannot be sure of the final form. I regret to say that I am not aware of any extensive research or modelling on how the various protocols, rules and practice directions will work together. I understand from those who know much more about it than I do that in order to keep the rules simple, matters of detail have been left over to practice directions. There is a concern that matters of detail are now left over from the practice directions to separate guidance notes and forms. There are dangers in the approach. However, the work which has been done so far represents a great opportunity for constructive change. I urge the noble and learned Lord the Lord Chancellor to think carefully about the timetable, in particular about implementing a system which is still far from ready.
My second concern relates to the resources which are being devoted to the process, and whether they are adequate to sustain two key central elements of the new system: case management and information technology. Case management depends on training both existing and new junior judges in the skills required. Existing judges have been selected for their legal skills and, knowing several of them, there are not many who have detailed practical experience of managing cases. They will, I know, make excellent case managers, but the training available so far has necessarily been limited because the rules and practice directions have not been available. Moreover, I am sure that more judges will be required, but there does not seem to be much in the budget at present. Indeed, I read of the closure of some regional courts being planned and I do not think that augurs well.
Information technology is also a key factor. As the noble and learned Lord the Lord Chancellor pointed out, the essence of the new fast track will lie in closely timetabled cases with high speed electronic communication between the court, the judiciary and the

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parties. The Court Service already acknowledges that the new IT system cannot be in place by 1st April; and the noble and learned Lord the Lord Chancellor referred to that. I accessed the Internet yesterday and produced a very good brief which began:
"There are now only 9 months to go before the implementation of the core package of civil justice reforms in April 1999 … but there remains much to be achieved".
It states:
"A full IT support system for case management"—
having been in Government for 16 years, I can read sensitive words which do not quite mean what they appear to say; and this is a classic example—
"is expected to be in place by early 2000".
I note that in its brief, the Law Society talks about the IT system not being ready until at least 2000. Only the noble and learned Lord the Lord Chancellor would know the internal workings, but I am very nervous about some of this phraseology. I am nervous that we might not see the new system until 2001. If the noble and learned Lord the Lord Chancellor can give me some comfort on that, I shall be very grateful indeed. I do not believe that the reforms will succeed without adequate IT support. They are at the heart of the reforms. I am worried that there does not appear to have been any consultation with users about the type of system which would meet the standards to which the legal profession operates. I hope that we will have an open approach to costing the resource implication of recruitment, training and IT and a proper assessment of whether the Government are prepared to fund the necessary resources required.
My third chief area of concern is the extent to which the financial savings which the civil justice reforms offer may prove illusory if cost transfer is mistaken for cost saving. So none of the reforms can be seen in isolation. There have been other recent developments which have imposed huge additional burdens on defendants. I took the opportunity in the debate last week, as the noble and learned Lord the Lord Chancellor may recall, of referring to the decision of the Judicial Committee in this House in Wells v. Wells and also to the impact of paying success fees and insurance premiums where plaintiffs are, in future, funded by conditional fee agreements. I also mentioned the full cost of additional repayments to the compensation recovery unit. I see, in Post Magazine and Insurance Week, the headline "Insurers reeling from decisions." I do not plead anything other than this. The noble and learned Lord the Lord Chancellor paid tribute to the innovative methods which insurers will find of meeting demands and the ability to introduce new products. But insurers and defendants need to have a reasonably balanced system of justice.
I am concerned that under the new rules there are other hidden penalties. Here, perhaps I may give one example. Part 36 of the new rules introduces heavy penalties on defendants if they fail accurately to assess an offer to settle made by the plaintiff. Comparisons are drawn with the effect of a payment into court by the defendant, but there is a crucial difference. The plaintiff, of course, and his solicitors, hold all the information
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about what the case is worth and the defendant will, I contend, need vigorous protection from the court if that assessment is to be made on all the evidence which should be made available.
Similarly, defendants may be penalised for failing to comply with pre-action protocols, but plaintiffs of course may not give them all the information they require. I urge the noble and learned Lord the Lord Chancellor to ensure strong protection from the court to achieve a proper balance between the responsibilities placed on defendants and those on plaintiffs. I suppose that most defendants are insured and it is felt that the cost will be met by increasing premiums. But the costs are not just disappearing; they are merely being conjured away to be paid by a less visible purse.
