Lords Sitting of 9 March 1998

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

Taxis: Licensing
Lord Dean of Beswick Lord Dean of Beswick asked Her Majesty's Government:
When they expect their consultations with local authorities regarding the licensing of taxis to end and when they expect to bring forward any legislation to deal with this subject.
The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Baroness Hayman): My Lords, there are no consultations on taxi licensing being carried out at the present time, although we keep taxi law under review as a matter of course. I understand that Home Office Ministers are reviewing Part V of the Police Act 1997. The matters covered by this part include criminal record checks, including those on applicants for taxi and private hire vehicle drivers' licences.
Lord Dean of Beswick: My Lords, I am grateful to the Minister for that forceful and accurate reply. Is the Minister aware that, as regards the legislation passed by the previous government last year, the Home Office has been sounding people out with a view to introducing through secondary legislation a measure that would remove from women travelling in taxis the protection that would be afforded to young children and elderly people? Will the Minister use her best endeavours with the Home Office to persuade it to desist from taking any such measure, as in my view and that of many other people women are those who are most at risk in taxis?
Baroness Hayman: My Lords, I understand the concern that has been expressed by my noble friend and
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others on this matter. I believe that local licensing authorities will continue to have access to information on all spent convictions for applicants for taxi and private hire vehicle driving licences. They act as judicial authorities in this respect—there has been some confusion about that. As such they have the right to access to information on all spent convictions. Drivers who regularly transport children or vulnerable adults and who meet the relevant criteria under the Police Act 1997 will also be subject to enhanced criminal record checks. I take the point that my noble friend makes about the danger to women in these circumstances, but Ministers have responded to representations from the National Association of Taxi and Private Hire Licensing and Enforcement Officers, among others, on this issue.
Baroness Gardner of Parkes: My Lords, is the Minister aware that Londoners greatly envy people in all other parts of the country where these strict and good controls have been in force for many years? Is she also aware that there is a Private Member's Bill in the House of Commons entitled Private Hire Vehicles (London) Bill which we hope will reach this House soon although it has been delayed? That would enable adequate control of private hire vehicles—or minicabs, as we know them—in the capital, and thus give protection to women in London using minicabs which at present they do not have.
Baroness Hayman: My Lords, the noble Baroness is quite right to point out the gap in the licensing of minicabs in the capital. The Government support Sir George Young's Private Member's Bill, which provides for checks for criminal records on London minicab drivers. It is quite wrong that London should be the only city without minicab licensing.
Lord Peyton of Yeovil: My Lords, does not the Minister agree that the London taxis, the black cabs, are subjected to a heavy burden of regulation and provide an excellent service? Any move in this area should be

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taken with careful regard to fairness in respect of that first-class service, which does not exist in any other capital in the world.
Noble Lords: Hear, hear!
Baroness Hayman: My Lords, the noble Lord makes a point that is obviously supported by other noble Lords around the House. I do not think there is any desire to diminish the quality of the black cab service in London, which is extremely good and has highly knowledgeable drivers. It is not necessary in protecting that service to leave unregulated the minicab service, which gives rise to much concern at the moment because of the lack of any effective regulation.
Baroness Thomas of Walliswood: My Lords, is the Minister aware—I am sure she is—that a meeting was organised recently by the Suzy Lamplugh Trust at which representatives of the London taxi cabs, our ordinary black cabs, were enthusiastic in wishing to support moves to license minicabs? Will she assure us that the Government will do all in their power to ensure that Sir George Young's Bill reaches this House despite the time that is taken up by other Private Members' Bills?
Baroness Hayman: My Lords, I believe that Sir George Young has been working with all sectors on his Bill. We hope that it will make progress. If by any chance it were not to make progress, the Government consider it of sufficient priority to seek to introduce a similar measure when parliamentary time permits.
Lord Brabazon of Tara: My Lords, following the question of my noble friend Lord Peyton about Sir George Young's Bill, can the Minister assure noble Lords that when the Bill comes to this Chamber, as I hope it will—it will have the support of this side of the House—sufficient time will be given to debate the measure? Amendments will need to be discussed which may not be discussed in the House of Commons.
Baroness Hayman: My Lords, as I am sure the noble Lord is aware, matters of timing are for the business managers. However, given the amount of support from all sides of the Chamber, I think that it would be the wish of the House that we have sufficient time to debate the measure.
Lord Dean of Beswick: My Lords, while I admire Sir George Young's Bill, the Question has nothing to do with it. The Question relates to the national movement of taxi drivers. It seeks to retain the present protection afforded to women who ride in taxis. Have I understood correctly from the Minister's detailed reply to my supplementary question that the Government have no plans to change the present situation? If she is stating that, it is all I ask.
Baroness Hayman: My Lords, I can reassure my noble friend that in other areas of the country which have licensing for minicabs as well as for taxi drivers
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the licensing authorities will continue to have access to information on spent convictions for applicants for taxi and private hire vehicles. To put the matter beyond doubt, I understand that Home Office Ministers are considering whether to make taxi and minicab drivers an exception to the Rehabilitation of Offenders Act.

Educational Low-priced Book Scheme
2.44 p.m.
Lord Walton of Detchant Lord Walton of Detchant asked Her Majesty's Government:
Whether they accept the commitment made by the last administration, when they withdrew funding for the Educational Low-priced Book Scheme, which made cheap British textbooks available to students in developing countries, that they intended to replace that scheme with something better; and, if so, what they propose.
Lord Whitty: My Lords, I can confirm that we agree with that commitment from the previous administration. We shall continue to seek ways of increasing the availability of affordable books and learning materials in developing countries.
One way that is being achieved is through a successful initiative between the Department for International Development, John Smith and Son Bookshops and a number of publishers. This is the development and publication of a bibliography of low-priced texts for developing countries which includes nearly 900 titles, also available on the web site. Book prices are discounted by the publishers and all are priced below £20.
Lord Walton of Detchant: My Lords, I thank the Minister for that helpful and encouraging reply. In doing so, perhaps I may declare an interest. Two of my own textbooks were formerly included in the ELBS some years ago.
Is the Minister aware that the removal of the government grant for this scheme has caused great concern to students in many developing countries where textbooks in medicine, nursing, science and engineering, economics, law and business have been widely welcomed? There is now evidence to suggest that other countries, in particular the United States, are moving into this market to the detriment of British educational influence.
Is the Minister also aware that a charitable trust has been formed with four Members of your Lordships' House as trustees to try to replace that scheme targeting low-priced books at Sub-Saharan Africa, the Caribbean and the Indian sub-continent?
Lord Whitty: My Lords, I am aware of that in general terms, and welcome it. However, the decisions on the old ELBS were taken by the previous Government on grounds with which we agree. The scheme did not primarily benefit the poorer countries. A substantial and increasing proportion of the books

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were sold in the better off countries of South-East Asia. They also focused somewhat on the tertiary sector, for which I appreciate the noble Lord and others have provided material. The development priority was more on the primary and intermediate sectors. There were good reasons for changing the scheme and developing instead particular educational projects in specific countries. That is what we are doing.
Lord Campbell of Alloway: My Lords, I believe that the distribution of the textbooks was under the aegis of the British Council, although I may be wrong. If it was, have consultations ensued with the British Council about any proposed changes? What is the result of those consultations?
Lord Whitty: My Lords, the noble Lord may be slightly out of date, in the sense that the decision was taken some time ago. Distribution was not primarily through the British Council but through commercial publishers. The subsidy was to the publishers rather than reducing the price in the shops of the developing countries.
Lord Monkswell: My Lords, can the Minister assure the House that only up-to-date textbooks will be subject to this scheme and not out-of-date textbooks? As a supplementary question, what plans have the Government to make these up-to-date cheap textbooks available to UK students who are suffering financial hardship?
Lord Whitty: My Lords, the books in the bibliography are as up-to-date as we can make them although in these areas some wisdom lasts for some time. However, the scheme does not apply to distribution of British educational books within the UK.
Lord Avebury: My Lords, the Minister mentioned the web in his Answer. Can he tell the House to what extent the purchasers of textbooks from developing countries are benefiting from the low priced books which are generally available on the virtual bookshops such as amazon.com? One way to assist might be to enable developing countries to get on to the Net so that they can benefit from the reductions in prices that those virtual bookshops are offering.
Lord Whitty: My Lords, I appreciate the noble Lord's point. The uptake of the web is very different in different developing countries. In the Indian sub-continent particularly there is quite a substantial access to the web and therefore to information in this form.
Lord Hardinge of Penshurst: My Lords, I should mention that I am responsible for the production of the bibliography referred to earlier. It is a good initiative, but very much smaller than the ELBS. Is the Minister aware of DfID's own working group on books and information, which was set up specifically to suggest replacements for ELBS, and which has been reconvened by the present Government? Will any of its main
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proposals—namely, book banks, voucher schemes and information audits of DfID projects—be piloted in the near future?
Lord Whitty: My Lords, some of the proposals from the working group are under consideration now. In the meantime, a number of specific projects which arise from the principles reached by that group are already under way, particularly in sub-Saharan Africa.
Baroness David: My Lords, is the Minister aware that I very much regret the absence of the noble Baroness, Lady Chalker, today? She made that firm commitment that there would be a new scheme to replace the ELBS scheme, and a number of us believed her. The commitment was made in response to a number of Questions and even an Unstarred Question. I do not believe that it was a subsidy for the publishers, and I do believe that the ending of the scheme has been greatly to the detriment of education in a number of countries. Can we hope that this Government will be a hit more imaginative?
Lord Whitty: My Lords, I am very well aware of the noble Baroness's participation in the earlier debates on this matter. I can commit the Government to being imaginative in this field, as in many others.
Earl Russell: My Lords, a moment ago the Minister spoke of wisdom having a long life. Is he aware that information tends to have a rather shorter life? Does it help to apprehend that point if he imagines teaching a course on British political parties with the aid of textbooks published in 1963?
Lord Whitty: My Lords, I am not entirely aware of the particular publication to which the noble Earl refers. However, there are textbooks on political parties which still contain some wisdom and which were written before 1963. I would not wish to deny them to political students in other countries.
Lord Lucas: My Lords, I was concerned about the noble Lord's remark about not wishing to participate in supplying books for tertiary education in developing countries. Does that not follow on the rather regrettable elements of the Government White Paper? It is the Government's stated intention to lift people out of poverty; but as to taking them forward to prosperity, the Government have no interest. Would it not be better to emphasise the provision of university education and that level of textbook in developing countries, so that they gain the ability to lift themselves out of poverty rather than relying on us?
Lord Whitty: My Lords, I was repeating some of the reasons why the previous government closed down the scheme. I did not intend to imply that we were against supplying tertiary textbooks under this or any other scheme. All I was saying was that the previous

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government and ourselves found that the balance was slightly too far away from basic textbooks, which are much needed in the poorest countries.

Vehicle Registration Plates: Tilting Devices
2.53 p.m.
Lord Campbell of Croy Lord Campbell of Croy asked Her Majesty's Government:
Whether it is illegal to install or use on road vehicles, including motorcycles, registration plates that can be tilted or covered by controls at relevant times so that they cannot be photographed by police cameras.
Baroness Hayman: My Lords, under the current regulations, number plates must be securely fixed and readable at all times. The use of movable number plates is therefore clearly illegal. We are also advised that the fitting of these plates is unlawful under the present regulations, although that has not yet been tested in the courts.
Lord Campbell of Croy: My Lords, I am grateful for that reply. As tilting devices have been found on crashed motorcycles, indicating a deliberate intention to defy speed limits, will legislation be introduced to confirm the illegality of such devices in order to improve safety on the roads, as about 1,200 people a year are killed on our roads as a result of excessive speeds?
Baroness Hayman: My Lords, I certainly agree with the noble Lord about the dangers of speeding. It is the major contributory factor in up to one-third of injuries caused on our roads. However, I have confirmed the illegality of these plates. The enforcement of the law is a matter for the police. As yet, we are not aware of any prosecutions brought against vehicle keepers for fitting or using these number plates. Nevertheless, we believe that such prosecutions could be brought and should be successful were they to be brought.
Lord Carmichael of Kelvingrove: My Lords, is there any evidence of a large number of motorcyclists tilting their number plates? I am very interested in the whole question of number plates—I had something to do with introducing the reflective plates that were greatly opposed at the time. I do not believe that motorcyclists are as irresponsible as some people seem to believe they are. Can my noble friend confirm that?
Baroness Hayman: My Lords, as there have not been any prosecutions, it is very hard to assess the extent of the problem. There have been recent press reports of the type alluded to by the noble Lord, Lord Campbell of Croy, and the police have expressed concern. This is not
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a practice that we would wish to see grow. It is an obvious and deliberate attempt to contravene and circumvent the enforcement of speed limits.
Lord Skelmersdale: My Lords, as enforcement is something like 80 per cent. of the game, what encouragement has the Minister's department given to the police to prosecute on these occasions?
Baroness Hayman: My Lords, encouragement to prosecute is a matter for the Home Secretary and the Home Office rather than my department. If we perceived this to be a growing problem, we should have to address it. If there were any question of uncertainty in the law, we should have to examine the regulations to see whether they adequately covered the problem. Harking back to the point made by my noble friend Lord Carmichael, we do not at present regard this as a major problem. The legislation is there, and police forces will consider what they need to do to enforce that legislation.
The Viscount of Falkland: My Lords, if tilting devices, which I have not heard of in relation to motorcycles, are not allowed, what is the position regarding the ordinary piece of clingfilm from the kitchen drawer, which I am told is much more favoured, not by motor-cyclists—because, as the noble Lord, Lord Carmichael, said, they are usually a fairly respectable lot—but by many drivers?
Baroness Hayman: My Lords, it is not the particular method by which the law is contravened that is important. The current regulations state that number plates must be securely fixed and readable at all times. Anything that is done to prevent them being readable is a contravention of the law.
Lord Ewing of Kirkford: My Lords, as this Question relates to tilting, will my noble friend confirm that nothing in next Tuesday's Budget will be tilted against the motorist?
Baroness Hayman: My Lords, I can neither confirm nor deny any proposals that might emerge in next week's Budget. They are matters for the Chancellor, and my noble friend will have to contain his anticipation.
Lord Brabazon of Tara: My Lords, while I agree with the question posed by the noble Lord, Lord Ewing, perhaps I may return to the one on the Order Paper. The Minister said that at present there is not much evidence. Is any evidence to be found in photographs from police cameras of number plates that are unreadable for one reason or another? Secondly, could there be a check in the MOT, which takes place after three years, to see whether such a device has been fitted—although I grant that it would be possible to undo the device when the vehicle was put in for MOT? Perhaps I may indulge myself in a third question. Will the Minister agree that it is not just a matter of police cameras: in a hit and run accident, for example, someone could have obscured his number plate?
Baroness Hayman: Yes, my Lords. That is why there is a variety of regulations covering it and why it is an

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offence to alter, rearrange or misrepresent the characters—that includes the use of fonts which are difficult to read—in a way that makes it difficult to distinguish the registration mark. That legislation is in place precisely because of the problems that can be incurred not only with technological methods of reading number plates but also in terms of witnesses remembering because they found it difficult to read the number plates. Number plates must comply with the current specified British standard.
In answer to the question about MOTs, number plates are checked as part of the annual MOT test and a vehicle whose number plate does not comply with the requirements would fail its test. We propose to tighten the regulations by, among other things, a mandatory character font which will facilitate enforcement and should go some way towards reducing the abuse which undoubtedly exists.

UN Sanctions: Targeting
3 p.m.
Baroness Williams of Crosby Baroness Williams of Crosby asked Her Majesty's Government:
What consideration has been given to devising international sanctions that will affect political and military elites rather than ordinary people in nations that are in breach of United Nations resolutions.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, we believe that, wherever possible, sanctions should be targeted to hit the regime rather than ordinary people. Recent sanction regimes have included humanitarian exemptions to minimise the impact on the civilian population. We are always open to suggestions on how sanctions can be better targeted to achieve maximum impact.
Baroness Williams of Crosby: My Lords, I thank the Minister for that helpful answer. Perhaps I might draw her attention to the failure of sanctions in Iraq to change in any profound way the attitude of the regime towards the building of palaces. Does she agree that in regard to the disgraceful destruction of the village of Prekaz in Kosovo over the weekend, again sanctions against Serbia have had little effect? Will her department consider supporting work being done on targeting sanctions more precisely to those who make the decisions, the leaders and the political elite of the countries? I believe that that proposal has a great deal in it. So far it is being developed in certain universities.
Baroness Symons of Vernham Dean: My Lords, Her Majesty's Government would draw attention to the fact that sanctions against the Iraqi regime have contained Saddam Hussein and prevented Iraq from attacking her neighbours. That is a not inconsequential outcome of the sanctions.
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Her Majesty's Government would also say that sanctions were instrumental in bringing Milosevic to the negotiating table in the former Republic of Yugoslavia. However. I take the noble Baroness's point about targeting sanctions. Some UN sanctions—notably those against the military leadership in Sierra Leone and the UNITA leadership in Angola, for example—have been targeted at the leaders of those regimes and have imposed travel restrictions.
The noble Baroness asked whether the Government would support the group looking at the issue at the moment. I believe I can say that Her Majesty's Government will be happy to look with interest at anything the group can bring forward.
Lord Hughes of Woodside: My Lords, since the Minister mentioned sanctions against UNITA, is she aware that the UNITA representative in London is still here? That is despite having been asked to leave by the Home Office. He is still functioning as the UNITA representative in London. What steps will Her Majesty's Government take to ensure that the Government's commitment to the UN sanctions against UNITA is not flouted in that manner?
Baroness Symons of Vernham Dean: My Lords, the UK is enforcing sanctions in accordance with the national legislation. So Her Majesty's Government are enforcing the sanctions so far imposed upon UNITA.
Lord Avebury: My Lords, the noble Baroness mentioned Sierra Leone. Will she confirm that the regime permitted by Security Council Resolution 11/32—which the United Kingdom was largely responsible for drafting—was unlawfully extended by the Nigerians? Thus it applied to all humanitarian goods, whatever they were. As a result, the situation in Freetown which was discovered by the captain of the British frigate that recently berthed there was harrowing. Britain was largely responsible for the situation, having failed to do anything to stop the Nigerians from unlawfully extending the sanctions regime.
Baroness Symons of Vernham Dean: My Lords, I am sorry, I do not accept the premise of the noble Lord's question. There have indeed been humanitarian exemptions as regards the regime in Sierra Leone. We already allow the export to Sierra Leone of petroleum, petroleum-related products and a number of other products. I do not believe that I can accept the noble Lord's premise about the United Kingdom Government's responsibility in the way that he has depicted it.
Baroness Rawlings: My Lords, what assessment does the Minister make of the United States concept of consistent principles and flexible tactics depending on national interests and strategic relationships, which allows the United States to impose sanctions on countries such as Burma and the Sudan but which

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confers most favoured nation status on China? In the light of their ethically driven foreign policy, do the Government agree with that position?
Baroness Symons of Vernham Dean: My Lords, the Government's position is that the British Government will support all the current United Nations sanctions regimes. That is the important point for Her Majesty's Government, and, of course, we also support the regimes imposed by the understandings we have in the European Union. We want effective implementation of the sanctions that are imposed by the UN.
Lord Chalfont: My Lords, does the Minister agree that leaders of military and political dictatorships usually have little difficulty in ensuring that the sanctions bear upon innocent citizens and not upon their armed forces or security arrangements?
Baroness Symons of Vernham Dean: My Lords, sadly, what the noble Lord says is true. That is why I endeavoured in my response to the initial Question from the noble Baroness, Lady Williams, to give a reply which allowed for a continuing discussion on the issue. It is undoubtedly true that, much as we have tried in Iraq to ensure that humanitarian aid has reached the people of Iraq—after all, we know that there has never been any impediment to receiving food or medicine in Iraq—it is evident that the regime there has not always allowed free access by the people of Iraq to those humanitarian supplies. It is an interesting and important point which the noble Baroness, Lady Williams, raised. That is why I am able to say to her that, if noble Lords wish to bring forward further suggestions of a practical nature, Her Majesty's Government will be willing to look at them.
Lord Pearson of Rannoch: My Lords, in that case can the Minister say whether Her Majesty's Government are collaborating internationally with the banking community to identify, freeze and, if necessary, return, for the benefit of the countries concerned assets of political and military leaders in some of the more odious regimes?
Baroness Symons of Vernham Dean: My Lords, without being specific about particular countries, such questions are often raised. They are raised about assets in this country, and Her Majesty's Government consider all the issues on a case-by-case basis.
Lord Rea: My Lords, how far does the Milosevic regime have to go in order—
A noble Lord: Order!
Lord Rea: My Lords, I started just before the 30 minutes. How far does the Milosevic regime have to go in oppressing the Kosovan and Albanian population
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before a United Nations resolution is called for, preferably by this country, to try to draw a halt to this from the United Nations angle?
Baroness Symons of Vernham Dean: My Lords, as I suspect the noble Lord is aware, the issue of what is happening in Kosovo is the subject of a meeting in London today chaired by my right honourable friend the Foreign Secretary. The contact group is meeting even as we speak. I suspect that I shall be able to answer the noble Lord's question considerably better if he is able to put it to me tomorrow or on a subsequent occasion.

Audit Commission Bill [H.L.]
The Lord Chancellor (Lord Irvine of Lairg): My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of recommitment be discharged.
Moved, That the order of recommitment be discharged. —(The Lord Chancellor.)
On Question, Motion agreed to.

National Lottery Bill [H.L.]
3.10 p.m.
Report received.
Clause 2 [Financial penalties for breach of conditions in licences]:
The Viscount of Falklandmoved Amendment No. 1:
Page 5, line 23, at end insert—
("(15) The Director General shall not impose a financial penalty if he is satisfied that the operator has agreed to take, and is taking, all such steps as it appears for the time being to be appropriate for the operator to take for the purpose of securing or facilitating rectification of the contravention in question.".").
The noble Viscount said: My Lords, this amendment deals with the fines and penalties which may be levied by the regulator. I initiated a short debate on this matter in Committee. The amendment gives the regulator an opportunity to warn of the possibility that a fine may be the appropriate penalty, and provides a reasonable time for the problems giving rise to the need for a penalty to be rectified.
The most likely breakdown which can lead to a possible fine is in the operation of the satellite and the radio link with satellites. That is excluded from the Bill and the operator has the chance to put matters right before a penalty is enforced. Perhaps the Minister can say why that principle cannot be applied to other possible infringements by the operator.
It is hard to imagine any serious infringement of the scope of the breakdown of a satellite and radio link which would cause stoppage and loss of revenue, and thus revenue to good causes; it would more likely be infringements by those selling lottery tickets in terms of

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their displaying the logo and matters of that kind. But it could involve measures that should be taken by the operator if lottery tickets or, in particular, scratchcard tickets are seen to be bought by under-age persons. If an infringement of that kind occurred, would it not be more sensible and in line with procedures in other areas of our life where a regulator is involved to allow the operator time to take action and put the matter right before a fine is imposed?
The Minister said in Committee that he would have been more friendly towards the amendment I had tabled at that stage if the words had been "need not" rather than "shall not". However, there is no compulsion on the regulator at any stage to levy a fine or penalty against the operator. To state that would therefore be superfluous. The words, "shall not", as suggested in the amendment, seem logical and may lead to a smoother running of lottery sales and certainly a smoother relationship between the operator and the outfits which have infringed the rules. I beg to move.
3.15 p.m.
Lord McIntosh of Haringey: My Lords, the noble Viscount raised this point in the Grand Committee and I am glad to have an opportunity of making the Government's position clear. The purpose of Clause 2 is to give the director general the full range of powers he needs to ensure that licence holders comply with their licences. The procedures for fining give the director general an intermediate course between taking no action at all and the ultimate sanction of revoking the licence. As the noble Viscount said, this power is already enjoyed by other regulators and I do not believe, given that only one amendment has been tabled, that there is any objection in principle to its introduction for the lottery. However, if it is to work, it must be clear of unnecessary procedures and areas of uncertainty.
Where a licence holder has contravened the terms of the licence I hope that it would take corrective action itself and would not require prompting by the director general. I know that the acting director general is mindful of the need to clarify, as far as possible, how he would approach the operation of financial penalties. I understand that he intends to take into account the effectiveness and timeliness of any corrective action that the licensee has taken when deciding whether to impose a penalty and the level of any penalty. He would also, I am sure, take into account the extent to which the circumstances which gave rise to the breach were within or beyond the licensee's control, although I acknowledge that that is outwith the amendment before us.
The director general is not forced by the Bill to penalise; it is an option open to him as appropriate. But the effect of the amendment is that the director general is prevented from imposing a fine if corrective action is being taken. That cannot be right. There may be occasions when a fine is still appropriate even though the operator is taking action to prevent a recurrence of the breach, particularly if there has been an impact on the income to the National Lottery Development Fund.
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I remind the noble Viscount that our discussion in Grand Committee made clear that there were two different purposes in imposing fines—to penalise wrongdoing and to obtain money which had been lost to the National Lottery Distribution Fund. Therefore, even though the operator put right the infringement it might still be appropriate to impose a fine in order to restore the position in relation to the National Lottery Distribution Fund. There might also be occasions when no penalty was appropriate. It would not be right to fetter the discretion of the director general. That would reduce his power to regulate effectively and, in appropriate cases, to use his power to impose a financial penalty as a deterrent to future breaches of the licence.
It is not as though we are forcing a penalty regime on the director general. He does not have to impose a fine and, if he does, the Bill provides a right of appeal if the operator believes that he has not acted reasonably when imposing a financial penalty. For example, if the breach was caused by factors beyond the control of the operator, I am sure that the courts would see that as an argument against imposing a penalty.
The noble Viscount asked about analogies with other operators. To take the case that he drew, particularly in Committee, in relation to the Railways Act 1993, the difference is that the franchising director has a much wider range of powers than the director general of the lottery. The franchising director can make a train operator pay compensation to passengers; he can make the operator pay financial penalties automatically for each train cancelled or delayed. Conversely, the operator can earn bonuses for improving performance. Train operators therefore have commercial incentives to meet passenger expectations. No such situation applies to the National Lottery operator.
In the light of the wide and permissive way in which the penalty regime is imposed, I invite the noble Viscount not to press an amendment which would make its fair operation more difficult.
The Viscount of Falkland: My Lords, I thank the Minister for his full reply. Obviously it is in the interests of all parties to make sure that the lottery runs smoothly. I cannot visualise any infringements at this stage which might draw the necessity for a fine, except the major one—that is, a breakdown of the electronic machinery of the lottery. I am sure that the operator would see it as in his interest as well as everyone else's to put that right immediately. And the Bill allows for that. The infringements which one calls to mind are fairly minor. It is just that it would seem tidier and neater to establish a uniformity with other areas of regulation. However, I shall read carefully what the noble Lord said in his full reply. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 5 [The new good cause and the re-allocation of lottery money]:
Lord Redesdalemoved Amendment No. 2:
Page 8, line 2, at end insert—
("() In section 28 of the 1993 Act (power to amend section 22), in subsection (2)(a), for "5 per cent." there shall he substituted "13⅓ per cent.".").

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The noble Lord said: My Lords, this amendment was put down at the previous stage by the noble Lord, Lord Skidelsky. I have put it down again because there is the fundamental point to be made that the lottery could change into something we had not previously envisaged if the new opportunities fund is allowed to grow disproportionately.
At the previous stage we went down the avenue of additionality. After reading the Minister's words, I have to agree that it would be fruitless at this stage to go along those philosophical corridors again. However, I believe that the underlying point of the amendment can be looked at without discussing additionality at all. It seeks purely and simply to limit the size of the new opportunities fund so that it does not receive disproportionately large amounts of funds at the expense of the other good causes.
Under the 1993 Act, there is the possibility that the new opportunities fund could grow to 75 per cent. of the money available to all good causes, leaving a mere 25 per cent. to be divided between sports, heritage and the arts. At the previous stage the Minister said that it was not the Government's intention ever to allow the new opportunities fund to grow to such an extent. However, we must underline the fact that the new opportunities fund is a new direction among the good causes. It seeks to provide revenue to areas which we on these Benches thoroughly support—environment, health and education—and so I would hate it if the Minister got the impression that I was attacking the new opportunities fund. We have no difficulty with the new opportunities fund, but we have a difficulty with the fact that it is quite possible that the Government could look at this as government money to fund commitments they make or to fund their own political agenda.
The Minister was kind enough to send me a letter emphasising his point that the new opportunities fund would not grow so large. He strenuously denied our point about the funding of the cause being illegal and said that if the Government were not allowed to fund the new opportunities fund before legislation had been passed, then to bring the new opportunities fund up to the level of funding they wished, they would initially have to spend 18 per cent. of lottery funds on it and then they would have to fund it at 24 per cent. from autumn 1999. I would find it worrying that if the Government had failed through their rather interesting accounting practices to secure the money for the new opportunities fund they would be quite prepared to take almost 25 per cent. of the lottery for one of the six good causes.
The figure stated in the amendment of 13⅓ is hardly draconian. It allows for variations in other good causes to a higher degree. Indeed, 13⅓ per cent. is almost a necessity due to the Millennium Fund having to be at a higher rate than other good causes at present. The Millennium Fund gives us a prime example of a project that can grow out of all proportion. The Millennium Dome seems to be a black hole in itself, having a gravitational field for all available lottery finances.
16
I believe that the new opportunities fund, with its open-ended mandate to increase the number of projects put forward, could, in the same way as the Millennium Dome, put pressure on the Government steadily to increase, even in small proportions, the amount of money available to it.
The Minister said that it is not his intention to change the amounts available. He said that it is not his intention that the new opportunities fund should grow to such an extent. But however well intentioned that commitment may be, it still does not lay down the basis of giving a fair proportion of moneys to the funds that have already been set up. I beg to move.
Lord Skidelsky: My Lords, I support the amendment. Perhaps I may quickly give the background to our position for those of your Lordships who were not with us in Committee in the Moses Room.
Our main criticism of the Bill is that it centralises far too much power in the hands of the Secretary of State. That feature is largely attributable to the new good cause, which is radically different in character from the previous good causes. The 1993 Act defines five areas or activities to be supported by the proceeds of the National Lottery on an equal percentage basis. As noble Lords will know, they were the arts, sport, national heritage, charities and the millennium. The money was to be drawn on by the five distributing bodies to make grants to such projects as they chose to support within their terms of reference. The Secretary of State had no power to tell the distributors what projects to support. For example, he could not tell the Sports Council to build 50,000 new squash courts. That is the "hands off" principle.
The new opportunities fund is to have no such freedom. As the Government's note on Clause 6 of the Bill puts it:
"Rather than providing general support to its sectors, as the other distributors do, it will support a rolling programme of specific initiatives. These will be determined by the Secretary of State".
The first three initiatives are to be ICT training for teachers and librarians, out-of-school hours activities and healthy living centres, but we are promised many others. Yet the Secretary of State and the Minister in Committee had the gall to claim that such instructions are consistent with the arm's length principle. They are not. The new opportunities fund will simply be a government agency with limited operational autonomy.
In Committee we tried to remove the Secretary of State's fingerprints from Clause 6. I am very grateful to the noble Lord, Lord Redesdale, for supporting that attempt. The Minister would not budge an inch, and given the Government's aim to use the National Lottery money for their social programme, his response is perfectly understandable. But we then have to ask another question. What is to stop him from channelling more and more National Lottery money towards the new opportunities fund at the expense of the other distributors?
We have already been told that the new causes' share will go up to 20 per cent. in 1999 as millennium spending tails off. Why not 25 per cent.? Why not

17
50 per cent.? There is nothing in the Bill to stop it. The existing percentages can simply be varied by ministerial order; and it would be very tempting to do so. Education, healthcare and the environment are central responsibilities of government in a way which arts and the heritage are not. It would look very good in the manifesto (would it not?) to be able to say that the Government had created thousands of new healthy living centres or homework classes, and all without spending a penny of taxpayers' money.
The sums involved are not negligible. So far, the distributors have received almost £5 billion. The good causes can expect another £5 billion over the next three years. The Secretary of State is at perfect liberty, as things now stand, to channel £3.75 billion of that expected £5 billion to the new opportunities fund. He does not have to give the five other distributors more than 5 per cent. each of the total, as the noble Lord, Lord Redesdale, pointed out. That minimum of 5 per cent. was put into the 1993 Bill before this voracious new cause made its appearance. We now believe that that percentage is too low. It does not sufficiently curb the Secretary of State's political appetite. It is significant that at Second Reading the Government declined to give any assurance about lottery funds for the arts or sport after the Millennium Fund stream comes to an end.
So we support the noble Lord, Lord Redesdale, in proposing to raise the minimum percentage for all the causes to 13⅓per cent., which is the present percentage allocated for the new opportunities fund. The effect will be to ring fence £3.3 billion of the £5 billion for the five original good causes as opposed to £1.25 billion under existing legislation. The Secretary of State will still have the flexibility to give the new opportunities fund more than the others, but not nearly as much flexibility as there is now.
I ask again whether the Minister will give a binding undertaking that in this Parliament he will not reduce the percentages going to the original good causes below 16 per cent. That is something we tried to elicit from him at Committee stage, but he would not give that binding assurance. He simply said that it is not the Government's present intention to do so. We believe that we must have more protection than the present intention. It is essential that the arts, sport, heritage, the charities and even the Millennium Fund should have that protection. That is why I support the amendment.
3.30 p.m.
Lord Naseby: My Lords, I was unable to take part in the Committee stage. I wish to speak particularly on this amendment because I am deeply concerned about the possible strategy that is being followed. I believe that all of us in the other place who were involved when the original lottery Bill became an Act were quite clear that the four-plus-one good causes—in other words, arts, sport, heritage, charities and the Millennium Fund—recognised at that stage that we would end up with just four causes. The Millennium Fund would pass and it would then be for the other place to decide whether something should replace the fund or whether the percentage that it received should go to the original four.
18
The point raised by the amendment is entirely right. The thrust of the amendment—in a sense I am less concerned with the detail of it—is saying, "What safeguards are there for the original four core causes?". There are some signs on the wind at this time that the new opportunities fund is becoming all-embracing. I attended a meeting the other evening of the Food and Health Forum and listened to one of Her Majesty's Ministers speaking about healthy eating centres, which are part of a very laudable project. I understand that they are called healthy living centres; I thought they were healthy eating centres. Nevertheless it was a food and health forum. The sum mentioned was £300 million, a very large amount by any yardstick, and that was only one of many potential users of these funds.
The question I ask today is this: is the Minister in a position to give a categorical assurance to your Lordships' House that the funds that currently go to the Millennium Fund will not all go to the new opportunities fund? Will those funds be shared across what will then be the five causes of arts, sport, heritage, charities and the new opportunities fund? It is against that background that the amendment is a pretty moderate one. All it seeks is that 13⅓ per cent. should be safeguarded. The Minister will recognise that that is not one-fifth of what is on offer. At the very least I believe that the Minister should be able to say that that is totally assured as a minimum and it may be a little more. If he is unable to do that, then I say to him that we on this side of the House and, I suspect. throughout the Chamber and outside, will have to say to ourselves, "What is the agenda? Is it really to pump more and more money into the new opportunities fund and to starve the rest?". We await the Minister's reply.
Lord Addington: My Lords, I support my noble friend's amendment. We are talking about guaranteeing the original good causes for which the lottery was introduced. I recall the long arguments saying what tremendous opportunities there would be for such things as sport and how new facilities would he provided. These things, it was said, would be guaranteed. We are now over the building period; we are incurring the really expensive part of any project, which is investing in people. We shall have to find money, for example, to support athletes who often try and fail at international level. There is a need to support them. We need to guarantee their funding.
I also recall the phrases that were used in this Chamber—I definitely heard them from the Minister when he was sitting on my left—such as, "We know about this Home Secretary" or "We know about that Minister, but we are worried about those who come in future. The present one we trust". I know that the Government are familiar with that argument. In this Chamber those who are now Ministers advanced it themselves. I do not know how many times in the past decade members of the Labour Party in this House said. "This Minister is a thoroughly good chap, but what happens if we get a nasty one in future?" It is basically

19
that principle which is returning. Surely, this very moderate amendment brings on board a concept which the Minister's party are very familiar with.
Lord Rowallan: My Lords, can the Minister clarify something for me about the Millennium Commission? On the website of the Department for Culture, Media and Sport, as of today, there are 131 projects listed, but on the National Lottery Distribution Fund figures for that same Millennium Commission there are 12,334 projects, which is a difference of 12,200 projects. That is quite substantial in terms of money. Can the Minister comment as to what is happening?
Lord McIntosh of Haringey: My Lords, I am always happy when the debate ranges more widely than the amendment on the Marshalled List. The noble Lord, Lord Redesdale, began by saying that his purpose in moving the amendment was to ensure that the new opportunities fund should not be allowed to grow disproportionately. That seems to me to be a legitimate objection. I propose to treat the matter entirely seriously although that is not quite what his amendment says.
A great deal of debate has taken place on matters with which the amendment is not concerned. It has been about the arm's length principle and the extent to which the new opportunities fund is claimed to be less independent than any of the other funds. The debate has been about the additionality principle. I am grateful to the noble Lord, Lord Redesdale, for his acknowledgement that he could not go over the additionality ground again. In effect he has been doing so in the way he has put forward the argument.
Lord Skidelsky: My Lords, not only did the noble Lord, Lord Redesdale, explicitly deny that we were pursuing the additionality question, but I certainly did not mention it and I do not know who else did.
Lord McIntosh of Haringey: My Lords, nobody did, but the word used by the noble Lord, Lord Skidelsky, was "voracious", while the noble Lord, Lord Naseby, used the phrase "all-embracing" about the new opportunities fund. To me, that suggests that noble Lords feel that the new opportunities fund has a greater scope for expansion than some of the other funds. Even if that were the case, the point is not addressed by this amendment.
The noble Lord, Lord Redesdale, also referred to the issue of retrospection by talking about the percentages which would apply when the Millennium Fund comes off stream. Again, I do not think that that is addressed by this amendment; nor is the issue of the Millennium Fund itself.
Lord Redesdale: My Lords, I was not talking about retrospection. In his letter covering these issues, the noble Lord specifically stated that if it were not for the retrospection that has taken place—I seek to leave aside the argument about retrospection altogether—there would be no alternative but to raise the percentage of the new opportunities fund to a quarter of a percentage
20
point below 25 per cent. Perhaps I have misread the letter, but I do not believe so. Perhaps the noble Lord could give me some guidance.
Lord McIntosh of Haringey: My Lords, the noble Lord has not misread the letter. The point that I am seeking to make is that that is an argument for a later amendment. It does not particularly relate to this amendment. I must make it plain that this amendment does not relate specifically to the new opportunities fund; it relates to all of the distributors and it treats them all equally. I am not saying that it is any the worse for that, but I must advise the noble Lord, Lord Skidelsky, that in Committee I pointed out to him that what was proposed in an amendment then—and what is proposed now—relates to a fallback provision made not by this Bill but by the 1993 Act. The minimum figure that was proposed then has been carried on into this Bill.
I understand the argument that noble Lords have put forward that there is something different about the new opportunities fund. I do not agree with it, but I understand that that is what noble Lords are saying. I understand that it is for fear of this "voracious" new fund that they have put forward this greater limitation. However, I am not convinced that the argument is all in one direction and that the flow will be entirely from other funds to the new opportunities fund. Referring to what was said not only in Committee but also on Second Reading, I am sure that the noble Earl, Lord Gowrie, would put forward considerable arguments for an increase in the arts share; that the noble Lord, Lord Rothschild, would do the same for an increase in the heritage share; and that my noble friend Lord Howell and the noble Lords, Lord Rowallan and Lord Addington, would argue for an increase in the sports share. Everybody has their own very good, well argued case for more money from the total pot to be given to a particular fund—
Lord Redesdale: My Lords, but one of the problems that we have with the new opportunities fund is that it is directly affected by the wishes of the Secretary of State. It will be the Secretary of State who will alter the percentages. A level playing field—I apologise for using that over-used phrase—is certainly not in existence here.
Lord McIntosh of Haringey: No, my Lords, that is not entirely accurate. It is the Secretary of State who proposes initiatives for the new opportunities fund, although the way in which the money is spent on those initiatives is a matter for the trustees of the fund. However, the Secretary of State can do so only by designating the initiative in an order which is approved by Parliament. Therefore, noble Lords have two means of protecting the existing good causes: by their control over any order reducing a percentage and by their control over the activities which the new opportunities fund can undertake at any one time. Apart from that great fear about the new opportunities fund, there is no good reason to change the 1993 Act.

21
I have been asked specifically to make undertakings—the noble Lord, Lord Skidelsky, calls them "binding undertakings"—about our future intentions. I can certainly do that. First, barring the extremely unlikely circumstance in which lottery income for good causes is less than £10 billion in total, we shall ensure that each of the existing good causes receives by 2001 the £1.8 billion expected when the lottery started. I recognise that that is not directly answering the question from the noble Lord, Lord Skidelsky, who asked for an assurance for the whole Parliament, but I am saying that the date 2001 is more meaningful than the phrase "the whole Parliament" because 2001 represents the end of the operator licence. There will then be a new licence. Neither this nor the previous government would give any undertaking—rightly, I believe—about what happens after 2001. I am giving the noble Lord an assurance for the next three years—in other words, for four years into this Parliament and stopping at a rational time, not whenever the next election may be held—that, barring a shortfall in money, there will be no decrease in the £1.8 billion expected when the lottery started. I believe that that is a proper and sustainable response to the questions I have been asked by noble Lords opposite.
3.45 p.m.
Lord Skidelsky: My Lords, I am grateful to the noble Lord for giving way. It is because lottery proceeds are necessarily uncertain that we asked for that assurance in terms of percentages. I repeat: could the noble Lord give us an assurance that the arts, sports, national heritage and charities will continue to receive 16⅓ per cent. of the money available, whatever it is, during the present Parliament? The noble Lord answered the second part of that in the negative, but said "four years". What about the percentages?
Lord McIntosh of Haringey: My Lords, funds do not spend percentages; they spend money. I am giving a much more realistic and sensible undertaking to noble Lords opposite. I am saying that the existing distributors can, for the remainder of this licence, count on receiving the amount of money that they expected when the licence started. I cannot go further than that—nobody could go further than that—because we do not know what the amount of money will be and we may want to make quite different decisions about any excess. So, subject to any shortfall, I am giving, I believe, a realistic response to the assurances for which I have been asked.
Lord Naseby: My Lords, the noble Lord said that he could not be more realistic or sensible. Surely he must realise that the disaster that he contemplates might just happen, in which case the £1.8 billion will not go to the original four good causes. However, he has not said that in that circumstance the percentage will remain constant; rather, he has indicated to the House that the new opportunities fund already has enormous commitments, and "tough luck" on the original four. Alternatively, the lottery may continue
22
to prosper, as all Members of your Lordships' House hope, in which case the four original good causes will be told that they will get what was originally forecast. I remind the House that the original forecast was way below what has been achieved so far, so those four original good causes will be told, "Tough luck again; you will not prosper from the success of the lottery. The new opportunities fund will prosper". While the Minister may not believe in percentages they are a safeguard for those who take part in the lottery. There is no reason why the Minister cannot say at the Dispatch Box that the percentages will persist. They are the safeguard that ensures that all four of the causes get a fair share of what is available.
Lord McIntosh of Haringey: My Lords, I believe that the noble Lord has unwittingly misinterpreted what I have said. I did not say that I did not believe in percentages but that funds spent money, not percentages. I certainly did not say that if there were any shortfall all or any of it would be at the expense of the existing causes and not the new opportunities fund. In those circumstances I believe that it would be necessary for the Government to return to Parliament with a proposal for the cuts that should take place in the expectation of all of the funds including the new opportunities fund. I do not ring fence the new opportunities fund against any cut that may be required if the lottery produces less than £10 billion in the period of the licence.
To sum up, I believe that I have given a possible and sensible assurance as to the money that will be available for existing causes between now and 2001, which is the end of the licence. In those circumstances, I believe that it is right to adhere to the fallback position of the previous government enacted in the 1993 Act. I suggest that to overturn that would be to overturn the wishes of the previous government, not this Government. I ask the noble Lord, Lord Redesdale, to withdraw his amendment. If he does not do so, I invite noble Lords to oppose the amendment.
Lord Redesdale: My Lords, I thank the Minister for the commitments that he has given. They were generous to a degree. However, the problem is that we are not discussing amounts of money but are far more interested in the principle that all of the good causes should be equal and none should grow disproportionately to the others. To a degree we are not returning to the previous Act. Under that enactment each of the good causes was in a different field and would not be significantly altered by a change in government and political emphasis. We are concerned that the new opportunities fund, however worthy and commendable may be its objectives, does not grow disproportionately so that the others suffer. On that principle I feel it only right to seek to test the opinion of the House.
3.53 p.m.
On Question, Whether the said amendment (No. 2) shall be agreed to?
Their Lordships divided: Contents, 71; Not-Contents, 82.

Division No. 1

NOT-CONTENTS

Aberdare, L.

McNair, L.

Addington, L.

McNally, L.

Ailsa,M.

Mar and Kellie, E.