Most defendants are not necessarily insurers or insurance backed. Many are government departments; many are health service bodies directly dependent on public money. It is crucial that no aspect of these reforms should proceed on the basis that there is available a crock of gold which can be raided without expense to the public at large. Any savings must be real and not illusory.
That is the sum of my concerns. I wish these reforms well. I believe that if they are successful, under the leadership in his report of the noble and learned Lord, Lord Woolf, combined with the reforming zeal of the noble and learned Lord the Lord Chancellor, then we will succeed. But we will only succeed if we do that at a proper pace with proper detail and proper resource, in particular on training, IT and with the necessary people found to implement the reforms. Certainly, we need a little more time to consult and so ensure that whatever we introduce will be right.
9.4 p.m.
Lord Woolf: My Lords, the rules that your Lordships are considering could be said to have had a favoured start in life. That is nothing to do with me, although I appreciate the generous comments made by the noble and learned Lord the Lord Chancellor and the noble Lord, Lord Hunt of Wirral.
As regards the comments of the noble Lord, Lord Hunt, I can assure him that they will be taken very much into account by the rules committee. Why the rules have had such a favoured start in life is because their conception was due to one distinguished Lord Chancellor and their birth to another.
However, the period of labour in between has been difficult. I should like to acknowledge the great credit that is due to the drafting team which the noble and learned Lord the Lord Chancellor has provided, the Civil Procedure Rules Committee, of which I am a member, the Vice-Chancellor who is deputy chairman of that committee, our respective private secretaries and, not least, our respective personal secretaries who have ensured that the rules committee, during its period of labour, has not wanted for being well nourished. Labour is not an inappropriate word to use to describe the work on which the rules committee has been engaged. The process has been prolonged and hard but it is remarkable

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what can be achieved in a period of nine months. I say that to the noble Lord, Lord Hunt, because there are, as he points out, nine months yet to go until April next.
As the noble and learned Lord the Lord Chancellor indicated, the committee initially met for a day once a fortnight. We now meet once a week. The noble and learned Lord the Lord Chancellor is absolutely right in saying that there has to be at least a day's preparation for each of those meetings. I certainly commend and echo the words of the noble and learned Lord the Lord Chancellor in acknowledging the contribution of the non-judicial members of the committee who have given their services at, no doubt, considerable personal cost.
A feature of the committee is the width of its membership. I hope that the quality of the rules reflects that membership. I refer, in particular, to the representatives of the consumer organisations. The rules are based on the Brown Book No. 1 which was attached to my Access to Justice report as long ago as July 1996.
Comparing those rules to the ones which your Lordships are considering will show the significant changes which have been made in the interim. Those changes have been the result of a continuing process of consultation. It has not been our intention to make changes for change's sake. We have not made changes unless they will serve a useful purpose. I can assure your Lordships that in developing those changes I have not always had my own way. Anyone passing the Court of Appeal conference room where we meet on a Thursday or a Friday in any week would from time to time hear the sound of vigorous debate. Indeed, on one occasion when we were split equally—my noble and learned friend the Lord Chancellor had to be called upon to arbitrate between the Vice-Chancellor and myself. I am very happy to report that the noble and learned Lord found in my favour.
I believe that these rules differ from those produced in any other jurisdiction in the process of change which is taking place in almost every developed society. An outstanding feature of our rules is Part 1, which provides the framework for the rules and identifies the principles which underlie them—the principles of equal, economic, expeditious, efficient and proportionate justice. Those who have to apply the rules will be required to bear in mind those five important principles. But so will the parties. The rules recognise the significance of co-operation in an efficient and effective civil justice system. In that regard, I say to the noble Lord, Lord Hunt, that the whole idea of the protocols and the rules is that both parties will be required to adopt an open approach, which is so often lacking in litigation at the present time.
A further feature of the rules which is novel is that they encourage parties to behave in a reasonable and rational way and to resolve their disputes without becoming involved in litigation. Although I recognise the immense contribution which the insurance industry plays in protecting those who suffer injury from the consequences of those injuries, I am bound to say, having been engaged for many years in personal injury
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litigation, that it has always astonished me that insurance companies so often feel that they have to see the door of the court before they reach a settlement.
As an answer to that kind of phenomena, the rules also provide the foundations for the protocols of sensible pre-litigation behaviour. Those protocols will flourish if they are supported by the courts. They have to be supported by the courts in an equal manner and I am sure that they will be supported in that way. There will not be any distinction between claimants and defendants. Both will equally have to comply with the protocols.
As a reminder of the general approach, I refer the House to the terms of Part 1.4 of the new rules. They set out the overriding objective in actively managing places. They include an expressed requirement encouraging the parties to use alternative dispute resolution procedures. If the court considers it appropriate, the court must facilitate the use of those procedures. Part 1.4 requires the court to encourage parties to co-operate with each other in the conduct of proceedings. It places a responsibility on the court to help the parties to settle the whole or part of the case. This approach is supported by sanctions which can be applied by the courts where parties behave—and I emphasise this—in an unreasonable manner.
It is also supported by the offers to settle to which the noble Lord referred—the offers to settle which are contained in Part 36. Offers to settle by either plaintiffs or defendants will be effective only if they are given teeth by the courts' powers to award increased interest and costs.
Another important principle reflected in the rules is that of simplicity—simplicity of procedure and simplicity of language. The rules are framed in plain English. They are intended to be easier to understand both for practitioners and litigants. The principle of simplicity is carried through to the procedures themselves. Under the two sets of rules which exist at present, there are at least eight ways in which to bring proceedings. Symbolic of the new approach is that under the new rules there will be just one.
Simplicity also underpins reducing the differences between the courts. Currently, there are separate rules to which I have referred—separate rules for the High Court and the county court. The new rules will apply to all non-family civil proceedings and the procedures will be the same wherever proceedings are brought. The focus will be on ensuring that the correct level of judge hears the appropriate case. The current distinction between High Court and county court will therefore be minimised so that if it is decided to remove the distinction altogether, the new rules will not stand in the way.
The word "pleadings" is given a timely demise. It is banished from the new rules. In its place will be the statement of case. The change of name is important because it marks a break with the past, a break which is underlined by the requirement of the new statement of truth. That is a requirement for the litigant to certify that he believes the facts set out in his statement of case to be true. Parties will not be able to make allegations, ignoring whether or not they are justified.

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A further area in which rule changes significantly alter the current position is in relation to experts. Expert evidence has become a feature which is bedeviling current litigation. It increases costs, thereby reducing access to justice, and can have the effect of amplifying the differences between the parties and prolonging litigation. Those rules will play an extremely important part in placing a new responsibility on experts, and one which I believe they will welcome. It gives them an overriding duty to the court. That must be contrasted with the present position, where I am afraid all too often experts see themselves as the hired guns of a particular party.
With the new duty goes a greater opportunity to use single experts, to reduce costs and narrow the differences between the parties. If experts are to fulfil their new duty, the courts must in turn accept additional responsibility. That is reflected in the ability of an expert to ask the court for guidance to help him carry out his duties.
Although the rules are primarily the work of those to whom I have already referred, they have benefited also from the consultation process. In particular, I pay tribute to both the Bar Council and the Law Society and their respective working groups. Unlike the experience in so many other jurisdictions, I am happy to say that in that jurisdiction both sides of the profession are to be congratulated on the way they have supported, instead of turning their face against, change.
I am aware of the concerns to which the noble Lord, Lord Hunt, referred and which have been expressed by others about the timetable for the implementation of the programme of reform and information technology to support the new rules. I am confident that the present programme of implementation is reasonable. For those not directly involved in the implementation process, it is easy to underestimate the vast amount of work already done in preparation for April 1999.
The momentum for change is considerable. It is vital that that momentum is not lost. Delay beyond April 1999 could have put that momentum at risk. I congratulate and support the noble and learned Lord the Lord Chancellor on his decision to press ahead with the implementation of those rules, which form the heart of the civil justice reforms, in advance of the availability of full technological support.