Allenby of Megiddo, V.

Mayhew of Twysden, L.

Annaly, L.

Milverton, L.

Ashbourne, L.

Moyne, L.

Avebury, L.

Naseby, L.

Biffen, L.

Park of Monmouth, B.

Brabazon of Tara, L.

Rawlings, B.

Brougham and Vaux, L.

Razzall, L.

Buckinghamshire, E.

Redesdale, L. [Teller.]

Rodgers of Quarry Bank, L

Butterworth, L.

Rowallan, L.

Calverley, L.

Russell, E.

Carlisle, E.

Selkirk of Douglas, L.

Cochrane of Cults, L.

Shaw of Northstead, L.

Crickhowell, L.

Skidelsky, L.

Cullen of Ashbourne, L.

Sudeley, L.

Dacre of Glanton, L.

Southwell, Bp.

Denham, L.

Swansea, L.

Dholakia, L. [Teller.]

Swinfen, L.

Eme,E.

Taverne, L.

Ezra,L.

Taylor of Warwick, L.

Falkland, V.

Thomas of Gresford, L.

FooKes, B.

Thomas of Gwydir, L.

Freyberg, L.

Thomas of Walliswood, B.

Gardner of Parkes, B.

Tope,L.

Grey.E.

Tordoff, L.

Harding of Petherton, L.

Waddington, L.

Hardwicke, E.

Wallence of slataire, L.

Hayhoe, L.

Westbury, L.

Jenkin of Roding, L.

Wharton,B.

Johnston of Rockport, L.

Wigoder, L.

Kingsland, L.

Williams of Crosby, B.

Kitchener, E.

Wynford, L.

Leigh, L.

Young, B.

NOT-CONTENTS

Acton, L.

Gladwin of Clee, L.

Ailesbury, M.

Gould of Pottemewton, B.

Amos, B.

Graham of Edmonton, L.

Annan, L.

Gregson, L.

Berkeley, L.

Grenfell, L.

Blease, L.

Halsbury, E.

Blyth, L.

Hardie, L.

Borrie, L.

Haskel, L. [Teller.]

Brooke of Alverthorpe, L.

Hayman, B.

Bruce of Donington, L.

Hilton of Eggardon, B.

Burlison, L.

Hogg of Cumbernauld, L.

Carew, L.

Hollis of Heigham, B.

Carmichael of Kelvingrove, L.

Howie of Troon, L.

Carter, L. [Teller.]

Hoyle, L.

Chorley, L.

Hughes of Woodside, L.

Cledwyn of Penrhos, L.

Hylton-Foster, B.

Cocks of Hartcliffe, L.

Ilchester, E.

David, B.

Irvine of Lairg, L. [Lord Chancellor.]

Davies of Coity, L.

Davies of Oldham, L.

Islwyn, L.

Donoughue, L.

Jay of Paddington, B.

Dormand of Easington, L.

Jenkins of Putney, L.

Ewing of Kirkford, L.

Kilbracken, L.

Farrington of Ribbleton, B.

Longford, E.

Gallacher, L.

Lovell-Davis, L.

Gilbert, L.

McIntosh of Haringey, L.

24

Marsh, L.

Shepherd, L.

Mason of Bamsley, L.

Shore of Stepney, L.

Merrivale, L.

Simon, V.

Milner of Leeds, L.

Smith of Gilmorehill. B.

Molloy, L.

Stallard, L.

Monkswell, L.

Stone of Blackheath. L.

Montague of Oxford, L.

Strabolgi, L.

Murray of Epping Forest, L.

Symons of Vemham Dean, B.

Nicol, B.

Tenby, V.

Ponsonby of Shulbrede, L.

Thomas of Macclesfield, L.

Ramsay of Cartvale, B.

Turner of Camden, B.

Watson of Invergowrie, L.

Randall of St. Budeaux, L.

Wedderburn of Charlton, L.

Richard, L. [Lord Privy Seal.]

Whitty, L.

Sefton of Garston, L.

Williams of Elvel.L.

Serota, B.

Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.
4.2 p.m.
Lord Skidelsky Lord Skidelsky moved Amendment No. 3:
Page 8, line 12, leave out subsection (9).
The noble Lord said: My Lords, I start by reminding your Lordships of what subsection (9) of Clause 5 does. Clause 5 as a whole is concerned with the allocation of money to the distributors. It provides for a reduced percentage of National Lottery money to go to the arts, sport, national heritage and charities to make room for expenditure on the new good cause; that is, education, healthcare and the environment. Subsection (9), which we are seeking to leave out, states that that revised allocation shall apply to sums on or after 14th October 1997; that is, for several months before the new cause which it is the main object of the Bill to set up acquires a legal existence. The effect of subsection (9) is to make retrospectively legal actions taken by the Secretary of State which he had no authority to take at the time.
In this country we have always regarded retrospective legislation as pernicious, and not to be resorted to except for grave cause or genuine inadvertence. That does not apply to this case. The Secretary of State announced on 1st October 1997 that funds for the new opportunities fund would start accumulating as from 14th October. Since then, the shares for the existing good causes, except the Millennium Commission, have been reduced from 20 per cent. to 16⅔ per cent. with 13⅓ going to the new opportunities fund.
Why do we contend that that act was unlawful? It is because no power to divert National Lottery money to a new good cause had been given by the 1993 Act. It is to give the Secretary of State that power that the Bill has been introduced. Yet he goes ahead and starts exercising it from 14th October last year. Since 14th October last year, the arts, sports, heritage and charities have lost money that they would have expected to have received until the Bill became law. That is why in Committee I called it robbery, and why I repeat that charge today.
The sums involved are not a trifle. Let us assume, to simplify matters, that the Bill becomes law in the middle of May. For seven months the four good causes have been told to plan their expenditure on the basis of shadow accounts based on the reduced percentages. Lottery money available for distribution is accumulating

25
at the rate of £30 million a week. Of that, the four good causes could have expected 80 per cent. or £24 million. As it is, they will have had paid into their shadow accounts 67 per cent. or £20 million. That is a loss of £4 million a week. Multiplied by 30 weeks, that comes to £120 million that they would have lost and which they would have expected to receive. I am sorry that I gave a lower estimate in Committee. The robbery is even greater than I thought.
The Government's defence of that outrageous procedure was pathetic. I do not blame the Minister. He had a poor case. He made the best of it. First, he said that there were many benign examples of retrospective legislation. Challenged to give some, he came out with one: the Recreational Charities Act 1958. I have taken the trouble to look into this. The Recreational Charities Act reversed a decision by the courts so as to put the law back to what it had been generally thought to be. It is no precedent whatsoever for the clause in this Bill, which is not about removing an ambiguity in the law, but about legalising powers that the Secretary of State has seized without having any authority to do so.
That was one of the Minister's's defences. The Minister then said that had the Government waited until the Bill became law, the national opportunities fund would have received less money. That is sometimes the consequence of obeying the law: that one does not get as much. He then said that knowing that they were going to lose their money on a definite date would enable the distributors to plan sensibly. Fair enough. But why did that date have to be 14th October? Why could it not have been nearer the anticipated date of the passage of the Bill into law?
The Minister then said that the distributors had agreed to that procedure. What choice did they have? Had any one of them objected, the Secretary of State could simply have reduced the percentage—a power which he has in the existing legislation, and a power that we have just tried to remove. He said that the distributors had large cash balances. He must know that that is just a result of the time it takes for applications to come in: to process; and to start capital projects. In any case, it is irrelevant to the issue of principle.
Finally, the Minister said that the Secretary of State's announcement had the advantage of informing lottery players where their money was going. That really is scraping the bottom of the barrel. It is because the Government have failed to provide a satisfactory justification for this retrospective piece of legislation that we oppose it. In doing so, we defend an important constitutional principle: that the Government have no right to Supply until Parliament has voted it. Talk of shadow accounts is mere obfuscation. The essential point is that the Government have been diverting money which the existing causes could rightfully have expected to continue until the Bill became law towards the new good cause—the national opportunities fund. We contend that they had no right to do so. I beg to move.
Lord Redesdale: My Lords, the amendment is like locking the stable door after the horse has bolted. The money has already been allocated and almost spent. I asked the Minister about retrospective legislation at
26
the previous stage of the Bill, and he was kind enough to write to me. He gave me not one, but two examples. He said that there had been many more, although he did not quote them. Has there ever been a case of shadow accounts before the Bill? At the previous stage of the Bill he was not able to answer that question. I should like to get a feel of what legislation this form of accounting has been used in.
Lord Crickhowell: My Lords, important points of principle have been raised. I wish to take up two of the excuses referred to by my noble friend: first, the ability to plan earlier; and, secondly, the so-called huge cash balances.
A decision was taken half-way through the financial year of the bodies concerned. Those organisations had been considering, in some cases for several years but certainly for the whole of that financial year, a huge number of applications. They were trying to sort them into order of precedence and fit them within a known budget. The fact that at some point there may be a cash balance was not relevant to their process. Those cash balances are being held for commitments entered into and in due course must be produced to fund those commitments.
Therefore, we have a process which is wholly disruptive of sensible business and financial planning. A Government who have ultimate responsibility for the good management of funds in the public sector and must ensure that public accounting procedures and propriety are properly followed are in fundamental breach of good practice and are encouraging bad practice. It is true that in the Budget the Chancellor of the Exchequer makes changes in taxation and so forth and that they are immediately implemented, but that is part of a process for which there is a known timetable and people plan accordingly.
The organisations involved had every reason to base their financial planning on the assumption that funds would be available over the whole of the financial year. That process has been disrupted. On financial grounds, and on grounds of propriety in managing such matters, the procedure is wholly dubious and indefensible and it should be attacked on those grounds. In some cases, the organisations have to turn down perfectly good schemes due to lack of resources. They have given as one of the reasons for turning down such schemes the lack of resources which has occurred at least in part from this cause. Indeed, since our debates in Committee, the Minister confirmed in writing that the National Heritage Memorial Fund gave shortage of funds as one of the reasons for rejecting the project submitted by the National Museum of Wales, which was raised in Committee by my noble friend Lord Rees. My noble friend was kind enough to copy the letter to me.
There is a large number of other cases which no doubt have been influenced by the event. Perhaps those bodies were inclined to take a favourable position, but suddenly had to say, "No, we are not going to have the money that we thought we would have". Therefore, half-way through the procedure and without any parliamentary

27
authority the proposals had to come to a halt. I believe that my noble friend is right and I support his amendment.
Lord Rowallan: My Lords, I feel bound to ask one or two important questions. I have always been concerned about retrospective taxation. Although that matter was dealt with in Committee, I am concerned about the figures. On 4th February, the Minister kindly wrote to me stating that the total income in the National Lottery Distribution Fund was just under £5 billion. At the same time, Camelot wrote to the Guardian and the European stating that there was only £4.325 billion. There is a substantial difference of almost £308 million which we must address and discover where it has gone. It is also stated that there is £354 million for outstanding prize liability. I believe that the only reason for the existence of that figure is to ensure that the 50 per cent. which is supposed to be given out has been given out.
I would like the Minister's comments on those two points because the National Lottery has been the best new source of funding for a long time. However, certain inaccuracies and discrepancies in figures occur more often and we must address them, particularly when moneys going to one cause are channelled to other causes. I do not wish to comment on whether those causes are good, bad or anything else, but I wish to know how the discrepancies in the figures arise.
4.15 p.m.
Lord Chorley: My Lords, I have no particular wish to help the Government, but I recall that in Committee the Minister said that if the October date had not been used and the Government had waited until the Bill became law, they would have opted for a reduction larger than the 16⅔ per cent. Arguably, that would have been a more disruptive feature than what is proposed.
I do not particularly like what is being proposed, but I take the point made by the noble Lord, Lord Crickhowell, that it makes financial planning more difficult. On balance, I should prefer to live with the situation that has arisen rather than an arbitrary figure which will apply when the Bill becomes an Act.
Lord McIntosh of Haringey: My Lords, first, I apologise to the noble Lord, Lord Rowallan, for failing to respond to his questions on the previous amendment. I must write to him, and I am afraid that the same is true in respect of his questions on this amendment. The issues are complex and, even if I had the answers, I am not sure that I should wish to detain the House for the length of time which would be necessary to sort out the figures. I shall write to the noble Lord and if it is necessary to debate the matter on Third Reading, I am sure that he will find a way of doing so.
I am afraid that I must resist the amendment, as I resisted that tabled in Committee. The noble Lord, Lord Crickhowell, said that the procedure was causing disruption in the middle of the financial year. Perhaps if I set out the history the noble Lord will better understand why we have taken this course. Before the
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election, as early as April last year—in other words, at the beginning of the financial year, and it is to be remembered that we did not choose the date of the election—we announced our intention to establish a new good cause for health, education and the environment, as well as a national endowment for science, technology and the arts. We made a manifesto commitment to make available £1 billion for those causes before 2001. At the same time, we promised that the existing good causes would continue to receive £9 billion between them during the life of the licence. I have given that assurance to the House today.
It was clear that in order to achieve that we needed to adjust the percentages going to the existing good causes. Perhaps I may stress percentages, not cash. As I said on Second Reading, distributors spend cash, not percentages. The cash they can expect matches their original expectations. We discussed with distributors the best way of meeting those two commitments. The result, which is perfectly proper and legal, was that we and the distributors agreed to set up shadow accounts for their share of the National Lottery Distribution Fund from 14th October 1997 to reflect the percentage changes outlined in the Bill.
Those shadow accounts are simply for the distributors' own purposes, so that they can plan their commitments and expenditure sensibly on the basis of the Government's announced intentions. Nothing irreversible has happened. Funds continue to be allocated to each good cause on the basis of the percentages in the 1993 Act. The actual reallocation of funds will take place only if and when the Bill is passed. If it is not passed, for whatever reason, the funds will simply remain in the accounts of the existing distributors as presently provided.
Lord Skidelsky: My Lords, I thank the Minister for giving way. He said that money continues to be allocated to the existing good causes on the old percentages. Are they at liberty to spend that money on the assumption that they are receiving the old percentages?
Lord McIntosh of Haringey: My Lords, the practical fact is that they do not need to. The question has not arisen. As I said to the noble Lord, Lord Crickhowell, they have cash balances which are greater than the amount which has been placed in the shadow accounts. Provided that they take into account the commitment which they have known about since last April, there is no question of them having to deny the funds for particular projects because of a reduction in funds.
While I am on that point, I should respond to the noble Lord, Lord Crickhowell, who quoted quite properly from a letter that I sent to the noble Lord, Lord Rees, about Cardiff. It is true that the distributor said to the applicants in the case to which he is referring that one reason for the application being turned down was shortage of funds. But to the best of my knowledge, it was not said that the shortage of funds was caused by this present legislation but rather that there was a limit,

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as is always the case, on the funds available and the distributor said also that he did not like the project for various reasons.
Lord Crickhowell: My Lords, I fully acknowledge that. Indeed, when I spoke I said that other reasons were given. The noble Lord has be n good enough to give way. He keeps referring to "original expectations". He did that when speaking on the last amendment and is doing it again now. Of course the funds that have come in have far exceeded original expectations. By the time they got into the current year, organisations were planning legitimately on the basis of receiving the kind of funds that had been corning from the lottery. Therefore, to continue to argue a case on the grounds that the Government have done or more than to cut back the organisations to their original expectations is not a terribly convincing argument.
Lord McIntosh of Haringey: My Lords, I cannot accept that. It seems to me that if I were in that position and I heard an opposition party, as was the Labour Party in April 1997, saying that they would set up a new opportunities fund with those objectives but that the existing funds would not be deprived of the money which they had expected originally when the funds were set up, I should do a little sum for myself. I should ask what possibility or probability [there was of the Labour Party winning the election. If I drew the conclusion, as a few people did, that it was possible that the Labour Party might win the election, I should draw my conclusions accordingly, right from April of last year. I should start to cut my coat according to my cloth. That is what sensible distributors have done, given that we gave the greatest possible notice of what we were proposing to do.
Noble Lords have said that that creates uncertainty in the distributors' minds. I do nix believe that to be the case. It has always been known that it would be possible for us to achieve the same objectives—those which we set out in our manifesto— by a different method; that is, by adjusting the percentages after Royal Assent. That is what this amendment would achieve.
Therefore, taking into account the need to maintain the Millennium Commission's share at 20 per cent. until autumn 1999, we should have had to set the NOF's share initially at 18 per cent. and then at 24⅔ per cent. from autumn 1999 rather than the 13⅓ per cent. and 20 per cent. respectively which we are proposing—reducing the existing distributors' percentages to 15.5 per cent. each.
The noble Lord, Lord Skidelsky, said that I told him that the existing distributors would receive less money as a result of the date of 14th October 1997. If I did, I was mistaken. I should have said that they would receive less money earlier on, but the money would have to be made up later on, as the noble Lord, Lord Chorley, rightly commented.
Therefore, it is a question of whether those shadow accounts provide a useful transfer at a sensible time—in other words, after Royal Assent—or whether the money must be obtained from the existing distributors by very much larger percentages at a later date.
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For the sake of argument, I shall examine the alternative arrangement proposed in the amendment so that we can truly understand that it is not only unnecessary but is actually damaging. We could remove the subsection and wait until Royal Assent to adjust the percentages. The amounts of money going to the existing distributors and to NOF and NESTA over the life of the licence would be exactly the same. But there would be very severe consequences. In order to meet our manifesto commitment to make available £1 billion for NOF and NESTA by 2001, we should need to reduce drastically the percentages of funds going to existing distributors on Royal Assent. Despite the incredulity of some noble Lords, I insist that that would make planning and commitments extremely difficult for the distributors. They and we rejected that option. The establishment of NESTA's endowment would be delayed and funds would not be available for NOF well into next year. That would completely undermine their ability to deliver the initiatives which have been welcomed so warmly as a result of our consultation.
Therefore, the amendment would have no conceivable benefits and would create considerable problems for the people of Britain who will benefit from the exciting and important work that we are setting in hand.
I must turn now to the issue of retrospective legislation. It is quite true that I gave only one example—the Recreational Charities Act 1958—where your Lordships in their judicial capacity had overturned what had been thought to be the position and that was then corrected retrospectively in 1958. There are many more recent examples of restoring the law to what it was assumed to be. The most recent case is Section 126 of the Criminal Justice and Public Order Act 1994 concerning trade unions in the Prison Service. Another example of providing that preliminary steps such as consultation may be effective even if they occur before Royal Assent is in relation to Section 88 of the Local Government and Housing Act 1989 which is not dissimilar in approach to that adopted in Clause 7(5) of the National Lottery Bill.
There are also examples of benign retrospectivity where it is desirable to do things immediately before Royal Assent for taxation reasons; for example, the date concerning the lower rate of duty provided in the Stamp Duty (Temporary Provisions) Act 1992 was a date before Royal Assent. That provision was indeed introduced in another place by Mr. Francis Maude, who had responsibility for those matters in another place.
Lord Skidelsky: My Lords, I am grateful to the noble Lord for giving way. Did I hear him rightly to say that there had been examples of retrospective legislation that had restored the law to what it was assumed to be? Perhaps he will not use those examples because it seems to me that they have no relevance to this particular case.
Secondly, is it not the case that taxation legislation is governed by special powers which Parliament has given to government to introduce taxation in advance of parliamentary approval in the Budget? Is it not the case that there are no such powers in this case?
4.30 p.m.
Lord McIntosh of Haringey: My Lords, on the noble Lord's second point I was correctly corrected by the noble Lord, Lord Rees, in Committee because I had neglected the provisions of the provisional collection of taxes Act. I accept that rebuke and I repeat my apologies. The noble Lord is right to say that this is not a case of restoring the law to what it had been assumed to be before a decision of the courts made it uncertain. I am not making that point; indeed, I am simply saying that there are a number of different categories of benign retrospectivity and I believe this to be one of them. As I said, no money is being taken from anyone before Royal Assent. If there is no Royal Assent, there is no possibility of the money which has been set in a shadow account doing anything other than being returned.
I suggest to the House that what is required is a judgment of not whether the retrospection exists, because there are benign examples, but whether it is unfair. If we were seeking to do something unfair or improper, the existence of precedent would not make it any less unfair or improper. However, in this particular case it is hard to see where the unfairness or the impropriety lies as carrying the re-allocation of funding back to October 1997 does not affect the total amount of money re-allocated from the existing good causes to the NOF and NESTA over the current licence period. The Government's intentions have been very clear and indeed were so as far back as the election. I give way to the noble Lord.
Lord Rowallan: My Lords, if the National Lottery had not actually been as successful as it has been in raising money, and if the existing four causes were going to lose money, can the Minister confirm that the new fund would not have been set up?
Lord McIntosh of Haringey: My Lords, if the assumptions upon which we based our manifesto commitment had not come about, we could not have had a White Paper; we could not have had an announcement in October; and we could not have had a Bill in this form. That is certainly the case.
However, on the basis of the case that I have put forward for benign retrospection, which I believe to be unassailed by the arguments that have been produced, I invite your Lordships to reject the amendment.
Lord Redesdale: My Lords, if that is the case, can the Minister confirm that shadow funds of this nature have never been established?
Lord McIntosh of Haringey: My Lords, that is not the issue. Shadow funds do not require a legal authority. It is purely an administrative mechanism and it has been put into place so as to ensure that as soon as possible after Royal Assent—and only after Royal Assent—funds will be available to give a good start to the new causes.
Lord Skidelsky: My Lords, we have had an interesting discussion on the issue, during the course of
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which the Minister made one or two statements which are perhaps more helpful to our case than to his. For example, he confirmed that the shadow accounts are the actual accounts in respect of which the distributors are required to plan, and have been since 14th October last, without any parliamentary authority having been given for that diversion.
The noble Lord also made a most interesting statement about the manifesto. He said that the distributors had known since April that the Government are committed to spending £1 billion of lottery money on their new good cause. Irrespective of whether the money was there, £1 billion was committed. Moreover, if the other good causes were taking up money that would detract from that £1 billion, he said that in such a case they had to expect that the Government would cut their percentages. I give way.
Lord McIntosh of Haringey: My Lords, I am much obliged. We made a very clear promise; namely, that they will continue to receive £9 billion between them over the life of the licence. I repeat: distributors spend money not percentages.
Lord Skidelsky: My Lords, how could the Government make those two promises—on the one hand, to spend £1 billion on the new good causes and, on the other hand, guarantee that the existing distributors would not lose any money? They were making an assumption about the total flow of lottery money over the period. They made it perfectly clear that, if the flow of lottery money was less than expected, it would not be the new good cause which would suffer; indeed, it would be the other causes. That is what that £1 billion means. It is simple arithmetic, is it not?
Lord McIntosh of Haringey: My Lords, I have made myself clear on more than one occasion, especially in response to the noble Lord, Lord Naseby. I have always said that the guarantee we gave to provide £1 billion for the new good cause and to maintain the £1.8 billion each for the existing good causes was of course dependent on the £10 billion being raised. That is actually what will happen. I repeat what I said to the noble Lord. Lord Naseby. I have not said that if there is a shortfall it would all come from the existing good causes.
Lord Skidelsky: My Lords, where then would it come from? I am pretty sure that it would not come from the new good cause. After all, that was a manifesto commitment. All that information has been extremely helpful. However, as I stated when moving the amendment, the bottom line has been that since 14th October last the Secretary of State has been diverting money to purposes that were not intended by the 1993 Act. In our contention, he had no right to do so. As I said before, the shadow accounts are the actual accounts to which the distributors are required to work. The effect of our amendment would be to restore that money to the purposes for which it was intended under the 1993 Act. I repeat: the new good cause does not exist until the Bill becomes law and the Secretary of State has no right to divert money to it until the legislation becomes law.