The decision was not taken lightly. I would not say that without being fully satisfied that the success of the reforms will not be put at risk by the non-availability of the technology. I rely on the Court Service to provide all the necessary support to ensure that the rules are implemented successfully. Indeed, I am becoming more and more convinced that delay in relation to technology might be a blessing in disguise. There would have been a considerable risk in trying to implement the new rules and the new information technology simultaneously.
The implementation plan which has been decided upon will reduce that risk and ensure that the new rules start their life in April 1999 with the best possible chance of success. We in the courts shall then be charged with the responsibility of ensuring that the new culture of ivil justice thrives. We will do our best.
9.19 p.m.
Lord Hacking: My Lords, I should like to begin by joining the noble Lord, Lord Hunt of Wirral, in thanking my noble and learned friend for giving us this opportunity to debate and comment upon the new procedure rules. I should also like to join the noble and learned Lord, Lord Woolf, in congratulating my noble and learned friend on taking forward the reforms which were instigated by his predecessor, the noble and learned Lord, Lord Mackay of Clashfern—reforms which I clearly remember had his full support when he was the shadow Lord Chancellor. Therefore, I believe that we are blessed by two reforming Lord Chancellors and we are certainly blessed by a reforming Master of the Rolls, and his colleagues, who worked so hard upon the reports which have come out as the Access to Justice reports.
The changes in the rules will bring about a single set of civil procedure rules in simple language which conforms to the needs of the modern litigant in the brave new world of technological resource. Gone will be these large tomes used by those of us who have practised the law for as many years as I have—30 years or more—the "White Book" covering the Rules of the Supreme Court and I only hold volume one of it. There is a volume two and the supplement on the Bench beside me! There is also that other rather large tome, the "Green Book", which covers the County Court Rules.
As my noble and learned friend rightly said, these new rules represent the most significant change in civil procedure for over 100 years since the Judicature Acts of the 1870s. However, there is another point that I should like to emphasise which derives from the words spoken by my noble and learned friend. The new rules will shift in a very fundamental way the responsibility for the effective conduct of court proceedings from parties and counsel to the judge. That is quite fundamental and most important.
Other than speeding up and simplifying the trial process—the use of statements of case and other matters to which the noble and learned Lord, Lord Woolf, referred—there is much that is very imaginative in the new rules which goes back to the work of the noble and learned Lord, Lord Woolf, and his colleagues. I refer, first, to offers of settlement which are contained in Part 36 of the document. I believe that the noble Lord, Lord Hunt, was supping those new proposals with a rather long spoon, but I would remind him that the current procedure of payments into court certainly induces and puts a lot of pressure on the plaintiff; but there is no similar process which puts pressure on the defendant. As a result, as the noble and learned Lord said, it is the experience of those of us who do practise in the courts—for example, in personal injuries cases, and the like—that it is only at the door of the court that settlements are achieved in many cases involving insurance companies. Therefore, the new proposals contained in this part dealing with offers of settlement of inducing defendants to settle by imposing a percentage on damages—which is quite modest; indeed, I believe only about 7 per cent.—and also by stiffening up the orders of cost are, I believe, to be welcomed.

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Another imaginative part of the rules is contained in the new cost rules which are to be found in Part C of the document from page 227 onwards. I have often argued in your Lordships' House that the rule of "costs following the event" is clumsy and sometimes plain unfair on parties. Therefore, I find it sensible that in the new rules conduct is now to be taken into account. Indeed, on page 234 of the document, we have reference to the kind of conduct which can be taken into account; for example,
"the manner in which a party has pursued or defended his case or a particular allegation or issue"
and,
"whether a claimant who has won his claim exaggerated the value of his claim",
and so on.
If my recollection is right, I think in the original report of the noble and learned Lord he and his colleagues said that cost was one of the greatest problems in the conduct of litigation. I believe that the new approach to costs, and not the slavish policy of costs following the rules, is much to be welcomed.
But having given a solid welcome to these new rules, I would like to make a few points about them. First, they will work only if the judges make them work. Case management is a discipline in which judges must be trained, as they are, for example, in sentencing. If judges do not intervene, the new dawn will never come. But if judges become too interventionist, the appeal process will clutter up the system and the new dawn will be darkened.