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The Minister put forward an interesting argument. He said that had they not started planning earlier, the existing good causes would undoubtedly have suffered an even greater percentage reduction. However, that is entirely dependent on the absolute priority given to that manifesto commitment to spend £1 billion irrespective of the amount of money available. We will withdraw the amendment at this point in the proceedings, but reserve our right to return to the matter on Third Reading.
Amendment, by leave, withdrawn.
Clause 6 [The New Opportunities Fund]:
Lord McIntosh of Haringeymoved Amendment No. 4:
Page 9, leave out lines 1 to 10.
The noble Lord said: My Lords, in moving the above amendment I shall speak also to Amendment Nos. 5, 6, 8 and 23. The amendments have been tabled in response to an amendment moved by my noble friend Lord Howell and the noble Lord, Lord Weatherill, in Committee, which the Government agreed to consider. The meat is in Amendment No. 8, which enables all lottery distributors to utilise vouchers or other non-cash methods of grant making. The amendments to Clauses 6 and 7 remove the similar provisions which relate only to the NOF and are now superfluous. The final amendment in the group ensures that the provision will come into force when the Bill is enacted.
As noble Lords will recall, the Government undertook in Committee to consult other departments and distributors to ensure that there was no objection to the power that we had not thought of. We have now done so without any objections being raised. Indeed, all distributors welcomed this purely permissive power.
In case it may not be clear, I will give the House a few examples of the ways in which vouchers might be used. Indeed, from my reading of the amendments, I am sure that it is not clear. Sports councils may wish to issue vouchers for volunteer football training coaches to receive a few days' professional training at a number of approved training centres. Similarly, arts councils may wish to issue vouchers for materials which are redeemable at a number of arts supplies stores. Moreover, the National Lottery Charities Board may wish to issue vouchers for IT equipment, which would he redeemable at a number of computer suppliers.
These amendments would offer distributors the scope to improve the distribution process by speeding up the disbursement of funds as well as facilitating the monitoring and evaluation of projects. These powers could also, in appropriate cases, allow distributors to engage in contract or bulk purchasing, gaining economies of scale and spreading lottery funds that bit further. I should emphasise that the power is entirely permissive and within the financial directions which will be revised to take account of that. Distributors will be able to decide when the new power can best contribute to an enhanced approach to distribution. I commend the amendment to the House. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendment No. 5:
Page 9, leave out lines 15 to 19.
On Question, amendment agreed to.
Clause 7 [Provisions supplemental to section 6]:
Lord McIntosh of Haringeymoved Amendment No. 6:
Page 10, leave out lines 40 to 43.
On Question, amendment agreed to.
Schedule 2 [The New Opportunities Fund: Schedule 6A to the 1993 Act]:
Lord Redesdalemoved Amendment No. 7:
Page 25, line 2, at beginning insert—
(" .—(1) The New Opportunities Fund shall establish four committees for the purpose of exercising the Fund's functions in relation to applications for grants in respect of the appropriate activities in England, Northern Ireland, Scotland and Wales respectively.
(2) Section 25A shall apply in relation to the establishment of the four committees.").
The noble Lord said: My Lords, at an earlier stage I said that I would return with this amendment. I believe that the Scotland Bill will force the Government's hand on this amendment. At what point would the Minister consider changing his view to include in the Bill a provision to set up committees in Scotland, Wales, Northern Ireland and indeed England if the Scotland Bill moves in that direction? I beg to move.
The Earl of Mar and Kellie: My Lords, my noble friend's amendment aims to ensure that the new fund gets off to a good start in Scotland. I contend that the use of a UK structure with only one place for Scotland on the board is an outmoded and inefficient method. I regret that I was not present when my noble friend spoke to a similar amendment which was tabled in our joint names in Committee. However, I have read the Official Report for that occasion.
I did not see any promise to give a regional structure to the choice of English representatives on the board. As lottery players in Scotland outnumber their UK population percentage, there is a clear need for a wee bit of justice in this respect. I believe I ought to explain my concern and why I rise to speak today. I declare the interest that a charity with which I am involved has been negotiating with one of the existing funds over the past four years. The negotiations began in a bad way. Fortunately, that board has recently changed its approach and I now have no complaint.
The problem was that the case officer was not allowed to visit the project in Scotland. Therefore questions were forever being asked which would never have been asked if a site visit had been made at the start. Fortunately the board has changed its ways belatedly—that is welcome—and a site visit has been made. The board has established a Scottish section, albeit based in London. I am anxious that the new fund decentralises its decision making and its fund allocation. I am sure that the National Lottery's computer technology can identify the Scottish contribution. Accepting this amendment would give Scottish players of the lottery a reasonable chance of not having their funds hijacked by

35
the south-east of England for projects already mentioned such as the Millennium Dome which I regard as having dubious sustainability. Of course the approach in the Bill may be designed to do that. I counter that the rising tide of Scottish confidence may not see it that way.
The amendment is quite straightforward. It establishes, among others, a Scottish committee to ensure equitable distribution of funds in Scotland. It avoids the lottery being brought into further disrepute in Scotland and is appropriate for the new and future constitutional arrangements of the British Union.
4.45 p.m.
Lord McIntosh of Haringey: My Lords, in one way I am grateful to the noble Lord, Lord Redesdale, for introducing his amendment in such a truncated way, but in other ways I am sorry because I have prepared a long speech about the coherence of this legislation vis-a-vis the Scotland Bill and the Government of Wales Bill. I expected to see present the noble and learned Lord, Lord Fraser of Carmyllie, and I have written to the noble Lord, Lord Crickhowell, on the subject. The short answer to the noble Lord's specific question is that we do not believe that the Scotland Bill will be in conflict with this Bill. We have taken steps to ensure that that will not be the case.
I have copied my letters to the noble Lord, Lord Redesdale. I confess that they are enormously long and complicated, but I can assure him that the necessary consultations have taken place within government to ensure that his fears will not be realised. Even though we do not believe that there will be any conflict between the Scotland Bill and the Government of Wales Bill and this legislation, it will still be possible for the new opportunities fund to set up country committees immediately on Royal Assent if it wants to. As there will be a shadow new opportunities fund, plans can be made to do that before Royal Assent. We do not object to country committees; we object to imposing them by legislation. We want a greater degree of flexibility, of arm's length management and of devolution than the noble Lord proposes in his amendment.
Lord Redesdale: My Lords, before the noble Lord sits down, I must first apologise for not giving him the opportunity to make that long speech. However, his shortened reply was helpful. I have two points to make. First, does he believe that not setting up these committees in the regions complies with the principle of devolution and decentralisation? Secondly, could there be a provision to allow for the setting up of committees for the regions as soon as possible? However, that perhaps need not be included on the face of the legislation.
Lord McIntosh of Haringey: My Lords, my answer to both questions is yes. I believe that not imposing country committees on the new opportunities fund is consistent with our devolutionary principles. It is perfectly possible for the new opportunities fund to do that if it wishes, particularly if there is pressure in the
36
home countries to do so. However, as the noble Lord suggests, it is not desirable for that to be included on the face of the Bill.
Lord Redesdale: My Lords, before I withdraw the amendment I hope that the Minister will press for the committees to be set up. He has referred to pressure. My noble friend gave an example of a situation where the system broke down from the beginning. The purpose of this amendment is to try to make sure that committees are set up as early as possible so that they can view the situation and foresee any problems. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringeymoved Amendment No. 8:
Before Clause 8, insert the following new clause—
MANNER OF DISTRIBUTION
(".—(1) In section 25 of the 1993 Act (application of money by distributing bodies) after subsection (1) there shall be inserted—
"(1A) The manner in which a body may distribute any money paid to it under section 24 includes making or entering into arrangements for or in connection with meeting expenditure (including arrangements with respect to vouchers); and this subsection shall apply notwithstanding anything to the contrary in any enactment or instrument relating to the functions of the body."
(2) In section 44 of the 1993 Act (interpretation of Part II) after subsection (3) (which is inserted by section 7 above) there shall be inserted—
"(4) Any reference in this Part to the distribution of money shall be construed as including the making or entering into of arrangements in accordance with section 25(1 A) or 43B; and related expressions used in this Part shall be construed accordingly."").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 4. I beg to move.
On Question, amendment agreed to.
Lord Redesdalemoved Amendment No. 9:
Before Clause 8, insert the following new clause—
DIRECTIONS TO DISTRIBUTING BODIES
(" . In section 26 of the 1993 Act (directions to distributing bodies), for subsection (5) there shall be substituted—
"(5) The Secretary of State shall consult the following bodies before giving directions to the body under this section—

(a) any body which distributes money under section 25(1);

(b) a charity, or any charitable, benevolent or philanthropic organisation;

(c) an interested body established by or under an enactment; and

(d) an interested body established by Royal Charter."").

The noble Lord said: My Lords, this is a simple amendment and I shall be brief. All I wish is for an assurance from the Government that consultation will be carried out with those who are in a position to give the best information on these issues. I speak specifically of consultation as regards small charities, especially specialised charities concerned with disability. That would enable specific interests to be taken account of. I have worked in the area of disability. Often when large grants are made many of the problems associated with allocating grants can be overlooked for no other reason

37
than that the right people were not consulted. It is not necessary to have the provision on the face of the Bill. I shall he happy if the Minister will give an undertaking that the principle of the amendment will be put forward.
Lord McIntosh of Haringey: My Lords, I cannot quite give that assurance. However, let me explain why I cannot do so. I am grateful to the noble Lord for raising what I believe to be an important issue; the significance of directions issued under Section 26 of the 1993 Act. The Government are currently in the process of comprehensively reviewing both the main kinds of directions, the policy directions and the financial directions, in line with the aims set out in the White Paper of reforming distribution so that,
"Lottery money is spent where it is needed; local people have more say; and applicants get a better and more efficient service".
That review takes into account not just the proposals in the White Paper, but the useful comments which many organisations and individuals made about the lottery in the consultation which followed its publication, and indeed views which have been expressed at Second Reading and in Grand Committee. For example, the noble Lord, Lord Redesdale, will be glad to know that we are actively considering how best we can reflect the principles of sustainable development in the directions. That will arise when we consider Amendment No. 13.
The review of directions is the culmination of a process which, I hope noble Lords will agree with me, has been conducted very openly and with every chance for those with an interest to offer views on matters which ought to be taken into account.
I can also assure noble Lords that the directions will be published. The Government are still considering the best timing and approach to that, but noble Lords may be aware that it has been the practice in the past for directions to be published at the stage when the formal consultation with distribution bodies required by the Act opens, and any third party with an interest in them can comment at that stage. Even after directions have been finalised and issued, they are of course public documents. They are included in distributors' annual reports, and the Government welcome representations on their drafting and effect at any stage.
Our commitment to openness on the lottery goes beyond the issue of directions. As noble Lords will be aware, the requirement to draw up strategic plans which is the subject of Clause II of the Bill, involves distributors in a process of statutory consultation. That will be another way in which external opinions will help shape distributors' policies and practices.
The directions themselves, in particular the financial directions, are complex technical documents, which reflect policy rather than create it. Leaving the Secretary of State as issuer of directions on one side, the distribution bodies clearly have an interest in their detailed content and drafting which is of a different nature from all the other organisations and individuals who have an interest in, and views about, the operation of the lottery.
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Occasionally it is also necessary to issue a new direction very urgently. Bilateral consultation with the distributors can take place very speedily, especially where the Secretary of State and the distributor are of the same view on the change required. A formal statutory requirement to consult publicly which the amendment imposes would get in the way of that.
With no disrespect to the thought underlying the noble Lord's amendment, I believe that the existing legislation is right to confine the formal statutory requirement for consultation on the directions themselves to the distribution bodies. This is a distinct stage in the process which should be as inclusive as possible and, I hope noble Lords will agree, has been extremely open all the way back to the White Paper. On that basis—it is not quite the assurance that the noble Lord seeks—I hope that he will feel able to withdraw the amendment.
Lord Redesdale: My Lords, that is as full a response as I had hoped for. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 9 [Delegation by distributing bodies of their powers of distribution]:
Lord McIntosh of Haringeymoved Amendment No. 10:
Page 13, leave out lines 41 to 45 and insert—
("(b) require a body, before appointing any body or person not falling within section 25A(2) to exercise on its behalf any function of making decisions concerning the distribution of money under section 25(1), to obtain the approval of the Secretary of State to its plans for making such appointments.".").
The noble Lord said: My Lords, this is a drafting amendment for which I apologise. It depends on an amendment which was introduced at Committee stage. It is consequential to the amendment to subsection (2), new Section 26(3A) of the 1993 Act, on the Secretary of State's power to issue directions concerning distributors' powers to delegate decision making. I beg to move.
On Question, amendment agree to.
Schedule 3 [Joint schemes: Schedule 3A to the 1993 Act]:
Lord McIntosh of Haringeymoved Amendment No. 11:
Page 27, line 10, leave out ("£5 million") and insert ("£15 million").
The noble Lord said: My Lords, this amendment is somewhat more substantial. The noble Baroness, Lady Rawlings, moved an amendment that joint schemes up to the value of £10 million should not require the express approval of the Secretary of State. I undertook to review our approach to the approval of joint schemes in response to her amendment.
Noble Lords will see from this amendment that, on due reflection, and after consulting all the distributors, we agree with the noble Baroness's view that it would be sensible to increase the limit for approval by order. We think that it is reasonable to increase it to expenditure of £15 million in any one year. Distributors

39
will welcome the higher limit. It will permit a less cumbersome means of approving a higher number of joint schemes while enabling Parliament to retain a considerable degree of the control over the allocation of lottery funds which it laid down in the 1993 Act. I beg to move.
Baroness Rawlings: My Lords, I thank the Minister for including the provision.
On Question, amendment agreed to.
Clause 11 [Strategic plans for distributing bodies]:
Baroness Rawlingsmoved Amendment No. 12:
Page 15, line 2, leave out from beginning to ("in") in line 3 and insert ("A body which distributes money under section 25(1) may,").
The noble Baroness said: My Lords, I cannot tire of repeating that the lottery created by the previous Administration has been an outstanding success. Yet I accept that like most things it is not perfect. It is therefore understandable that an incoming Administration would want to improve it and to set on it its own stamp.
Unfortunately the Labour Government have tried to do more than that. They have been too clever by half. They want to be seen to be popular and effective—that is, to provide cash promptly on vote-catching schemes; and, at the same time, they do not want to renege on the commitment to stay within the Conservative spending limits. This Bill allows them to solve that contradiction. The solution is politically brilliant but it has dramatic consequences for the existing good causes.
The effect of the Bill will be, first, to divert funds away from the existing good causes; and, secondly, to deflect from the purposes it was set up to fulfil, namely, to clear up the backlog of capital underfunding. It also brings the existing good causes under tighter control by the Secretary of State.
The Bill's approach to the existing good causes continues to shift the balance of cultural policy away from heritage towards the creative arts and industries. Let me reassure noble Lords that I shall not go into the sterile debate between high and low culture. However, I should like to point out that the approach that this Government are taking is the same as that adopted by Jack Lang when he became the French socialist cultural minister in 1981. It is a classic socialist approach; and an almost 20 year-old socialist policy cannot now be labelled New Labour policy. We disagree with the approach because we disagree on the role of the state in relation to culture.
That brings me to my first amendment to Clause 11, new Section 25C(1). The prime objective underlying the amendment is to protect the existing good causes. That has been the main thrust of the Conservative approach to the Bill, as my noble friend Lord Skidelsky has explained. The second objective is to stop the erosion of the arm's length principle by limiting the powers of the Secretary of State. The amendment is intended to make the strategic plans of the distributors truly their plans and not the Government's plans. It does so by making the language of the clause permissive. At present the clause lays down that the Secretary of State
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may instruct a distributing body to prepare, adopt and not only review and modify but even replace a strategic plan.
The background to this provision is that distributing bodies feel restrained at being unable to solicit applications from areas in particular need, which this Bill empowers them to do. But, if they are to do so, they should do so according to a clearly and widely understood strategy. Such a strategy would also increase transparency, which is highly desirable—hence this clause.
So far, so good; and we broadly support the proposals. As presently drafted, however, the clause raises serious concerns. We feel that any Secretary of State would be able to send the strategy back to the drawing board until it contains exactly what he wants. In Committee, the Minister objected that our amendment did not give sufficient weight to this important proposal; whereas we feel that, as drafted, the requirements of the clause do not empower the distributors, but place them in a straitjacket. I am particularly worried by a paragraph in the White Paper which states:
"Our proposals are designed to make the existing structure work better so that … Lottery funding is seen as part of regional and local strategies to bring about economic, cultural and social regeneration".
That is redolent of interventionism. We object to that approach in general. In particular, we oppose it because it perverts the original purpose of the lottery by endeavouring to make it an instrument for implementing social policy from above.
There is wide concern at government statements and proposals, which a recent leader in The Times described as,
"Symptomatic of an unhealthy desire to direct".
The practical implication of that desire is the erosion of the arm's length principle. That principle may well be a peculiar English invention. Despite its shortcomings, however, it has largely ensured the independence of culture from politics. I feel that, if the Secretary of State may dictate the contents of the strategic plans as proposed, then the independence of the trustees of the distributors in relation to specific decisions will be lost. I commend this amendment to the House. I beg to move.
5 p.m.
Lord Crickhowell: My Lords, this amendment provides an opportunity to touch again on a very important clause and some very important issues. Let me make it perfectly clear that I am entirely in favour of the publication of strategic plans and widespread consultation and comment about them. Indeed, as one noble Lord opposite will recall, as a millennium commissioner I was highly critical of the Millennium Commission's totally different policy on the funding limit; it was one of the reasons for the disaster in relation to the application for an opera house in Cardiff in which I was deeply involved. I was extremely critical. I said why I thought the policy was wrong and that we were in a situation where one lottery funding body was following a completely different set of policies from others, and that led to enormous difficulties.

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It seems to me absolutely right that that kind of issue should be out on the table, that it should be the subject of consultation and debate, and that there should be strategic plans on which people can comment and in relation to which advice can be taken. One would hope that the bodies involved would take some notice of the views expressed on these issues. I suppose that the precedent set by the Millennium Commission does not encourage the view that note would always be taken. However, as my noble friend pointed out, this clause goes much further and appears to give the Secretary of State the right to interfere considerably in this process.
As noble Lords will know, I have chaired a public body, the National Rivers Authority, and have had to draw up strategic plans. I know how important it is that at the end of the day that body must be responsible for its plan and be able to stand by it, confident that it believes in it. If it is under excessive interference from the Secretary of State, there is likely to he a breakdown of confidence and relationships.
The precedents in recent months have not been entirely good. My noble friend referred to the arm's length principle, which has been of fundamental importance in the operation of the arts councils for many years and has been widely acknowledged to be one of the strengths of the system that has operated. There have been many comments in recent months about the tendency for the nanny state to interfere more and more in the way that things are done. Certainly, the present Secretary of State has shown a willingness, an eagerness even, apparently to wish to influence arts policy—which some of us are not entirely convinced is healthy. Indeed, the kind of comments made, for example, about the relationship between the English National Opera and Covent Garden is the type of interference which some of us do not find very encouraging. So at the very least, we need to hear what the Minister has to say about this clause and the proposed amendment.
I noticed that when my noble friend suggested that this provision would lead the Secretary of State to interfere in an unsatisfactory manner, the Minister shook his head. I therefore hope that we shall hear a number of statements that will reassure us that this clause is not to be used as an extension of the nanny state and will not be the basis on which the Minister intends to interfere more and more with the activities of the funding bodies. There is no reason to think that that will lead to the better administration of the funds to be distributed. We need to make sure that there are clearly understood principles; that they are published; that there is consultation in relation to them; and that then the organisations are allowed to get on with matters, to take the decisions and be answerable for those decisions. No public body that has any sense of its own integrity can allow a situation in which it has to put up with a strategic plan in which it does not believe and which has been imposed upon it by Ministers. I hope the Minister will be able to provide reassurance.
Lord McIntosh of Haringey: My Lords, I always enjoy wide-ranging discussions on culture and politics such as we have heard from the noble Baroness, Lady Rawlings, and the noble Lord, Lord Crickhowell.
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When I nodded in response to the noble Lord, it was in approval of much of what he said. I certainly do not believe that we should interfere in the decisions of the distributors. It would be extraordinarily foolish, politically and culturally, to do so; I certainly do not believe that we should impose strategic plans on the distributors. That is not what the Bill does.
The amendment before the House does not question whether there should be a strategic plan. The noble Baroness told us in Committee, and again this afternoon, that she is not opposed to those parts of our policies with which this clause deals—the desirability of distributors preparing a plan, finding out where there are gaps in provision and deciding what to do about them. The noble Baroness's difficulty is with the language at the beginning of the clause, which states that,
"If the Secretary of States instructs it to do so",
a distribution body shall prepare a plan. What is wrong with that? Where is the intrusion into the arm's length principle of which the noble Baroness speaks? Looking through the rest of the clause, where else does the Secretary of State figure? Line 16 refers to him issuing policy directions—a power created by the Conservative Government in the 1993 Act. Is that an intrusion into the arm's length principle? I suppose one could argue that any power of direction is in principle an intrusion, but that is clearly not the Opposition's view. In line 19, the Secretary of State gives the body an estimate of the money likely to be available to it. Is that an intrusion into the arm's length principle? I think not; it is simply an essential piece of background information which the body needs in order to build its plans. In lines 39 and 40, the body sends the draft plan and consults the Secretary of State. The Secretary of State does not write the plan or determine the plan, and cannot amend the plan. The Secretary of State is consulted.
What clearer demonstration of the arm's length principle could we have than that? A government intent on taking over the lottery—the nanny state—could have done a great deal better than that. Why did we not seek the power to approve plans, as we could have done? A Napoleon of a Secretary of State could have sought to write the strategy himself. Finally, in line 46, the Secretary of State lays the plan before Parliament. He is reduced to the status of a messenger boy.
The debate is worthwhile and valuable, but the Bill says none of the things that the Opposition fears. It simply says that the Secretary of State shall ensure that the distributors produce a plan. Let me make it clear that a strategy plan is of value not simply to the Secretary of State nor to the Government. The plan is required largely in order to ensure that the distributors take account of the needs of people who are likely to apply for grants. It is important that they should apply for grants in the light of the strategic plan because then they know what the priorities of the distributors are and they are less likely to spend enormous amounts of time and money sometimes on producing applications which are outwith the real intentions of the distributors.

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I find the clause as unamended extremely benign and I invite the noble Baroness to withdraw her amendment.
Lord Chorley: My Lords, before the noble Lord sits down, could he explain to me, as an amateur in matters of legislation, why we need the clause at all? Does not Section 26(1) of the National Lottery etc. Act 1993 give the Secretary of State all the powers that he needs? Perhaps I may read it:
"A body shall comply with any directions given to it—"
a body being a distributing body—
"by the Secretary of State as to the matters to be taken into account in determining the persons to whom, the purposes for which and the conditions subject to which the body distributes any money under section 25(1)".
It seems to me that he already has the power.
Lord McIntosh of Haringey: Of course, my Lords. But it is evidence of our desire to conduct government in the open that we spell out what a strategic plan should do and why it should be there. It is true that under the 1993 Act the Government have all the powers to which the noble Lord, Lord Chorley, referred and which Members of the Opposition so much fear.
In effect, here we are tying the hands of the Secretary of State by spelling out what kind of strategic plans distributors should produce, why they should produce them and how they can help in the effective distribution of funds.
Baroness Rawlings: My Lords, I am grateful to the Minister for responding in such detail. The amendment basically hinges on the word "instruct" which we are not happy with. But without the amendment the Secretary of State will have tighter control and we feel that we are losing the arm's length principle.
I am afraid this leaves us with the possible position as stated so clearly in the article in The Times last week which quoted from the late Lord Goodman's memoirs:
"An enthusiastic and ambitious Minister wishes to direct the arts … Between him and that direction is a large independent body of people who rate him as a useful animal for finding money, respect him if he finds it in greater abundance than hitherto, but have no real use for his views on artistic matters".
We feel that the Secretary of State should leave decisions to the distributing bodies as in the 1993 Act. But no doubt we shall return to this important matter at Third Reading. Therefore, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
5.15 p.m.
Lord Redesdalemoved Amendment No. 13:
Page 15, line 28, at end insert ("and
(e) a statement of the body's assessment of how the body's policies will further sustainable development.").
The noble Lord said: My Lords, the purpose of the amendment is simply to seek to give all distributors an obligation to maximise the contribution that their funding can make to the achievement of sustainability.
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I have no briefing, but I could quote comprehensively Mr. Prescott's views on opportunities for change. However, I feel that the indications the Minister gave me earlier in the proceedings are that he feels that there is something that the Government can say beneficially on the amendment. I very much look forward to listening to his comments. I beg to move.
Baroness Young of Old Scone: My Lords, perhaps I may refer briefly to the anxiety of the noble Lord, Lord Redesdale, about giving a sustainable development duty to the distributors. There are many pieces of written evidence to show that the Government are committed to bringing sustainable development to the heart of all policies. Indeed, the recent consultation document on sustainable development strategy asked the specific question: how should we promote decision-making at all levels of government which takes full account of sustainable development?
The lottery is a big and important set of expenditures which can make a difference, either on behalf of the environment or against the environment. I think that giving distributors a sustainable development duty would not be asking for much. It would not be complicated, it would not be rocket science. It would merely ask them to show how they would ensure that the projects they funded were either good for the environment or at least not bad for it.
The Government rejected the idea very much at Committee stage. In the spirit of being anxious to help the Minister, if the sustainable development duty cannot be placed on the face of the Bill, I wonder whether we can seek an assurance from him that the Government will use the power of direction that has already been noticed and outlined in Clause 11(3), line 15. It was drawn from Section 26(1)of the original Act. Perhaps we may have assurances from the Minister that the Government will make directions under that provision that distributors should take account of sustainable development.
Lord Chorley: My Lords, I support the amendment in the sense that it tries to bring into the open the importance of sustainable development, particularly in the way suggested by the noble Baroness, Lady Young. It would be more helpful to deal with it by way of a direction under Section 26(1) rather than putting it on the face of the Bill. It seems to me that that is a rather more flexible way of dealing with the matter.
My difficulty is in knowing what "sustainable development" means. The noble Lord, Lord Skidelsky, may remember that when we were both Members of the House of Lords Select Committee on sustainable development, we spent quite a long time trying to decide what it meant. The answer is that everyone knows individually what they think it means, but at least 57 different varieties have been suggested and therefore it is difficult to put it into legislation. In particular, there is the Brundtland definition which mentioned not compromising the needs of future generations. That is the most popular definition, but I find it difficult because I have no idea what the needs of future generations may

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be. All things considered, it is much better to deal with the rough concept of sustainable development by way of a direction rather than in the primary legislation.
Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord, Lord Chorley, for enabling me to refer hack to the Brundtland definition. I have been carrying it around with me since Second Reading and have not had a chance to quote it, so this is my great opportunity. The noble Lord is right in saying that the definition from the Rio Earth Summit is:
"development that meets the needs of the present without compromising the ability of future generations to meet their own needs".
This Government's position expands that into the terms of four broad objectives: social progress which recognises the needs of everyone; effective protection of the environment; prudent use of natural resources and maintenance of high and stable levels of economic growth and employment. I am not much of a believer in definitions; I believe that they trap you rather than free you. But that goes some way towards explaining the way in which the Government approach the matter.
I am also grateful to the noble Lord, Lord Redesdale, and my noble friend Lady Young for their contributions. They enable me to set out the Government's position and the way we hope to make progress in the next few weeks. As a Government, we are committed to putting sustainable development at the heart of our policies, not least the lottery, as we said in our White Paper, The People's Lottery, last summer.
In taking into account comments on the White Paper and discussions on the point earlier in the passage of the Bill, the Secretary of State, in consultation with other Ministers, is currently reviewing the policy directions which were referred to by my noble friend Lady Young. They are issued to distributors with, among other things, a view to finding the right way of emphasising the importance of sustainable development in them. I hope that we might be able to give some indication of what we propose by Easter—not, I am afraid, in time for the passage of this Bill through your Lordships' House.
If the directions end up reflecting sustainable development through a specific direction or by other means, that will go further than the noble Lord's amendment, since the policy directions are matters which distributors must take into account when making grants and which would feature in distributors' strategic plans, as the new Section 25C(4) requires distributors to show how they are interpreting their directions.
Subject to consultation with distributors on policy directions, I hope that we will end up with a strong emphasis on sustainable development and thus achieve what the amendment seeks; that is, the reflection of sustainable development in strategic plans by another route.
Lord Redesdale: My Lords, I thank the Minister for that response. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Lord Bishop of Southwell The Lord Bishop of Southwell moved Amendment No. 14:
Alter Clause 13, insert the following new clause—
PARTICIPATION OF YOUNG PERSONS IN THE LOTTERY
(" . A licence under sections 5 or 6 of the 1993 Act shall include a condition that the minimum age for participation in the National Lottery or in any lottery or description of lottery specified in the licence is eighteen years.").
The right reverend Prelate said: My Lords, the House will recall that a similar amendment was moved by the right reverend Prelate the Bishop of Oxford in Committee. He outlined the long-standing anxieties that the British Churches have consistently expressed with regard to some aspects of the National Lottery. A specific concern is that of gambling among young people.
More comprehensive research was published by Oflot only two weeks ago. Its findings are alarming and disturbing. It is for that reason that I felt it right once again to table this amendment. The author of the report, Dr. Susan Fisher of Plymouth University, surveyed nearly 10,000 young people aged between 12 and 15 in England and Wales. The total number of young people in that age group is around 2.25 million. The main findings of the report are frightening if the percentage results of the survey are applied to the total population of young people between the ages of 12 and 15. They indicate that over 1 million young people play the lottery illegally; 125,000 young people can be described as problem gamblers; over 60,000 young people have a gambling problem with fruit machines and over 20,000 with lottery scratchcards. A similar number has a problem with both fruit machines and scratchcards. It appears that around 50,000 young people aged between 12 and 15 have a gambling problem associated with either fruit machines and lottery scratchcards or both.
It was plainly not the intention of any government to set up a scheme to raise money for good causes which would seriously harm such a large number of young people; but that is in fact what happened. There would appear to be a pernicious connection between the old established fruit machine culture and the new scratchcard activity.
I believe that serious consideration must now be given by the Government to raising the age at which young people can play the lottery from 16 to 18. Camelot has given tacit approval to that. Its recent lottery briefing report says,
"This is an issue which was highlighted in the press recently, during which Camelot made its position clear, namely that it has no objections to the higher limit".
Neither the United States nor our European partners permit gambling under the age of 18, and Oflot's research clearly shows that there is a serious problem that must be tackled. One obvious measure would be to raise the age limit.
It has been suggested that to raise the age of play to 18 will criminalise 16 and 17 year-olds. That is plainly not the case. It is not illegal for an under-age person to buy a lottery ticket; it is illegal for a retailer to sell the ticket to an under-age person. To raise the age limit

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would have an effect on the number of young people who have developed problems in relation to gambling to a level which is quite unacceptable.
The Churches Together in England recognises that this is a matter which concerns the Government. We are grateful to the noble Lord, Lord McIntosh of Haringey, for the assurance he gave to the right reverend Prelate the Bishop of Oxford in Committee, when he said that,
"If the research appears to indicate that the age limit should be revisited, the director general and the Government would certainly look at it very carefully under existing powers".—[Official Report, 22/1/98; col. CWH 105.]
I submit that there is new evidence that indicates that now is an appropriate time to revisit this issue, and I trust that the Government will agree to do so. If not, perhaps the Minister will give some indication as to how the Government intend to tackle the problem that has been clearly identified by the recent research by Oflot.
A matter of considerable urgency is, furthermore, a thorough and comprehensive review of the whole issue of gambling regulation. I recognise that to intervene on this single point of the age limit is no substitute for that. But there is a precedent for such an approach. I understand that the Home Office is currently taking that line in its proposals to restrict repetitive on-line gambling games. But the sooner a comprehensive review and reform of gambling regulation is set up, the sooner such interventions as that which I bring before your Lordships will be unnecessary. I beg to move.
Lord Redesdale: My Lords, at the last stage of the Bill the Minister specifically stated that it did not take primary legislation to change the age limit at which scratchcards could be played. However, at the time he was explicit that he had not seen the research and would take action if it proved to be the case that scratchcards had a significantly adverse effect on young people.
Can the Minister give some indication of how the Government are now considering the age limit, in view of the findings which are particularly worrying on the addictive nature of stratchcards among significant proportions of those under 16 who are regularly using scratchcards illegally? Can he say whether, in the light of that. he will be considering raising the age limit?
Lord Rowallan: My Lords, I find it difficult to follow the argument of the right reverend Prelate. If a problem exists in certain sections of society in relation to the age limit of 16, surely it will be compounded if we put the age limit up to 18.
It is hard for a shopkeeper to determine whether someone is 16, 17 or 18 these days. People seem to look more mature at a younger age every year and parents seem to dress their children more and more in adults' clothing at younger ages. At a time when we read in the newspapers that we are about to allow the age of homosexuality to come down from 18 to 16 and heterosexuals are allowed to have sex at 16, to stop someone from gambling until they are 18 appears to be slightly illogical.
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We must bear in mind also what the figures represent. The UK is 11th in Europe with regard to the amount of money that we spend on the lottery. We spend on average £83 per head a year, whereas in Massachusetts in America they spend £309 and in Norway £137. There is therefore a huge difference. We are perhaps creating a monster if we accept this amendment and I do not believe it to be appropriate.
Lord McIntosh of Haringey: My Lords, as I said when this matter was raised by the right reverend Prelate the Bishop of Oxford in Committee, we do not need primary legislation to set the minimum age for playing the lottery. But that does not mean that we do not welcome the debate. I particularly welcome the debate because, since Committee, I have had an opportunity to read in detail the report of Dr. Susan Fisher. I have also had the benefit of a visit from the right reverend Prelate the Bishop of Ripon and his colleagues, David Skidmore and John Kennedy. I was grateful for that and for the full discussion we were able to have on the issue. There can be no doubt therefore that this Government take the issues raised by the report extremely seriously.
The Director General of the National Lottery, who commissioned the report—we are grateful to him for that—has demonstrated the importance he places on protecting players both by commissioning the report and by his response to it. Of course the report extends beyond the National Lottery to cover all commercial gambling, including lottery scratchcards under the Lotteries and Amusements Act 1976 and fruit machines, which are of considerable importance. The report cuts across the responsibilities of two government departments. I can assure the House that it is being considered carefully in the Home Office as well as in the DCMS.
We should not forget that the report concentrates on 12 to 15 year-olds, who are already barred from buying lottery tickets. I cannot emphasise that point too strongly. There is an age limit now and the priority, I suggest, should be to enforce it. So I was pleased to see, and I fully support, the action which the acting director general is taking to tackle the problem. He has called for Camelot to step up its enforcement campaign by increasing test purchases and by taking tougher action on retailers who knowingly sell to under 16s and to provide a revised action plan for reducing under-age sales. I hope that Camelot will respond positively.
While I am on that subject, the right reverend Prelate referred to the fact that Camelot has no objection to the age limit being raised to 18—that of course is true—hut whether it is 16 or 18, there has to be proper enforcement. The director general obviously feels that Camelot could do more to deter retailers who knowingly sell to under-16s and he has asked it to step up its enforcement regime.
It would be quite simple to raise the age limit to 18 and at a stroke deny 16 to 17 year-olds the right to take part in the lottery, a right given to them by Parliament and one which they seem to have used sensibly on the whole. As I understand it, there is no evidence to suggest they should not continue to play. What is really being proposed therefore is that 16 to 17

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year-olds should have the right to play withdrawn from them in order to protect the small group of 12 to 15 year-olds at risk. But there is no guarantee that raising the age limit would significantly reduce the problem for under-16s. Dr. Fisher's report showed that nearly half the lottery tickets played by children were purchased by a parent or another adult. If the lottery were denied to them, is it not likely that they would simply shift to other activities, whether it be gambling, drinking or taking drugs?
The noble Lord, Lord Redesdale, referred to the addictive nature of scratchcards. I know that is a matter of concern. But it should be remembered that the director general has a duty not to licence games that lead to excessive participation—that, in effect, means addictive—and he does not consider that scratchcards lead to problem gambling. The research he has carried out confirms that. The research suggests that on average only 10 per cent. of the adult population regularly buy National Lottery scratchcards compared with more than 60 per cent. who play the game on line. Of the 16 to 18 year-olds questioned, some 8 per cent.—that is less than the average for all ages—report playing scratchcards at least weekly. Scratchcards are not particularly a problem for younger people.
The answer to the problem—I agree it is a very real problem—is not to raise the lottery age limit. It is to tackle the conditions which give rise to problems in the first place and to enlist the support of parents in that campaign. That is why this Government's first priority is education and, indeed, why we propose to change the lottery to support after school clubs and healthy living centres, both of which have significant contributions to make in dealing with the issues highlighted by Dr. Fisher's report. That is why we have measures in place to help deal with truancy, with social exclusion, with unemployment and with deprivation. These are policies which really will contribute to ensuring that the dangers of gambling addiction are nipped in the bud.
I fear that gambling will always be with us and I suspect that under-age gambling will always be with us. But the conclusion I draw from the research and from all we know about the problem is that raising the age limit would not be the proper response.
5.30 p.m.
The Lord Bishop of Southwell: My Lords, I am grateful to the Minister for his reply and for indicating some of the actions the Government are planning to take in order to nip the problem in the bud. In two or three years' time I shall be interested to see whether the programme has nipped in the bud this major problem, whereby 1 million youngsters between the ages of 12 and 15 are involved in illegal gambling. However, in the light of the Minister's assurances and his statement, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 15 [Objects]:
Baroness Ramsay of Cartvale Baroness Ramsay of Cartvale moved Amendment No. 15:
Page 18, line 3, leave out from ("arts") to end of line 5.
The noble Baroness said: My Lords, in moving Amendment No. 15 I should like to speak also to Amendment No. 16, which impinges on Amendment No. 17 in the name of the noble Lord, Lord Skidelsky. These amendments are concerned with NESTA's objects and the means by which it achieves those objects.
NESTA's primary objects are, broadly speaking, to support talented people and to promote innovation, as set out in Clause 15(1). The means of achieving those objects are set out in Clause 15(2), chiefly by helping talented people to reach their full potential and helping to turn good ideas into marketable products and services. NESTA will also need to secure public support for its activities. We have therefore included in Clause 15(2)(c) the activity of promoting public knowledge and awareness of the importance of science, technology and the arts. This activity is currently also reflected in the second part of NESTA's objects in Clause 15(1)(b).
In Committee I indicated that we were coming to the view that including the promotion of public knowledge in NESTA' s objects might place too much emphasis on what is in reality a subsidiary activity. We were concerned that this might mean that NESTA felt compelled to spend as much on this activity as on its principal objects. Raising public awareness is an important way of securing public support for NESTA's activities, but we believe that it should only be pursued in this supporting role. Amendment No. 15, therefore, removes the second part of Clause 15(1). This would leave NESTA's objects defined simply as,
"to support and promote … talent, innovation and creativity in the fields of science, technology and the arts".
The activity of promoting public knowledge and appreciation would remain in Clause 15(2)(c) as a means of securing that object. I hope that this is a welcome clarification of NESTA's purposes.
Amendments Nos. 16 and 17 are two attempts, by the Government and by the noble Lord, Lord Skidelsky, to address the concern that the noble Lord raised when we were in Committee about whether the means set out in Clause 15(2) might discriminate against the support of talented groups or teams rather than individuals. The noble Lord suggested then that some scientific and technological endeavour where the potential output lies in the performance of a team might fail to attract support as a result. We have considered this point carefully and I am pleased that we have been able to respond positively.
Amendment No. 16 extends the first means, in Clause 15(2)(a), so that NESTA will explicitly be able to help talented individuals or groups of such individuals to achieve their potential. We are advised that the words "their potential" in this context can properly be construed as referring to the potential of the group or team as a whole. I am glad that we have been able to respond to the noble Lord's concern in this way, clarifying what in fact

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we had always intended to be the case. I invite him to accept the amendment, as drafted by parliamentary counsel, in preference to his own version. I beg to move.
Lord Crickhowell: My Lords, I rise briefly to make a point which I made at the Committee stage but which I think is worth making again and so give the Minister a chance to say on the Floor of the House something that was helpfully said in Committee. I very much welcome the objects of NESTA but I pointed out in Committee that the promotion of talent, innovation and creativity was perhaps even more dependent on adequate revenue funding for many of the bodies concerned.
I raised again an issue that was spoken to very powerfully when the Bill was introduced at Second Reading; namely, that there was great concern that an extension of revenue funding and perhaps a reduction in capital funding, should take place in the not too distant future. In reply the noble Lord, Lord McIntosh, pointed out that the powers were there in the 1993 Act. He said that the Government would be undertaking a review and were consulting with those objects in mind. This is a crucially important area for many of the bodies concerned. There is acute anxiety about it. Therefore, I would welcome it if the Minister took the opportunity to repeat on the Floor of the House the helpful assurances which were given to me in Committee.
Baroness Ramsay of Cartvale: My Lords, I am grateful to the noble Lord for giving me the opportunity to confirm what was said in Committee.
On Question, amendment agreed to.
Baroness Ramsay of Cartvale Baroness Ramsay of Cartvale moved Amendment No. 16:
Page 18, line 8, after ("individuals") insert ("(or groups of such individuals)").
On Question, amendment agreed to.
[Amendment No. 17 not moved.]
Lord Skidelsky Lord Skidelsky moved Amendment No. 18:
Page 18, line 10, leave out from beginning to ("and") in line 13.
The noble Lord said: My Lords, I begin by thanking the Minister for meeting the point of our amendment in Committee on individuals and groups. I believe that all our amendments are very sensible. I only wish that the Government had accepted more of them and that applies to this amendment.
It is to remove subsection (2)(b). Subsection (2) allows NESTA not just to promote "talent, innovation and creativity" with which we have no quarrel, but to help persons to turn their inventions into marketable products. We believe that that is one function too far. I argued in Committee that NESTA should not become a source of venture capital or a bank of the last resort. Perhaps the paragraph to which we object does not intend that, yet the wording suggests that it does. Its intention is to help,
"persons to turn inventions or ideas in the fields of science, technology and the arts into products or services—
(i) which can be effectively exploited".
52
Perhaps that aims only to bring innovations to the point at which they become marketable and not to help inventors set up businesses.
However, the noble Baroness, Lady Ramsay of Cartvale, contended in Committee that,
"venture capital often fights shy of creative genius and all its attendant risks",
and that this,
"clear market failure,"
justifies the use of NESTA's funds to finance business start-ups. I do not myself find her arguments for the existence of market failure at all convincing. The main one seems to be,
"that 57 per cent. of major technological innovations which have benefited the Japanese economy, stem from ideas and inventions from the United Kingdom".—[Official Report, 29/1/98: col. CWH 113.]
I am delighted that we British are so inventive and that our inventions have been so useful to the Japanese.
But this is not prima facie evidence of market failure, as the noble Baroness seems to believe. First, we all benefit as consumers from better or cheaper products. Secondly, it does not matter to the individual inventor where his product is exploited provided he retains the right to benefit from that exploitation. Thirdly, we also exploit many foreign inventions; for example, in our very successful pharmaceutical companies like Glaxo where many of the ideas have come from the United States.
The argument seems to be that every British invention, which is exploited abroad, imposes a net welfare loss on our country. But the Government cannot remotely prove that to be true and I do not believe that they would even try to do so. I do not think that the Minister would expect me to quote Karl Marx at this point. I am not sure when Karl Marx was last quoted in this House. But he has something rather apposite to say in the Communist Manifesto:
"the intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible",
but not, apparently, in the thinking of this Government. It is rather depressing to find that they are 150 years behind Karl Marx whose manifesto was published in 1848.
If it is true that inventions are now the property of mankind and that it does not matter economically where they are exploited, then it would be much better that NESTA does not pour its endowment income into business start-ups. It is simply not in a position to estimate the commercial possibilities of different kinds of new products.
We have had almost no indication of the practicalities of the operation. For example, NESTA will be empowered to make grants and loans, form partnerships and joint ventures, acquire, exploit and dispose of land and property. What if these business undertakings fail? How is the risk to be shared? The Government state that,
"people receiving grants from NESTA will, when they have achieved success, normally be expected to plough something back into NESTA to help develop the talent and creativity of the next generation".