The second point I wish to make is that these new rules will not work unless there is sufficient support from information technology. This requires much training and much money. I am not saying that is a reason for not pressing forward now but I am saying it is most important that there is sufficient IT resource.
Thirdly, the civil procedure rules should, if possible, come into force as a single package. My noble and learned friend referred to it as a rolling programme of reform. But rolling or not, we should not be left in an interim state where we are half referring to the new rules and half referring to the old rules. Both in the draft rules provided by the noble and learned Lord, Lord Woolf, in the "Brown Book" as it is called, and in the rules that we are considering now, we are told that these are just the "core" rules. It is to be noted that in the rules we are currently considering third party proceedings and consolidation are not covered; the appeals process is not covered and enforcement of judgments is not covered. In so far as certain matters that are covered, for example, court service in Part 6, we are told that for service "out of jurisdiction" we have to apply to specific rules of the High Court, to the Rules of the Supreme Court, Order 11, Rule 1, or to the County Court rules, Order 8, Rule 2.1. I believe that that is unsatisfactory. It will cause confusion and is most undesirable.
Fourthly, I believe that some of the new rules need more work. I refer, for example, to the new rules concerning the disclosure of documents in Part 27. The requirement here on a party who has to make the
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disclosure only to carry out a reasonable search of documents not in his or her possession is a test which I believe could be abused. I also refer to the use of expert testimony in Part 32. I am fully aware of experts who give evidence according to the hand that pays them. I am perfectly aware of the disadvantages of the adversarial system in the employment of experts. But there is a danger the other way round, and that is of the single expert usurping the role of the judge. Certainly the experience in some jurisdictions of court appointed experts is not good. For example, I refer to the system in France, of which I have some knowledge.
I would also like to make one small but I believe important point concerning the proposed new procedure of statements of truth. That is to be found concerning the statement of case of the claimant in Rule 7.6; the statement of case of the defendant in Rule 9.7; and for an application in Rule 10.7. I believe that the statement of case should not be signed by anybody but the litigant; that is, the claimant or the defendant. It should not therefore be signed by the "litigation friend" or the "legal representative". It is a personal commitment of truth on the part of the party and it would be wholly unsatisfactory if it were to be signed by persons other than the claimant or the defendant.
My position is therefore this. I believe that more time and work are needed: for the judges to be trained; for more IT resource to be made available; for the rules to be further worked upon; and, if possible, for a single, complete package to be provided. But in asking for that, I am not asking for delay. There is still time in the gestation period of nine months to address those issues. We are stepping into a new dawn. Profound congratulations should go to the noble and learned Lord, Lord Woolf, to my noble and learned friend, and to the new Civil Procedure Rules Committee.
9.30 p.m.
Lord Meston: My Lords, these draft rules are clearly vital to the reforms which have been master-minded by the noble and learned Lord, Lord Woolf, who even before their implementation has already done so much to improve the culture, the mechanics and the pace of litigation in this country. I join in paying tribute to his immense hard work.
In a case in the Court of Appeal decided and reported in 1996, Lord Justice Millett said:
"Litigation is slow, cumbersome, beset by technicalities, and expensive. From time to time laudable attempts are made to simplify it, speed it up and make it less expensive. Such endeavours are once again in fashion. But the process is a difficult one which is often frustrated by the overriding need to ensure that justice is not sacrificed. It is easy to dispense injustice quickly and cheaply, but it is better to do justice even if it takes a little longer and costs a little more".
These rules skilfully try to strike that balance—between, on the one hand, efficiency for the benefit of all court users and taxpayers and, on the other, over-prescriptive control, which can be counter-productive. The unhappy history of the automatic striking out rules in the county court provide an example of the latter.

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The "overriding objective" stated in Rule 1 includes consideration of the parties' financial position. Fears have been expressed that litigants will be able to plead poverty in order to avoid the normal obligations of disclosure, or even that the courts will be asked to assess a party's true financial position if it is disputed and if it is thought relevant to do so. That will be undertaken so that the court can decide how a case should proceed. I believe that those fears are misplaced. However, they illustrate the danger of focusing too closely on one part of the definition of the overriding objective stated in the first rule.