53
What if they do not achieve success? Will NESTA be liable for their debts at the expense of the talent and creativity of the next generation? Will NESTA itself he allowed to go bankrupt or will its endowment be constantly replenished, as hinted at in Clause 17(2)?
The more I think of NESTA the more half-baked it seems to be, as though it were put in without enough thought and without the advice of a properly trained economist or lawyer or if their advice was given it was not followed. The whole matter should have been re-thought. It seems to me to be very premature. But at this stage there is nothing much that we can do about it. Even before Third Reading and not in a party spirit at all—I do not believe I have made any party points here-1 urge the Government to think about how this operation with these business aspects to it will work in practice. In the expectation of full elucidation of these conundrums from the noble Baroness, I beg to move.
Lord Chorley: My Lords, on this occasion I wholly support the noble Lord, Lord Skidelsky, including his rather deft quotations from Karl Marx. My real objection is that it is one thing for a body like NESTA to be composed of people rather like those at university who give grants and that sort of thing, but it is quite another to get involved in the world of venture capital, business and so forth. There would be a very great danger to NESTA's effectiveness and future health if it started confusing its objectives by carrying out two totally different activities.
Baroness Ramsay of Cartvale: My Lords, one of NESTA's key tasks, which is set out in Clause l5(2)(b), will be to help to turn ventures and ideas into products or services which can be effectively exploited. The noble Lord's amendment would prevent NESTA from taking on that role. The noble Lord and I had to agree to differ in Committee on this question and we are no nearer seeing eye to eye now than we were then.
The noble Lord argues that what we are suggesting that NESTA becomes involved in is properly a function of the venture capital market. However, the Government believe that there is a gap which is not currently filled by venture capital which it is essential for NESTA to address. Later I shall cite examples of bodies which agree.
The noble Lord has raised again the point that he raised in Committee, which is that because of the global aspect of scientific and technological development, it does not really matter where in the world a good idea or a good invention is exploited and brought to fruition. We all benefit. However, we are talking about the economic benefit that accrues to the economy of the country which exploits the invention. That is the point that we are trying to address. I refer to the fact that so many good British ideas and inventions come to fruition and are implemented in other countries, thus bringing primary economic benefits to those countries before benefiting mankind.
NESTA will not seek to compete with banks or other sources of venture capital. The formal venture capital market is usually only interested in well-packaged "proven-concept" proposals, backed up by a strong
54
management team. Most individuals or small companies acting alone do not have the financial resources or contacts to put this in place. This is where NESTA's work will be vital.
NESTA will aim to bridge the gap between a bright idea and commercial success by providing limited financial support to demonstrate "proof of concept". It will aim to nurture good, innovative ideas to the point where they are in a position to attract more substantial investment from the formal venture capital market by providing limited seed capital. Without this support at the early stages of development, many good ideas will continue to be lost in Britain.
NESTA will also be able to help individuals to develop the business skills necessary to attract formal venture capital. It may, for example, establish networking and mentoring programmes in collaboration with partner organisations to help innovative and creative people to acquire the marketing and business skills necessary to demonstrate the value of their ideas to the formal venture capital market.
The noble Lord, Lord Skidelsky, questioned whether we really are losing our innovative ideas and inventions overseas due to a lack of venture capital in this country. I would draw his attention to the report last year by the Confederation of British Industry on breaking the growth barriers for technology-based small and medium-sized enterprises which highlighted the need to make special provision for early stage finance because of the difficulties faced by many start-up companies in raising early-stage equity.
There is ample evidence from respected sources that barriers to sources of finance are a particular problem for small ventures at the cutting edge of science and technology. A 1996 report by the Bank of England entitled The Financing of Technology-Based Small Firms found, after visiting almost 60 technology-based firms across the UK, that in practice, venture capital for very early stage starts-ups is not readily available, particularly for technology-based firms. The seed capital sector in the UK is small in size and the sector itself considers that, as a result, a number of good proposals do not obtain the early-stage funding that they need.
The British Venture Capital Association has reported that in 1995 only 2.2 per cent. of the total investment activity of the formal venture capital industry was invested in seed start-up and early-stage technology firms. The Bank's report called for,
"a partnership between public and private sectors, based on a fair distribution of both risks and rewards",
to improve the financing of technology-based firms. This is exactly the kind of role that we expect NESTA to fill.
Finally and, I hope, most tellingly, I would refer the House to the report last year by the Select Committee on Science and Technology on The Innovation-Exploitation Barrier which recommended that there should be a greater focus on the management of innovation and that the importance of intellectual property rights should be fully recognised. Again, these are two areas where NESTA will be able to make a real difference for individuals and companies throughout the country.

55
As these reports show, there are imperfections in the current UK venture capital market, serious gaps in the market, about which we cannot afford to be complacent. The provisions in this Bill will allow NESTA to address this in a number of ways: by providing limited seed capital to help turn a good idea into a proven concept; by providing guidance on the protection of intellectual property rights; by helping to raise awareness among banks and venture capitalist companies about technological entrepreneurship; by promoting networking support for creative individuals; by setting up mentoring schemes to help to improve the management and marketing skills of our inventors; by developing links, and perhaps partnerships, with what are called "business angel" networks, affording them greater visibility; and by providing a one-stop source of information and advice about seed capital funds, incubators and grants.
The kinds of activities we have suggested for NESTA will make a real difference to ensuring that our best inventions and ideas are not taken up overseas but are exploited in this country, where their benefits can be enjoyed to the full. Therefore, I oppose the amendment.
Lord Skidelsky: My Lords, I thank the noble Baroness for that reply. All that I can say is, "We shall see". I do not believe that rosy picture. I think that there will be a lot of trouble down the line. If there is a gap in the venture capital market—I am open to that—I do not think that NESTA is the organisation to fill that gap. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 16 [General duty and powers]:
Baroness Ramsay of Cartvale Baroness Ramsay of Cartvale moved Amendment No. 19:
Page 18, line 37, after ("acquiring") insert ("and disposing of').
The noble Baroness said: My Lords, this amendment fills a small but significant gap in the list of NESTA's powers in Clause 16. It would add the power to "dispose of as well as to "acquire" interests in bodies corporate. Clearly, it must be allowed to do the one if it can do the other. While the list of powers is not meant to be exclusive, it is as well to include all the obvious things we would wish NESTA to be able to do in the normal course of its activities. This amendment makes it explicit that NESTA can dispose of such interests. I beg to move.
On Question, amendment agreed to.
6 p.m.
Clause 17 [Initial and subsequent endowment]:
Lord Chorley Lord Chorley moved Amendment No. 20:
Page 19, line 28, at end insert ("adjusted for the effects of monetary inflation measured by the Retail Price Index").
The noble Lord said: My Lords, Clause 17(6) defines NESTA's "endowment"—and that is necessary because Clause 17(5) states that the endowment may not be spent without the Secretary of State's approval. It is also relevant to Clause 17(2) and to Clauses 18 and 19.
56
However, those references need not detain us in respect of my amendment, although I shall touch on Clauses 18 and 19 in a slightly different context.
It will be apparent that, as drafted, the definition of "endowment" is couched in strictly historical monetary terms. It is the sum of the cash amounts paid into NESTA by the Secretary of State at particular dates—in other words, it ignores the effects of subsequent inflation on the real value of the endowment. My amendment seeks to remedy that defect by defining the endowment in real terms. I touched on this matter when noble Lords debated a different amendment to Clause 17(6) in Committee. I admit that I was then speaking on the hoof because the point had not occurred to me before. Subsequently, I have been in correspondence and discussion with the noble Lord, Lord McIntosh, and his officials. I hope that that has been helpful to both sides—certainly it has helped me in clarifying points. I thank the noble Lord for that.
To me, the point is fairly obvious but then I have been much involved professionally in the problem of the effect of inflation on company accounts, including those of nationalised industries, and the measurement of capital and income. Perhaps I should elaborate. In general parlance, an endowment is a capital fund. It is clear from the whole tenor of the Bill and Clause 17 in particular that NESTA should operate by way of income from its capital fund or endowment. I cannot believe therefore that it is either the intention of the Government or the wish of Parliament that the effect of future inflation on the capital of NESTA should be ignored. It must surely be right, as in the case of properly run companies as well as charities, that future generations of beneficiaries of NESTA should not be disadvantaged. We must seek to be even-handed and not unfairly to benefit today's beneficiaries at the expense of tomorrow's.
In Committee it appeared to me that this was a simple case of Homer having nodded, but these things do happen. The point was then made to me—it was touched on in Committee—that if NESTA had to save part of the interest generated by its endowment in order to preserve its value against inflation the funds available to it for its programmes would be severely limited; in other words, it appeared that the Government envisaged robbing tomorrow's Peter to pay today's Paul. I suggest that that cannot be right. Nor can it be right to say that if part of the capital is spent, there can be a raid on the distribution fund or use of the gifts and legacies that are looked for under Clause 18(1). Moreover, the trustees of NESTA would in any case be legally entitled, as the Bill now stands, to run down the real value of the fund without reference to the Secretary of State. They may even be unaware of it.
The objection may be raised that my amendment is rather a heavy-handed approach to the problem. If the Minister said that on reflection he recognised the thrust of my point I should be considerably reassured. For example, the point could readily be dealt with by a direction under Clause 19(1) or the effects of inflation could be highlighted in the accounts by way of a direction under Clause 21(2). I indicated to the noble Lord that I should like to know in general terms how

57
the endowment fund would be invested. For example, would the funds be restricted to investment in short/medium-term debt? If so, that would not be reassuring. On the other hand, a typical pension fund or charity fund mix of gilts and equities would appear to be sensible. I beg to move.
Lord McIntosh of Haringey: My Lords, the noble Lord may have arrived at his amendment on the hoof but I believe that he has touched a spot that deserves serious consideration. As the noble Lord has explained, his amendment is designed to ensure that NESTA preserves the real terms value of the endowment from the National Lottery. The Bill currently provides that NESTA may not spend the capital sum of the endowment except to the extent that the Secretary of State permits it to do so. We believe it is important that NESTA does not spend the endowment itself because we see NESTA as a long-term investment. With no such restriction NESTA could spend all its money in the short term leaving no legacy for future generations.
The noble Lord's amendment would go further than this. It would add to the amount that NESTA must preserve an amount equal to the impact of inflation to maintain the purchasing power of the returns on the endowment. I certainly see the logic of the noble Lord's amendment. We are prepared to give it further thought, paying particular attention to the position of comparable bodies; that is, endowment bodies in the private sector. There is one issue which we shall certainly need to address. NESTA has to generate income to pay for its programmes. It must invest the endowment and live off the interest. If it is required in addition to put away an amount equal to the impact of inflation it will have little money left to do anything else in the early years before it has been able to build up its asset base from other sources. It is essential that NESTA is able to make a strong start in meeting the objectives that we have set out for it.
If we accepted an amendment along the lines of that proposed by the noble Lord we would need to waive the requirement in the early years of NESTA's life until other sources of income were such that NESTA could afford to set aside sufficient sums to rebuild the endowment. The existing approval power in Clause 17(5) would enable us to do this. We could then use the financial directions issued under Clause 19(1) to specify the period over which the endowment should be repaid, together with an allowance for the effect of inflation. We would wish to consider the appropriate arrangements with NESTA's chair and trustees when they were appointed. With this proviso, we are prepared to give further consideration to how the noble Lord's point may be achieved in practice and how we can ensure that NESTA's ability to meet its objectives, particularly in the early years, is not compromised. If we decide that an amendment is appropriate we shall table one at a later stage. I am sorry to say that that may be in another place rather than next week.
58
The noble Lord has raised a wider concern relating to his amendment; namely, that we are specifying too cautious and narrow a range of investments for NESTA. Perhaps I may respond to the points that the noble Lord raised in Committee rather than his more limited reference to them this afternoon. The Bill does not specify what types of investments are open to NESTA. These will be spelled out in the financial directions. The Bill simply says that the investment in whatever funds should be handled by the National Debt Commissioners on NESTA's behalf. When considering whether to make any stipulations as to the investment of NESTA's endowment there are two requirements of central importance: first, that NESTA should not place the endowment at risk. It is the public's investment in NESTA and it should be safeguarded. Secondly, NESTA should have a secure and stable flow of income on which to plan its programmes right from the start.
We therefore believe it is right that the endowment should be invested, at least in the early years of NESTA's life, in secure investments with a stable but strong return. The comparison that we have most in mind is with the National Lottery Distribution Fund from which the endowment will come. The NLDF is held by the National Debt Commissioners in a range of investments comprising gilts, Treasury bills and local authority loans. We intend through the financial directions to specify the same range of investments for the endowment. We do, however, have complete flexibility in this regard. We intend to use this flexibility to a degree. We intend to give NESTA complete freedom to invest in any way it chooses any additional sums beyond the endowment from the lottery.
Once NESTA has secured its financial position, after the first few years, we shall think again about how much freedom NESTA should have over the investment of the endowment itself. NESTA's chair and trustees may wish to argue for the kind of freedom that the noble Lord advocates. If they did so, we would give the point serious consideration. Our instinct, however, is to take a cautious approach to the public's investment in NESTA at least in the short term.
I have accepted that the noble Lord has a point in arguing that the endowment should be preserved in real terms and I have undertaken to consider tabling an amendment at a later stage. I hope I have also demonstrated that we have the power to give NESTA freedom to decide its own investment policy and that we are prepared to consider using this power if the chair and trustees of NESTA request it. I invite the noble Lord to withdraw his amendment, and pay tribute to him for tabling it.
Lord Chorley: My Lords, I thank the Minister for his reply. I believe that sufficient progress has been made for me to seek leave to withdraw the amendment and carry on the debate. I do not mind whether the appropriate amendment is dealt with in another place if it cannot be dealt with at Third Reading. I am also grateful to the noble Lord for his general observations,

59
in particular his comments on investments. I become worried when I hear someone say that funds will be put in something that is safe and gives a good return; that is, in gilts. I believe that that is the last way to make money. However, this is not the time to deliver a lecture on the history of investment returns as between gilts and equities. I stand by what I say.
I end by repeating what I have heard so many times in my professional life from start-up companies. They ask one to have faith. They say that they will spend the capital to begin with but, never mind, they will get it right one day. However, I wish the noble Lord luck. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 18 [Solicitation of gifts and investment of money]:
Baroness Rawlings Baroness Rawlings moved Amendment No. 21:
Page 19, line 36, leave out ("shall be under a duty to") and insert ("may").
The noble Baroness said: My Lords, I am afraid that the same attitude of ministerial interference that I mentioned earlier permeates the proposals concerning NESTA. As my noble friend Lord Skidelsky so clearly argued, we are concerned about the nature of NESTA. It is a mongrel dreamt up by civil servants to accommodate the contradictory wishes of politicians. As presently proposed, it appears to fall into the category of a non-departmental public body, but on a long leash from the Treasury, as the endowment sets it free from the present treadmill. It is unlikely to be a charity, as it is also proposed that it may undertake activities of a commercial nature, as we have just heard.
We object to that. As the amendment moved by my noble friend Lord Skidelsky demonstrated, if it is not to be a charity, then it appears inconsistent to make NESTA similar to one by placing it under the obligation to fund raise. Seeking support from the public does not necessarily imply seeking funds. I do not accept that it should fund raise, because it is akin to a charity, as the Minister said in Committee. I thought that the drawing up of analogies was the business of theologians, not of legislators.
It is extraordinary for a government to set up a body to raise public donations to deliver government policy. I said that in Committee and I repeat it. I do not accept that that is not the case, because, as the Minister said in Committee, the Government will have no influence once Parliament has passed and set up the objectives for NESTA. The point is that NESTA, in itself, amounts to an intervention in a domain which, more properly, belongs to civil society. It does more than just set the framework in which the arts, technology and science can flourish.
We feel strongly also that a body with clear government backing and fund raising in competition with other charities is bound to affect the flows of charitable giving. I accept that it is a point for debate—whether the lottery is the sole cause or, indeed, a cause of the decline in charitable giving in recent years. It seems rash to rule out the possibility
60
that the lottery has damaged charities, but the future impact of NESTA on the charitable sector should be assessed carefully. That brings me to my second amendment to Clause 18(1). The clause places NESTA under the duty-1 repeat "duty"—to seek sources of income other than the lottery endowment. I therefore argue that it would be prudent not to place NESTA in a predicament which could prove to be awkward. The intention of my amendment is that the stress should not be on the obligation of NESTA to fund raise, because that could have a serious and unfair effect on general charitable giving. I commend the amendment to the House. I beg to move.
Lord Chorley: My Lords, I support the amendment. The noble Baroness covered the ground comprehensively. I would reiterate the point she made, that I do not believe it to be appropriate for a government body to be in competition with the charitable sector in the matter of raising funds. It may be that NESTA will seek to raise funds elsewhere. We seem to be piling far too many different things onto NESTA. We have been told that we must get it into the venture capital world by backing businesses, which I find distinctly worrying. If anything, it will suck up money and bust NESTA. Then it has to go out and raise money. We do not know upon what basis.
We are only talking about an income from £200 million. We should start NESTA off on a small, narrowly-focused basis so that it can get its act together, and get a track record, before it branches out into wide-ranging activities.
6.15 p.m.
Baroness Ramsay of Cartvale: My Lords, the amendment, as the noble Baroness clearly explained, would remove the duty of NESTA to seek donations of income and other types of support, replacing it with a permissive power to do so. So she clearly does not have a deeply principled objection to it doing so, because she is giving it the power to do so by saying that it "may" do so. She is just removing the absolute duty to do so. The Government find that approach unattractive, and I shall try to explain why.
NESTA is an investment for future generations. We want the benefit of NESTA to be felt well into the next century. Indeed, we would hope that the impact NESTA has will increase, not diminish, as time goes by. The people appointed to the positions of chair and trustees of NESTA will owe a duty to future generations both to preserve and develop NESTA's role.
As we have already discussed in debating the amendment moved by the noble Lord, Lord Chorley, NESTA's endowment from the National Lottery will have an important role to play for the foreseeable future. The initial endowment of £200 million will ensure that NESTA can make a strong start. It is a significant commitment from this Government to NESTA's aims. However, NESTA will only truly be able to rise to the challenge of promoting talent,

61
creativity and innovation in the next millennium if it increases its asset base and raises considerable additional sums from sources other than the National Lottery. We want it to seek donations and bequests, gifts of intellectual property rights, a share of returns on successful ventures it has supported, as well as contributions of the time of talented individuals, perhaps the same individuals as it has supported at an earlier stage.
This Bill sets out the challenge for NESTA, on which we believe so much of our future prosperity depends. Part of that challenge must be to develop its activities, well beyond what it will be possible to achieve in the early days. NESTA is, after all, about talents—and I shall not go into the parable of the talents. NESTA must not therefore be content with what it is originally given. It must be a dynamic body, not a static custodian of the lottery endowment.
The Government believe that there cannot be two ways about this. It is an essential part of NESTA's mission to attract other sources of financial support. It cannot be optional. In appointing trustees, the Government will in part be looking for people with a track record of fund raising. The Government have made their commitment to NESTA clear in allocating £200 million as an initial endowment. It is for others, including the chair and trustees of NESTA itself, to take up the challenge of expanding and development NESTA's role over the coming years.
We therefore believe that it is perfectly right and proper that the chair and trustees should be under an explicit duty to seek other sources of support, and we cannot therefore accept the amendment. We oppose it.
Baroness Rawlings: My Lords, I thank the noble Baroness for that answer. I am most grateful to the noble Lord, Lord Chorley. I agree with him that NESTA should be far more confined and should not cover such grandiose schemes.
Unfortunately, the noble Baroness did not address my point about the charities. I believe that if the clause stands NESTA will have the potential to make charities suffer. At a time when it is difficult to raise money, we feel that it is wrong for a government body to compete with charities. Therefore, I must test the opinion of the House.
6.20 p.m.
On Question, Whether the said amendment (No. 21) shall be agreed to?
Their Lordships divided: Contents, 49; Not-Contents, 99.

Division No. 2

CONTENTS

Astor of Hever, L.

Brougham and Vaux, L

Biddulph, L.

Caithness, E.

Bowness, L.

Carnock, L.

Bridgeman, V.

Chesham, L.

Brookeborough, V.

Chorley, L.

62

Courtown.E, [Teller]

Montgomery of Alamein, V.

Cumberlege, B.

Mountevans, L.

Dacre of Glanton, L.

Noel-Buxton, L.

Dean of Harptree, L.

Park of Monmouth, B.

Dilhorne, V.

Pilkington of Oxenford, L.

Elliott of Morpeth, L.

Rawlings, B.

Elton, L.

Rees, L.

Erroll, E.

Rowallan, L.

Fookes, B.

Selkirk of Douglas, L.

Fraser of Camiyllie, L.

Skelmersdale, L.

Hayhoe, L

Skidelsky, L.

Henley, L

Strathclyde, L. [Teller.]

Henley, L.

Strathcona and Mount Royal, L.

HolmPatrick, L.

Sudeley, L.

Hooper, B.

Thomas of Gwydir, L.

Kitchener, E.

Vivian, L.

Lane of Horsell, L.

Waddington, L.

Lawrence, L.

Weatherill, L.

Lyell, L.

Wharton, B.

Milverton, L.

Wynford, L.

NOT-CONTENTS

Acton, L.

Lovell-Davis, L.

Amos, B.

McCarthy, L.

Archer of Sandwell, L.

Mclntosh of Haringey, L.

Ashley of Stoke, L.

McNair, L.

Bassam of Brighton, L.

McNally, L.

Beaumont of Whitley, L.

Mar and Kellie, E.

Berkeley, L.

Mason of Barnsley, L.

Blackstone, B.

Merlyn-Rees, L.

Blease, L.

Milner of Leeds, L.

Brooke of Alverthorpe, L.

Mishcon, L.

Burlison, L.

Molloy, L.

Carlisle, E.

Molyneaux of Killead, L.

Carter, L. [Teller.]

Monkswell, L.

Cocks of Hartcliffe, L.

Montague of Oxford, L.

David, B.

Murray of Epping Forest, L.

Davies of Coity, L.

Nicol, B.

Davies of Oldham, L.

Pitkeathley, B.

Desai, L.

Prys-Davics, L.

Dholakia, L.

Ramsay of Cartvale, B.

Donoughue, L.

Randall of St. Budeaux, L.

Dormand of Easington, L.

Rea, L.

Evans of Parkside, L.

Redesdale, L.

Ewing of Kirkford, L.

Rendell of Babergh, B.

Falconer of Thoroton, L.

Richard, L. [Lord Prim Seal.]

Falkland, V.

Rodgers of Quarry Bank, L.

Farrington of Ribbleton, B.

Rogers of Riverside, L.

Gallacher, L.

Sefton of Garston, L.

Geraint, L.

Serota, B.

Gilbert, L.

Simon, V.

Goodhart, L.

Smith of Gilmorehill, B.

Gould of Pottemewton, B.

Southwell, Bp.

Grenfell, L.

Stone of Blackheath, L.

Grey, E.

Strabolgi, L.

Hardy of Wath, L.

Symons of Vernham Dean, B.

Haskel, L.

Taverne, L.

Hayman, B.

Taylor of Blackburn, L.

Hilton of Eggardon, B.

Thomas of Gresford, L.

Howie of Troon, L.

Thomas of Macclesfield, L.

Hoyle, L.

Tope, L.

Hughes of Woodside, L.

Tordoff, L.

Irvine of Lairg, L. [Lord Chancellor]

Turner of Camden, B.

Walker of Doncaster, L.

Islwyn, L.

Wallace of Saltaire, L.

Jay of Paddington, B.

Watson of Invergowrie, L.

Jeger, B.

Wedderburn of Charlton, L.

Jenkins of Putney, L.

Whitty, L. [Teller]

Kennedy of The Shaws, B.

Williams of Crosby, B.

Kennet, L.

Winchilsea and Nottingham, E.

Kilbracken, L.

Winston, L.

Longford, E.

Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to according.
6.28 p.m.
Schedule 4 [The National Endowment for Science, Technology and the Arts]:
Baroness Ramsay of Cartvale Baroness Ramsay of Cartvale moved Amendment No. 22:
Page 32, line 19, at end insert—
("Prior consultation
12. Any consultation undertaken before the commencement of this Schedule in connection with any appointments under paragraph I above shall be as effective, in relation to those appointments, as if this Schedule had been in force at the time the consultation was undertaken.").
The noble Baroness said: My Lords, under paragraph 1(2) of Schedule 4, the Secretary of State is required to consult a wide range of bodies operating in the field of science, technology and the arts before he appoints NESTA's chair and trustees. We see that requirement as essential to ensure that the Secretary of State is able both to identify the highest calibre candidates from across the wide areas of activity with which NESTA will be concerned and to ensure that the scientific, technological and artistic communities have a real stake in NESTA and share our vision for it.
If NESTA is to be able to start work as soon as possible after Royal Assent, we need to identify very soon the chair and trustees who will direct it. Therefore, we have set in train the procedures for achieving that target. As part of that process, the Department for Culture, Media and Sport has written on the Secretary of State's behalf to more than 250 bodies working in the fields of science, technology and the arts to seek suggestions of people who might serve as chair or trustees.
This amendment is designed to remove a potential technical hurdle. It provides that any consultation exercise undertaken before Royal Assent, such as that we have just completed, will be valid for the purposes of the consultation requirement in paragraph 1(2). Without that provision, we should technically run the risk of having to go through the consultation process again after Royal Assent. That would clearly be a waste of resources and would seriously delay the point at which we could appoint the chair and trustees and thus the point at which NESTA could begin its important work.
There has been general support for the concept of NESTA and I believe that the consultation requirement has also been widely welcomed. I trust that the House will see the sense of the amendment and will accept it.
6.30 p.m.
Lord Fraser of Carmyllie: My Lords, I regret that the snow and ice of Scotland made it impossible for me to arrive here for the beginning of the Report stage of the Bill. However, this amendment provides me with a convenient peg on which to hang the letter
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which the noble Lord, Lord McIntosh, wrote to me dated 4th March inasmuch as in paragraph 21 of that letter he said that,
"we propose that the Executive",
that is the executive of the Scottish parliament,
"should be consulted over appointments",
to NESTA. I merely observe in passing that clearly in relation to the first lot of appointments, the Scottish executive will not be consulted. However, I recognise why that should be.
In Committee on the Bank of England Bill, the noble Lord referred to this Bill and described the letter which he had sent to me as a "dense" letter. It is indeed dense but I do not regard it as dense in any pejorative sense. It is certainly a letter which contains within it a mass of detail and a number of far-reaching proposals. However, I acknowledge immediately his courtesy in writing to me in such detail and I acknowledge it also as being extremely helpful.
In many respects, what the noble Lord has spelt out seems to me to go a long way to meeting our concerns; namely, that where National Lottery money was going to be spent on particular items in Scotland, there should be an involvement of the Scottish executive and the Scottish parliament. I am grateful for the acknowledgement that that was not as clearly spelt out as it might have been.
I am afraid that the letter did not reach me until after lunch-time on Thursday. I am not being critical; that is a matter of fact. Thereafter, as the noble Lord knows, I was engaged in our discussions on the Competition Bill and I am afraid that I did not have time to table any amendments. However, I doubt whether I should have done so. What the Minister explained repeatedly in his letter is that a number of mechanisms are being explored and a number of approaches have yet to be developed. That being so, I am more interested in ensuring that any changes meet the draftsman's distinctive style and approach to matters rather than tabling probing amendments, having secured those observations from the noble Lord.
However, there is one matter that I wish to mention because it seems to raise a point of principle not only in relation to this legislation but other legislation which may be going through Parliament. The noble Lord has been good enough to place a copy of this letter in the Library. At paragraph 23 he states:
"As you know, various provisions of the Scotland Bill enable functions of Ministers of the Crown to be transferred to the Executive, or for functions to be exercised with the consent of or subject to consultation with the Executive, where appropriate, thus wherever possible avoiding laborious amendments to existing legislation".
I understand the value and purpose of such a power and I can see why the Government wish to have such a power where the matter in question is not the subject of any legislation passing through Parliament

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at that time. However, it seems to me to be extending it rather further than is truly legitimate by saying that, notwithstanding the fact that here is a Bill going through Parliament, where the 1993 Act might be amended—and it would clearly fall within this Bill—that is not to the approach to he adopted. Rather, the powers contained in the Scotland Bill will be used at some point in the future.
If that is what is being suggested, I question the legitimacy of that approach. It would be far more desirable, if the Government were to make changes, that those changes be contained within this Bill.
I recognise that this is one of the last amendments to be considered on Report and the noble Lord might wish to relax. I do not suggest that he should bring forward a raft of amendments to cover the various points which have been raised on Third Reading. But it does not detract from this matter that at some point before the Bill reaches the statute book the Government should, as best they can, seek to table those amendments which would put this matter clearly on the face of the Bill and would not simply be relying on a provision within the Scotland Bill.
I do not press the matter any further than that at present. I hope that the noble Lord will reflect on that. He has been kind enough to offer me the opportunity of a meeting, which I graciously accept.
We have repeatedly sought to examine legislation to see what would be the impact of that legislation after the establishment of the Scottish parliament; how the inter-play would work between this Parliament and the new Scottish parliament. I fear that other Ministers have thought that we were intent merely on being destructive or making mischief. We are not intent on doing that. I believe that the Minister's response reveals that he understands that we are not doing that; and we are not. We are trying to improve legislation as best we can to avoid the possibility of any conflict between this Parliament and the Scottish parliament. As other legislation goes through, there may be circumstances where, as here, we shall seek to extend the powers of the Scottish parliament where in other circumstances we might seek to restrict them. Mr. Tam Dalyell has said that he fears that the Scotland Bill is nothing more than part of a process. Our essential objective will be to ensure, as best we can, that it will be a proper constitutional settlement.
For that reason, we are testing and probing those issues in various Bills. I am grateful that the noble Lord, Lord McIntosh, at least, alone in the Government, has recognised that that is our intention.
Lord McIntosh of Haringey: My Lords, I believe that I am in order in responding to the noble and learned Lord, Lord Fraser of Carmyllie. The amendment is in my name and, although my noble friend Lady Ramsay moved it, I believe that I am in order in responding to it. Therefore, I do not even have to pretend to say, "Before the noble and learned Lord sits down".
I am grateful to the noble and learned Lord for his response to my letter. I quite understand how difficult
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it would have been for him to respond formally with further amendments, even if he had wanted to do that. He is right to say that paragraph 23 of my letter to him, a copy of which is in the Library of the House and therefore available to all noble Lords, contains, after a number of very detailed descriptions of the ways in which this Bill will cohere with the Scotland Bill, a catch-all. It says that there are provisions in the Scotland Bill to,
"enable functions of Ministers of the Crown to be transferred to the Executive, or for functions to be exercised with the consent of or subject to consultation with the Executive, where appropriate … avoiding laborious amendments to existing legislation".
That really is a matter for debate on the Scotland Bill rather than on this Bill.
However, I make two points now. First, what is proposed and what I refer to in my letter is in one direction only: it is for powers to he transferred to the executive rather than for powers from the Scotland Bill to be re-transferred back to Westminster.
The second point that I am glad to make clear is one to which I referred in my response to Amendment No. 7 tabled by the noble Lord, Lord Redesdale. We have made very serous efforts to ensure coherence between the National Lottery Bill and the Scotland Bill. Those efforts have involved not only this department but also the Scottish Office and the Welsh Office. We believe that we have achieved a very high degree of coherence. The noble and learned Lord will probably find that the provisions referred to in paragraph 23 of my letter are minimal in practice.
However, the noble and learned Lord is quite right to draw the attention of the House to the importance of achieving coherence. I am grateful to him for acknowledging that we have sought very hard to achieve coherence in this case. I do not believe that we are alone in that respect. Indeed, I believe that that is the case in most legislation that is going through Parliament. I see that the noble Lord, Lord Mackay of Ardbrecknish, is here. He made a gallant attempt to see whether there might be any possible conflict between the Bank of England Bill and devolution. I am sure he will acknowledge that he failed to find any problems to which attention could properly be drawn.
Therefore, I express my gratitude to the noble and learned Lord. I shall certainly be pleased to meet him. As a result of what comes out of this and out of the initiative that he has taken, I hope that we will achieve a very high degree of conformity between devolution legislation and the remainder of legislation going through Parliament.
On Question, amendment agreed to.
Clause 25 [Short title, interpretation, commencement and extent]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 23:
Page 22, line 31, after first ("to") insert (" 7, (Manner of distribution) to").
On Question, amendment agreed to.
European Communities (Definition of Treaties) (Partnership and Co-operation Agreement between the European Communities and their Member States and the Republic of Uzbekistan) Order 1997
European Communities (Definition of Treaties) (Partnership and Co-operation Agreement between the European Communities and their Member States and Georgia) Order 1997
European Communities (Definition of Treaties) (Partnership and Co-operation Agreement between the European Communities and their Member States and the Republic of Azerbaijan) Order 1997
European Communities (Definition of Treaties) (Partnership and Co-operation Agreement between the European Communities and their Member States and the Republic of Slovenia) Order 1997
European Communities (Definition of Treaties) (Partnership and Co-operation Agreement between the European Communities and their Member States and the Republic of Armenia) Order 1997
6.42 p.m.
Lord Whitty Lord Whitty rose to move, That the draft orders laid before the House on 18th November 1997 be approved [14th Report from the Joint Committee].
The noble Lord said: My Lords, with the leave of the House, and for your Lordships' convenience, I should like to move the four orders relating to partnership and co-operation agreements and the order relating to the European Agreement with Slovenia together.
All these agreements in EU terms are mixed competence agreements; in other words, some of their provisions fall within Community competence and others fall within the competence of member states. So they need ratification by all EU member states and the assent of the European Parliament before they can enter into force. In the case of the United Kingdom, the draft orders need to be approved by both Houses so that we may ratify the agreements. The House of Commons approved the orders on 22nd January.
The orders reflect much that has happened since 1989, when the fall of Communism led to the historic opportunity to reunite the whole family of Europe and
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to establish democracy in the states previously behind the Iron Curtain. The EU has been pursuing new relationships with those countries and the UK has been one of the strongest supporters of democratisation and economic reform in those countries, especially, for example, through our know-how fund which is a valuable contribution to the transition process. We have also provided aid within the European Union, principally through the support of the PHARE and TACIS programmes. UK ratification of these agreements will signal the importance we attach to relations between the EU and those countries and our commitment to support further political and economic development.
In particular, the European Agreement with Slovenia is inextricably bound up with the enlargement process as a whole. As your Lordships will know, Slovenia is one of the front-runners on track towards membership of the EU. As has often been said in this House, enlargement is one of the greatest challenges ever for the Union; but it also presents some of the greatest opportunities. We are convinced that those of us in the existing European Union will rise to that challenge. The UK presidency has made it a priority to get enlargement off to a flying start. That means fully implementing the remit of the Luxembourg summit, which we are starting this very week by holding a European conference on Thursday 12th March. We shall then move on to obtaining agreement on the accession partnerships and launching the accession process on 30th March and the accession negotiations, with the six front-runners, on 31st March.
The Europe agreements are vital to that process. Through this agreement with Slovenia the EU and its member states will build a closer relationship with that country, increasing trade and economic co-operation, engaging in political dialogue and opening up co-operation across the whole range of European Union business.
So far as concerns the partnership and co-operation agreements with Uzbekistan and the three republics of Georgia, Azerbaijan and Armenia, unlike Europe agreements they do not hold out the prospect of EU membership; rather they are designed to develop a relationship based on mutual co-operation between the EU and those countries to reinforce security and spread prosperity across Europe and central Asia. Those agreements establish the ground rules for co-operation across a range of trade and investment-related issues to provide a more stable climate for those economies and European businesses. Promoting more open trade and helping our businesses to explore new markets are key UK objectives which the PCAs will help us to achieve.
Some of the ways in which the agreements will help Slovenia will also help Georgia, Azerbaijan, Armenia and Uzbekistan in a different context, both in terms of their economic reforms and their democratisation. Those agreements cover developing political relations and they establish a forum for closer political relations through a regular dialogue at ministerial, parliamentary and official level.
Those agreements also cover trade and investment. The most practical way to ensure economic development is to open our markets to their goods. These agreements contain important provisions to facilitate this and, in turn, will help promote economic development and provide new commercial and investment opportunities to UK and other EU firms operating in those countries. They also cover economic and sectoral co-operation, including a wide range of sectors from education and agriculture to nuclear safety and consumer protection. Further, the agreements cover financial co-operation. For example, the EU's PHARE and TACIS programmes have for some years provided technical assistance to help develop the political and economic structures of the central and eastern European countries. That help will continue under the agreements.
For Slovenia, the Europe Agreement will help speed up the process of integration. The agreement will help Slovenia bring its legislation closer to existing EC standards. As regards Uzbekistan, Armenia, Azerbaijan and Georgia, the partnership and co-operation agreements are explicitly based not only on economic development but also on respect for the development of democratic principles and human rights. If one of the parties fails to meet its obligations under the agreement, the EU can take appropriate action, including the suspension of the PCA, if necessary.
In the case of Slovenia, as with the nine central European countries whose Europe agreements are already in force, we look forward to building through the Europe agreement a path for Slovenia to full and active membership of the European Union. Equally, the partnership and co-operation agreements will assist Georgia, Armenia, Azerbaijan and Uzbekistan in their progress towards economic prosperity and political and democratic development. I beg to move.
Moved, That the draft orders laid before the House on 18th November 1997 be approved [14th Report from the Joint Committee].—(Lord Whitty.)
Baroness Rawlings: My Lords, I am grateful to the Minister for his explanation of the orders. This is a very timely debate as it takes place shortly before the European conference—the prelude to the launch of the accession process and the start of negotiations with six countries, including Slovenia, at the end of the month.
This group of orders ranges over a huge portion of the world, from the Italian eastern border to some of the remotest parts of Asia, embracing very diverse historic countries with great future potential. The underlying treaties represent elements of those strategies devised by the Union in response to the Drang nach Westen-pace Yilmaz of the newly independent states and central and eastern European countries.
As an MEP I witnessed the previous British government championing with determination the eastern enlargement. At the time I was also closely involved in the Europe Agreement with Bulgaria. There was a real sense of excitement at the prospect of a fledgeling democracy coming back into the European fold. Bulgaria initially made speedy progress overcoming the first hurdles along the road to the heart of Europe. I was
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concerned, however, that disillusionment and bitterness would set in: a combination of vested interest in the Union and structural weaknesses both in the body politic and the economy of Bulgaria were endangering a speedy accession and driving a wedge between candidate countries.
Specific strategies for relations with the NIS and the CEEC were formulated in 1994. This policy-making process culminated with Agenda 2000 in 1997 and has now led to the introduction of accession partnerships. These instruments should safeguard against the dangers of disillusionment and bitterness. I hope this Government will strengthen the determination of the Commission to pursue this approach and will ensure that it is truly inclusive. The Opposition, therefore, broadly welcome the orders. In particular, it would be odd if we did not, as the Conservative government signed up to the treaties in 1996.
The partnership and co-operation agreements with Georgia, Armenia and Azerbaijan are basically the same. They emphasise the promotion of trade, investment and harmonious economic relations, coupled with political objectives focusing on the consolidation of democracy and the complete transition to a market economy of those nations. The agreements will provide also a basis for greater co-operation in economic, social and political spheres between the Union and those countries. To what extent does the Minister believe that the precarious security situation in these countries will undermine the implementation of the agreements?
The agreement with Uzbekistan includes many of the same elements as the agreements with Georgia, Armenia and Azerbaijan in terms of economic and political objectives. Unlike the latter group of agreements, it also includes the objective of supporting the independence and sovereignty of Uzbekistan and the construction of a civil society based on the rule of law. Will the Minister, however, confirm that the differences reflect the different circumstances of these countries; their different ability to satisfy the Community's conditionality; and their different ability fully to implement the obligations undertaken in the agreement?
The treaty with Slovenia is very different. It is a paving provision within the framework of the accession strategy, while not entailing a strict commitment to include Slovenia in the Union. As such it refers in particular to the development of a free trade area between the two partners. It builds on the economic and political objectives common to the other partnership and co-operation agreements. Slovenia is one of the better placed candidates for accession. The Slovenian government have declared that they expect to be ready for accession on 1st January 2002. Although I understand that the precise timetable is a matter for negotiation, I wonder whether the Union will be ready at that date.
Is the Minister concerned at the rate at which Slovenia is developing the structures necessary to apply and enforce the acquis effectively? What progress is Slovenia making in bringing down its rate of inflation?
All the orders and underlying treaties promote the expansion of free trade and democracy within these nations, the hallmarks of the previous government which

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had such a profound effect on the NIS and CEEC in the post-communist era. The orders also help to provide a foundation for a future solid relationship between those countries and the European Union. We therefore welcome all the instruments.
Baroness Williams of Crosby: My Lords, like the noble Baroness, I very much welcome these orders. I am delighted that they will be ratified with the approval of the two Houses. However, I take the opportunity to ask the Minister a few questions about some of the countries concerned. There are some issues on which I should be grateful for his illumination.
First, I share the strong welcome of the noble Baroness for the treaty regarding Slovenia, which in a brief period has changed from being a co-operation and partnership treaty to becoming effectively an accession treaty. That is as it should be because Slovenia already has a remarkable record of achievement both as regards moving towards democracy and also moving towards a market-based economy. In many ways Slovenia is an excellent candidate for enlargement, perhaps one of the best. It is delightful to see the steady progress that has been made in that country, all the more so because Slovenia—one tends to forget—was a part of the former Yugoslavia. It is the one part of the former Yugoslavia which has made the leap into being part of Europe in a true sense while, alas, the rest of the former Yugoslavia still has to achieve that change in attitude and change in attitude towards institutions which Slovenia has so successfully managed.
Having said that, and having said how much many of us—I believe—appreciate what has been done by the Slovenian Government and by the Slovenian president, I wish to mention the four other countries we are discussing. First, I refer to Uzbekistan. One of the purposes of the partnership and co-operation agreements, of which one involves Uzbekistan—three others involve trans-Caucasian nations, as the Minister has said—is, to quote the words of the agreements, "to consolidate their democracies". I find it a little difficult to accept that "consolidation of democracy" is the appropriate phrase with regard to Uzbekistan.
It is certainly the case that Uzbekistan has achieved a substantial enlargement of trade—something like a sixfold increase since 1992—and it has affirmed its independence of Russia, and indeed has established itself as a clearly independent state. But having said that, Uzbekistan is a long way from establishing anything resembling a democracy that is sensitive to human rights. The regime still cracks down on those members of the media who are critical. It is difficult for the opposition to be able to develop in a truly independent and free manner.
There has been little movement towards private ownership or privatisation. There is no private ownership of land. The cotton crop is still largely expropriated and there is little attempt to try to establish competition between cotton farmers. Uzbekistan is, perhaps tragically, virtually a mono-culture dedicated almost wholly to the growing of cotton. The best possible thing that could happen in Uzbekistan would
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be a diversification of its economic base. Can the Minister kindly tell us whether there is any intention on the part of the European Union through TACIS to encourage such a diversification? Have any attempts been made to deal with the desperate environmental situation in Uzbekistan which has led, among other things, to the draining of the lakes in that country, and with the possibility that large parts of Uzbekistan may be rendered infertile by the attempt to grow cotton intensively on inappropriate land?
I turn for a few moments to the three trans-Caucasian countries and to what is becoming perhaps one of the most phenomenal races after oil that we have seen for a long time, certainly at any time since the development of the Middle East. The Caspian Sea is seen throughout a large part of the oil world as the new great bonanza. Newspapers and informed journals such as the Economist and others refer increasingly to the second round of the Great Game that was once played between the Russian and British empires. That great game is now to try to acquire oil rights in the Caspian Sea.
There has been a long debate—it is beginning to be resolved—about whether the Caspian Sea should be split into territorial blocks with each country effectively dominating some part of that lake, or whether it should be organised in a co-operative manner. Perhaps I may ask the Minister whether the impression I have is correct. Is there an increasing acceptance of the idea of territorial division rather than co-operative management of the Caspian Sea? Have Her Majesty's Government and, more generally, the Council of Foreign Ministers of the European Union, given any thought to the continuing very strained relations between Armenia and Azerbaijan?
We have before us two agreements. One deals with Azerbaijan; the other with Armenia. But those two countries are not far removed from being in a state of war. There is a ceasefire. It is very weak and fragile. It was established in 1994. As the House will know, since that time the President of Armenia, Mr. Ter-Petrosyan has been overthrown by those who do not accept any attempt to establish a peaceful long term agreement. He supported—it turns out unwisely, although with a longer term view perhaps it was wisely—the attempt by the OSCE to bring about a settlement of that longstanding dispute. He was regarded as having abandoned the nationalists who are strongly opposed to any agreement. He therefore lost his office and the Armenian leaders now in charge, in particular the Prime Minister, have strong interests in upholding the Armenian claim on Nagorno-Karabakh to the very end without concession of any kind. Can the Minister give us a few reflections on the Nagorno-Karabakh dispute? Will the European Union take any role in easing an extremely difficult situation?
Perhaps I may ask the Minister briefly about the disturbing situation with regard to arms in that area. Between 6,000 to 8,000 landmines are said to be dug into the border between Armenia and Azerbaijan. Those landmines effectively blight a substantial piece of territory. It would be useful to know whether any steps are being taken to remove them as a first step towards establishing better relations between the two countries.