Many of these rules are old friends in simpler, modern clothing. It is essential that the language of the rules, their structure and the sanctions can be readily understood, not just by lawyers but by unrepresented litigants, who increasingly occupy the courts. So it is that we shall say farewell to plaintiffs, writs, summonses, discovery, interrogatories and subpoenas. I note, however, that affidavits have hung on by the finger-nails.
I shall not take time this evening raising queries about details of the rules but, like other noble Lords, shall refer to a few broad areas of concern. The first is expert witnesses. The vice of too adversarial partisan experts is well understood. I have recently completed a case in which no fewer than four pathologists had to carry out a post-mortem examination of a body In the event three of those four agreed with each other in every respect.
I suggest, however, that there might be in the rules greater prominence of and emphasis on the appointment of single experts. In the draft rules, under Rule 32.8, there is a discretionary power. Would it not be preferable for the appointment of joint experts to be more clearly the first step to be taken rather than an option which the court may or may not encourage? Likewise, Rule 32.9 provides for joint experts to be separately instructed. I suggest it would be preferable for joint instructions to be the normal starting point and for that to be clearly stated in the rules.
Secondly, I question whether the rules could place more emphasis on settlement. Under Rule 1.4, active management of cases by the court includes helping the parties to settle, but it is not clear how that will be achieved in practice. Rule 24.5 permits a party to request a stay of proceedings for settlement to be attempted which the court will normally grant. But I question whether that is enough and suggest that there is some merit in trying to follow the lines of the remarkably successful and cost-effective pilot scheme operating in matrimonial ancillary relief cases. That scheme obliges the parties to place all their cards on the table face up at an early stage and to disclose to the court all offers of settlement at a privileged hearing in order to facilitate a compromise, which is often achieved before the case has to go any further.
That system may not be capable of wholesale transposition to other civil litigation, but I would like to see more emphasis on a positive duty to negotiate which undoubtedly obtains in family law disputes. It must be possible in most cases to bring the parties, not just their lawyers, to the court to negotiate face to face and for a
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judge at a privileged hearing to explore the realities of the case and to give a provisional view of the merits and of the likely outcome of the litigation.
In any event, the parties should, as happens now in matrimonial cases, be from time to time, as a matter of mandatory requirement, made to look at the movement of the costs meter on the expensive taxi cab in which they are riding.
Finally, as has been said by the noble Lord, Lord Hacking, and others, these draft rules are not yet comprehensive. As the noble and learned Lord the Lord Chancellor explained, it is understood that there will have to be specialist rules, for example in housing cases and judicial review cases. It is regrettable if this important body of reform comes in too piecemeal.
As has also been observed by the noble Lord, Lord Hacking, the rules do not cover appeals—either appeals within the same court from district judge or master to the judge in the county court or the High Court, or, of course, appeals to the Court of Appeal. However, Rule 2.1 in the draft rules suggests that in due course the Court of Appeal rules will become incorporated into the overall body of the new rules.
The current rules and provisions governing the Court of Appeal—and I hope that the noble and learned Lord, Lord Woolf, will forgive me for this—are increasingly impenetrable and complex and take up a large part—I suggest a disproportionate part—of the current white book. Of course, I understand that the rules of the Court of Appeal are themselves subject to separate review, but it would be helpful if the opportunity could be taken this evening for an indication to be given of when that review will be completed and when new rules for the Court of Appeal will be incorporated.
As the noble Lord, Lord Hacking, said, the rules do not cover enforcement. Again, concern has recently been expressed that the courts in this country do not provide enough help in enforcing judgments, so depriving the litigant, and in particular the unrepresented litigant who has struggled through the procedures. of the opportunity to achieve his judgment. They do not provide enough help in recovering the benefit of the judgment which he has obtained. There is of course a limit to what the court can do, but I suggest that there is a definite need for simpler, more speedy procedures. Again, I hope that the noble and learned Lord the Lord Chancellor will confirm that some consideration is being given to that by his department.
It is a cliché that procedural rules are servants, not masters. The new rules have the potential to serve us well. There will be a new responsibility on the legal profession to make them work. The noble and learned Lord, Lord Woolf, referred to their conception and their birth. Following birth, there will certainly be a period of nursery education and training which we hope will not be too expensive or drawn out.
9.40 p.m.
Lord Kingsland: My Lords, I too congratulate the noble and learned Lord the Lord Chancellor most

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warmly on the single-minded way in which he is implementing the reforms originally proposed by the noble and learned Lord, Lord Woolf.
I shall not weary your Lordships' House with a further exegesis of the rules. These have already been admirably discussed by noble and learned and noble Lords. Such was the scope and quality of the contribution of the noble Lord, Lord Hunt of Wirral, that, save only for questioning his hesitations in relation to the qualities of the adversarial system, I adopt entirely his speech on behalf of the Opposition.
9.41 p.m.
The Lord Chancellor: My Lords, I acknowledge the Government's debt to the noble and learned Lord, Lord Woolf, yet again. At the outset of his speech he was too modest; he has nothing to be modest about. However, I found it difficult to conceive of the image of myself as a midwife.
The noble Lord, Lord Hunt, expresses concern in relation to partial implementation. He reminds us that the noble and learned Lord, Lord Woolf, describes the proposals as a package. I say this. There are always those who say, "Festina lente". But if I may mix my Latin metaphors, we cannot expect Rome to be built in a day, but we can make a good and improving start.
Essentially, the noble Lord asked how I can expect practitioners to be ready when we consider that the rules will not be signed by me until the end of the year. He suggests that there is simply not enough time for adequate preparation. But practitioners have had ample warning and opportunity to prepare for next April on the basis of the large amount of information currently available in relation to the reforms.
These changes have been developed in an open way over a lengthy period. The professions have known essentially what they will have to cope with for a long time. I refer in particular to the need to identify the key issues in a case, hence the relevant documentation and other material and also the need to run cases to a timetable. To assist them further, my department is placing the latest draft rules on the Internet with updated versions being added as the rules committee continues its work. Practice directions will also be placed on the Internet in due course.
I have already delayed implementation by six months to allow more time for preparation. I share the view of the noble and learned Lord, Lord Woolf, that further delay would risk loss of momentum. We should not wait any longer than necessary to bring the considerable benefits of the reforms to litigants. We can produce significant benefits before full IT back-up is available.
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Allowance has been made in the court service budget for IT support. The exact figures are subject to negotiation with the IT suppliers and obviously therefore, I can go no further. The Judicial Studies Board has been allocated £680,000 to meet the funding for training for the judiciary. This will enable us to deliver the reform training programme for the full and part-time judiciary.
The noble Lord, Lord Hunt, invites me to offer him some comfort as to when the full IT back-up will be in place. I am neither an optimist nor a pessimist but a realist. We all know that IT systems have a worrying habit of being late, but I remain hopeful for 2000. I endorse the general point made by the noble Lord that the rules and the protocols must be balanced and fair to both plaintiffs and defendants.
I welcome the support of my noble friend Lord Hacking. He was right to emphasise the fundamental transfer of power from the lawyers to judges which the new system will entail. He is also right that the new rules will only work if the judges make them work. The judges must not flinch from imposing toughly the sanctions that are available to them.
The noble Lord, Lord Meston, made interesting suggestions about experts, which I shall consider, as will the Rule Committee. He also made other suggestions, all of which will be considered.
Finally, let me say this. The Rule Committee will finalise its work on these rules in November of this year. Subject to my approval, they will be laid before Parliament before Christmas and published in January 1999 for introduction in April of that year. This is a substantial start to a historic process of reform—but it is only a start.
Work is already under way to reform the practices and procedures of the Court of Appeal in line with the Beaumont Report. That meets some of the concerns of the noble and learned Lord, Lord Meston. Work is also under way to bring the rules governing proceedings in housing cases into the new plain English style and to overhaul radically the enforcement process to increase significantly the number of claimants who are able to achieve satisfaction of the judgments given in their favour.
I accept that we have some way to go but I am convinced that we are on the right road and that we will get there in the end.
On Question, Motion agreed to.

Lloyds TSB Bill [H.L.]
Returned from the Commons agreed to.
House adjourned at twelve minutes before ten o'clock.