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In that context, it would be very much in the interests of Armenia to consider trying to reach a peaceful settlement. In the next few years Azerbaijan is likely to be the recipient of huge oil revenues. The estimates are 5 billion dollars to 6 billion dollars a year by the early 21st century. With those kinds of moneys coming in, the great danger is that if the strained relationship is not settled one might see arms pouring into an extremely sensitive part of the world exacerbating ancient conflicts into ethnic conflicts, and others which would destabilise an already very sensitive area.
Finally, will the Minister be so kind as to add a few more words on the subject of Georgia? Georgia has fought against the odds to establish a remarkable degree of democracy. It has done so under the leadership of Mr. Shevardnadze for whom many in this House and in another place have reason to be grateful. Mr. Shevardnadze has pursued the Government of Georgia, continually keeping in mind democracy and human rights. He has a genuinely free and talkative Parliament. It has been possible for Opposition groups to survive and campaign in Georgia. He has suffered very high risks for pursuing the battle against organised crime. I should not like to speculate about who tried to assassinate Mr. Shevardnadze on 6th February. But there is very strong evidence that it was an extremely professional attempt with some 15 gunmen attempting to surround the president and kill him. And this is the second miraculous escape that Mr. Shevardnadze has had from his opponents and enemies. On behalf of these Benches, I should like to say that we are very grateful that Mr. Shevardnadze survived that attack in order to steer Georgia towards a peaceful outcome.
I have two further questions. First, the Minister spoke about the work of TACIS, with which I associate the work of the EBRD. TACIS has played some part in modernising the transport system of Georgia, in particular the port of Poti which has great potential for developing trade between Asia and Europe with the build up of the Caspian Sea oil fields. Clearly, if Georgia is able to be an effective entrepôt as that development takes place, it will need to have modern facilities. There is a considerable bottleneck already in Poti and other ports on the Black Sea coastline. It will be helpful to know whether any plans are in place to help Georgia in building up those facilities. In that context, there is considerable British interest. The Caucasian Transco is a British company and, together with Chevron, is committed to repairing the pipeline which in turn will bring in yet more trade, both exports and imports.
My final question on Georgia concerns its one quite desperate area. The economy has moved rather well. Amazingly, inflation has fallen from 8,000 per cent. four years ago—it is a figure which makes the Weimar Republic look positively sound—to only 8 per cent. in the past year. That is an astonishing achievement in itself. But, as the Minister will know, Georgia faces a very difficult problem with regard to power. Sometimes as little as two or three hours electricity per day is provided to its capital, Tbilisi and other major towns. That makes it difficult to attract tourists and foreign investment. Can the Minister give the House any
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information on the EBRD loan to provide modern power stations? Some 600 million dollars of credit has been held up by the problems surrounding Georgia's creditworthiness.
I hope that I have not kept the House too long. I conclude by sharing with the noble Baroness on the Opposition Front Bench the welcome that she offered to the new treaties. Many in this House are conscious that this is one of the most exciting but also one of the most frightening regions of the world. I hope that these treaties will help to stabilise the region and enable it to benefit from the dark gold of oil rather than to sink beneath the waves, as has happened to other countries to which such immense riches have come without proper preparation.
7 p.m.
Lord Bethell: My Lords I join with other noble Lords who have indicated their approval of the orders. I hope that they will be approved today. However, I detected a certain bland note about the Minister's introduction. I am glad that the two noble Baronesses gave some sense of perspective by pointing out the problems in particular in Uzbekistan, but also in the Caucasian nations.
I may be the only Member of this House who has visited all five countries. Even now, after the fall of the Soviet Union, one has to confess that democracy is a long way from being consolidated. Indeed, in Uzbekistan one can hardly say that it has begun. Did the Government take advice from diplomatic representatives, Amnesty International and other NGOs on the question of human rights in Uzbekistan, as regards the total lack of pluralism and other points raised by the noble Baroness, Lady Williams? The situation in Uzbekistan is thoroughly deplorable and worrying. Compared with Uzbekistan the situation in the Russian Federation is superb. It is an entirely different kettle of fish.
The Slovenian Republic is a beautiful little country. I have nothing but good to say about it. I hope that the Slovenians have settled with Italy the problems that arose during the 1940s, and that the rights of Italian citizens in relation to property in particular have been protected. That apart, I very much look forward to Slovenia becoming one of the members of the European Union. There is nothing bad to say about it.
Various points were made by the two noble Baronesses about the three Caucasian countries. Armenia is in occupation of a large part of Azerbaijan, and that is worrying. One wonders whether, particularly since Britain holds the EU presidency, this would be a good time to make representations to the Caucasian countries and to the government of Uzbekistan to see whether something can be achieved before these matters go through the parliaments of the member states. Now would surely be a good time to use what leverage we have.
That said, we have very great interests, particularly in Azerbaijan, in the oil business. On the other hand, it is rumoured that weapons are passing through the Caucasus on their way to Iran, and that missiles made

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in Russia are being allowed transit through the Caucasus to Iran and are being deployed in the Gulf. Those are worrying developments. We cannot reject these orders on that account, but these matters need to be considered. I would wish to have heard them mentioned rather more seriously in the Minister's earlier remarks. I do not know whether it is too late now, but I hope that in replying he will be able to comment on the points raised by the noble Baronesses, Lady Rawlings and Lady Williams, and myself.
7.12 p.m.
Lord Whitty: My Lords, I welcome the general support for these agreements and the objectives behind them. I regret the fact that the noble Lord, Lord Bethell, thought the opening of my remarks too bland. It was my intention factually to point out the content of the agreements rather than go into great detail as to what lay behind them in terms of the extraordinarily difficult situation in some of these countries. The whole point of European Union intervention is to provide a new and positive framework for trying to address many of these problems, deep-seated though they are.
I welcome in particular the general—and I think I can say unqualified—support for the agreement with Slovenia and for the inclusion of Slovenia among the front-runners for full accession to the EU. Whether or not the timetable referred to by the noble Baroness, Lady Rawlings, is achieved will depend very much on whether the European Union itself can make the adjustments in order to provide for enlargement. We have debated the matter in this House on a number of occasions. In general, the Slovenian agreement has been widely welcomed.
In relation to the broader issue of enlargement raised by the noble Baroness, Lady Rawlings, clearly the process that is starting this very week and will continue through the British presidency and beyond is intended to be inclusive. Therefore, countries not mentioned in this debate, such as Bulgaria, are part of that whole process, even though they are not in the first wave of formal negotiations. We are now engaged in an historic transformation of the nature of Europe. So far as concerns the slightly more distant areas of, for example, Transcaucasus and central Asia, their problems are greater than those of even the least favoured country in central and eastern Europe.
The noble Baroness, Lady Williams, asked a number of questions. She referred to Uzbekistan, as did the noble Lord, Lord Bethell, and the noble Baroness, Lady Rawlings. It is true that the position in Uzbekistan is particularly worrying in terms of the development of democracy. The commitments by the Uzbek government to improve the position on human rights are very much part of the background to this agreement. There is deep concern as to both the inadequacy of independent opposition and the question of religious freedom within Uzbekistan.
However, it is the view of the European Union as a whole and of Her Majesty's Government that a positive and constructive relationship with Uzbekistan is one of
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the ways forward to exert leverage on the Uzbek government to try to improve that situation. There were references to economic and environmental problems within Uzbekistan which, again, the agreement does not in any sense resolve; however, it does provide a framework for addressing those problems.
In regard to the three Caucasian republics, there are a number of serious problems. To address the issues raised by the noble Baroness, Lady Williams, first, the oil riches of the Caspian Sea are one of the great development areas for the whole region. There is still uncertainty as to how that sea is to be managed. Azerbaijan and Kazakhstan believe that it should be partitioned, and Iran and Russia believe that it should be collectively administered—the smaller countries believing that that may mean domination by the larger. That difficulty has yet to be resolved. The position of the UK Government is that this is very much a matter for the states themselves to sort out, but nevertheless there is a serious need for it to be addressed.
The Armenian/Azerbaijani conflict, debated in this House relatively recently, is a serious dispute. Problems such as landmines and arms traffic will not be resolved until a more permanent peace is established. As the noble Lord, Lord Bethell, said, the situation is that Armenia, in some sense the weaker power, is occupying 20 per cent. of Azeri territory.
The position of the British Government and the European Union is to support the efforts of the OSCE in this area. The Minsk Group, of which Britain is not a member but is very supportive, is attempting to bring the two parties to a more constructive relationship. In terms of internal politics, it may well be that the presidential elections, of which one is to be held this week and one later in the year, may lead to a more constructive ability to tackle the problems. Undoubtedly, however, there are serious nationalistic pressures in both countries on the existing government. It is to be hoped that the fact that both countries are in a constructive relationship with the EU will make the problems easier to resolve.
I echo the endorsement by the noble Baroness, Lady Williams, of the progress made by Georgia. Nevertheless, it has severe criminal and secessionist problems. Again, I believe that its relationship with the European Union within this framework will help. As regards specific issues, the TACIS programme has already provided significant assistance to Georgia. The whole question of oil distribution via Georgia and the British Transco interests in that are important. The European Union will continue to provide support for the development of infrastructure. I am not in a position to give a reply regarding the EBRD loan in relation to power generation. I shall write to the noble Baroness if that is acceptable.
I have answered the main questions. There are very difficult political and economic situations in all of these countries. I did not intend to under-estimate them in my opening remarks. We are establishing a framework whereby the EU can be a constructive influence on those areas. For Slovenia, it is a dramatic and significant contribution to its eventual and, it is to be hoped, early accession to the European Union as a whole.

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I hope that with those remarks I have addressed most of your Lordships' concerns. If noble Lords wish to raise any further questions before I sit down, I will be happy to answer them. I see that nobody rises to ask a question. I commend the orders to the House.
On Question, Motion agreed to.

Industrial Training Levy (Construction Board) Order 1998
7.19 p.m.
Lord Whitty Lord Whitty rose to move, That the draft order laid before the House on 15th January be approved [19th Report from the Joint Committee].
The noble Lord said: My Lords, noble Lords may have noticed me attempting to prolong the previous debate. I did so because I thought I would not be here for the next order! However, I am here, moving the first order and speaking to the second order on the industrial training boards. I hope it will be for the convenience of the House if I speak to the two orders together.
The proposals before your Lordships this evening seek authority for the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on the employers in their industries to finance their training activities, including grants schemes, and ability to fund the operating costs of the boards. Provision for this is contained in the Industrial Training Act 1982 and the orders before your Lordships would give effect to proposals submitted by the two boards.
Because the proposals from each board include provision to raise a levy in excess of 1 per cent. of an employer's payroll, the Industrial Training Act 1982 requires that in such cases the proposals must be approved by the affirmative resolution of both Houses. They have already been through the other place.
In each case the proposals are based on employers' payrolls and their use of sub-contract labour. The higher rates imposed on labour-only payments reflect the fact that employers using labour-only subcontractors do not, in the main, play any active part in the training of the pool of skilled labour from which they recruit.
As required by the Industrial Training Act 1982, both boards have provided for the exemption of small firms from the levy. The level at which this exemption takes effect is unchanged from last year and aims to strike the right balance between helping small firms to grow and giving them unfair commercial advantage. However, the boards are committed to supporting the training efforts of small firms, whether or not they pay the levy. All firms need a skilled, competent workforce if they are to be competitive and small firms in these sectors are encouraged to take advantage of the services offered by the boards.
In the case of the Engineering Construction Industry Training Board the proposals in terms of percentage are exactly the same as those approved by your Lordships last year. The board treats head offices and construction sites as separate establishments and proposes to raise a
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four-part levy. For head offices the rates are 0.4 per cent. of payroll and 0.5 per cent. of net expenditure by employers on labour-only sub-contracting. Those head offices employing 40 or fewer employees are exempt. The rates for sites are 1.5 per cent. of payroll and 2 per cent. of net expenditure by employers on labour-only sub-contracting. There is exemption for site employers with combined payroll and net labour-only payments of £75,000 or less. The proposals are therefore the same as last year. The Construction Industry Training Board proposes to raise a two-part levy: 0.29 per cent. of payroll and 2.28 per cent. of net expenditure by employers on labour-only sub-contracting. Employers with combined payroll and labour-only payments of less than £61,000 are exempt.
These rates represent an increase for the first time since 1990. The previous rates were 0.25 per cent., now 0.29 per cent., and 2 per cent., now 2.28 per cent. The board states that the increases are necessary for two reasons. First, recent changes to the definition of self-employment have significantly affected employment practices in the construction industry. The trend is moving away from labour-only sub-contracting towards direct employment and because of the higher levy rate on labour-only, this will lead to a reduction in the board's income. At the same time, the greater numbers of direct employees coupled with relatively high levels of construction activity are expected to lead to an increase in the amount of training being carried out and a corresponding increase in grant and support provided by the board.
For both boards the proposals involve levy rates in excess of 0.2 per cent. with no provision for exempting employers who make their own training arrangements. In such cases the Industrial Training Act 1982 requires boards to demonstrate that the proposals have the support of the employers in the industry. I am satisfied that each board has obtained that support.
Your Lordships will know from previous debates that the two boards are the only two statutory industry training boards. Each has just undergone an independent review of the need for its continuance—a review which included a survey of the views of employers in each sector. The reviews concluded that both boards were widely supported by employers and sectoral interest groups. Their opinion was that without them there would be a serious deterioration of training in their sectors. Based on these findings the Government have agreed that the boards will continue their work. Each board will however, be set specific objectives which address particular recommendations of the review and which will further increase their effectiveness and develop their capabilities, especially at the strategic level.
I am also pleased to tell your Lordships that each of the boards has received government recognition as the national training organisation for its appropriate sector. This is an important development for them because it places them very firmly within the wider national network of sector-level training organisations and puts a new emphasis on strategic activities and partnerships.

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The Government wish to see them expand their role into one which is forward looking and contributes to national as well as sector skills.
The draft orders before the House will enable the two boards to carry out their training responsibilities in 1998, and I believe it is right that the House should agree to approve them. I commend them to the House. I beg to move.
Moved, That the draft order laid before the House on 15th January be approved.[19th Report from the Joint Committee].—(Lord Whitty.)
7.25 p.m.
Lord Pilkington of Oxenford: My Lords, in principle we on this side of the House support the orders. The valuable work that the two bodies have done is widely recognised. In fact, I believe that they are the only two training bodies that have survived from the 1980s. I underline what the Minister said: they both undergo severe reviews and receive support from the employers and from all concerned with the industries.
Since the Minister has had to deal with the whole of Europe and the problems of the Middle East, I shall not burden him with many questions. I only have two. As he knows, we have recently been considering the Teaching and Higher Education Bill which is mainly concerned with people between the ages of 16 and 18 receiving training outside. I should like the Minister to say something about how that relates to the two bodies and whether there will be any conflict. I am sure that he can reassure me on that point.
Secondly, I gather that the Minister's honourable friend Mr. Raynsford gave an extensive talk on the relationship of the New Deal to the construction industry. For the record of Parliament, it would be good if the Minister could tell us what Mr. Raynsford said in, I gather, a flashy gathering somewhere in London. Perhaps in the more sober atmosphere of the Chamber, the Minister could tell us what the plan is.
With those two questions, we welcome the orders and wish both the bodies well.
7.27 p.m.
Lord Whitty: My Lords, I greatly welcome the support of the Opposition for the changes. As the noble Lord said, they are widely supported within the industry.
In regard to the two questions, the first was the interface with the provisions in the Teaching and Higher Education Bill. I believe that the noble Lord and I will have the pleasure of debating it again tomorrow night. The ITBs' governing legislation allows them to raise a levy and to provide grants for employers who provide suitable training. But it does not require employers to train their employees nor to release them to undertake training.
In the Teaching and Higher Education Bill there is new legislation to ensure that certain 16 and 17 year-olds in a job will be entitled to take time off and to pursue appropriate qualifications within the workplace and elsewhere.
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It would be our belief that employers in the construction and engineering industry who undertake training which meets the boards' requirements, would meet the requirements in the training for 16 to 17 year-olds. So although the employers in the construction industry and the engineering construction industry will not be exempt in any sense from the legislation, it is anticipated that the training under the boards will help meet the requirements for those two age groups.
In relation to the remarks of my honourable friend in another place, Mr. Nick Raynsford—I am not sure that the place was any flashier than Millbank Tower; if the noble Lord knew it as well as I do, he would realise that it is not that flashy—the New Deal arrangements for the construction industry will be complementary to the CITB's new entrant training scheme (NET). They will form a valuable incentive to employers to take on much needed recruits in the industry. Trainees will be able to progress from the New Deal to the employed national traineeships and to modern apprenticeship schemes with full support from the CITB's grant scheme.
On a separate question which the noble Lord did not directly raise but which was addressed by my honourable friend Mr. Raynsford, there is no question of either the weekly employment subsidy or the £750 training grant available under the New Deal being affected by the grants and allowances provided to employers under the CITB scheme and paid from the levy income. I hope that that in part at least clarifies the position of the interface between the New Deal and the ongoing relationships under the training boards. I commend the order to the House.
On Question, Motion agreed to.

Industrial Training Levy (Engineering Construction Board) Order 1998
Lord Whitty: My Lords, I covered this order in my earlier remarks. I beg to move.
Moved, That the draft order laid before the House on 15th January be approved [19th Report from the Joint Committee].—(Lord Whitty).
On Question, Motion agreed to.

Legal Aid
7.30 p.m.
Lord Thomas of Gresford Lord Thomas of Gresford rose to ask Her Majesty's Government whether they will postpone their present proposals to abolish legal aid in money recovery claims, in the light of the Bar Council's report of January 1998, Access to Justice: A Fair Way Forward, until the fullest investigation and research have been completed on the outcome of current conditional fee agreements and their associated problems of insurance, risk assessment, uplift and disbursements.
The noble Lord said: My Lords, I express my thanks to the noble and learned Lord the Lord Chancellor for taking the trouble to come here this evening to answer

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the Question that stands in my name. I have an interest to declare in that for—I am shocked to think—upwards of 40 years I have worked with legal aid support both as a solicitor and at the Bar. In relation to this Question I consulted with the major players of both the Law Society and the Bar Council, but I emphasise that I am not seeking to express a union view in anything I may say in addressing your Lordships this evening.
I urged the Lord Chancellor, "Festina lente", in my speech on 9th December in relation to his proposals. I was pleased to hear therefore that a more considered approach had prevailed in his Statement of last week and I hope that he will not be too irritated if I continue to murmur "lente, lente". We are all at one in wanting to increase access to justice. It is important that we achieve the right solution.
The fundamental issue that must be addressed in the consideration of legal aid is the spread of risk, particularly in personal injury cases. Risk is not easy to assess, even at the door of the court. I have what is called a "10 o'clock rule": that is, at 10 o'clock on the morning of the hearing I shall hear from somewhere—either my client or the opposition—that something has gone wrong and my assessment of the chances of success therefore has been considerably influenced.
The consultation paper in paragraph 3.4 is right to describe a legal aid certificate as providing support from an almost inexhaustible fund and almost total protection from any liability to pay the opponent's costs if the assisted person loses the case. But we should put that statement into its proper context. In road traffic cases insurance companies, either directly or through the Motor Insurers Bureau, are supported by premiums compulsorily paid by car owners. In cases of injury caused by negligence, at work or by professional negligence, there is compulsory insurance either by statute or by the rules of the professional body concerned. In all but a minute number of personal injury cases, therefore, the defendants are backed by insurance which is paid for ultimately by the ordinary citizen as a consumer of goods or services or as a road user.
Legal aid has been provided by the taxes of ordinary citizens for some 50 years to those who cannot afford to go to law. The one counterbalances the other. As a matter of policy, it was determined that the legal costs for unsuccessful litigants should be paid by the ordinary citizen as the consumer rather than as a taxpayer. In other words, insurance companies stand the loss but it is not money that they can manufacture; it comes from people who have paid premiums. The legal costs which the insurer has to pay are a factor in determining the premiums that he charges and upon which he sets out to make a significant profit.
It is now said that it is unfair to insurance companies that they should not be able to recover their own costs from an unsuccessful plaintiff. Nobody feels particularly sorry for insurance companies in a situation like that. But the balance is changing. I was encouraged to note in the consultation paper a suggestion, but no more than a suggestion, that the success fee and any insurance premium under a conditional fee agreement might be recoverable against the losing party. The Government
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therefore have in mind the possibility that, even with the proposals that they are now putting forward, the insurers should continue to pay disbursements and additional costs that the winning party has incurred.
I find it bizarre that a Labour Government should set out to increase the profits of insurers by relieving them of their liability for costs. It is strange that a Labour Government should take away from less wealthy people; that is, the 40 per cent. of the population who, if they are successful, have, by definition, suffered personal injuries as a result of the negligence of the defendant; that they should contemplate the removal of a proportion of their damages by success fees up to 25 per cent. of the amount they recover by voluntary agreement.
The damages that an injured plaintiff receives will have been carefully calculated by the court to compensate that injured person for his pain and suffering, loss of amenity and financial losses. It seems odd that, instead of receiving the whole of the money through the use of legal aid as at present, it should now be contemplated that he loses a significant proportion of it. And not only that; but that he should also lose by paying a premium to another insurance company in order to cover the risk of his losing.
Conditional fee agreements may have their place for those whose incomes are above the legal aid level. They have been in operation for a very short time—since 1995—and when they were introduced by the then Lord Chancellor, the noble and learned Lord, Lord Mackay of Clashfern, he said that there was no question at that time of legal aid being replaced in whole or in part by conditional fees; they were,
"an additional provision over and above legal aid".—[Official Report, 5/2/90: col. 558.]
It is only two or three years ago, but the Labour Party was not enthusiastic. In its policy paper, Access to Justice, published in October 1995, the Labour Party said,
"We regard conditional fees as an experiment to be monitored closely, and in the light of the Scottish experience, do not expect their introduction to make a significant improvement to access to justice. They are at present, little more than a gimmick, designed to mask the chaotic state of the legal aid scheme and the court service".
Now the "gimmick" has become the main way in which this Government propose to finance litigation on behalf of people who are lacking in funds.
The policy document referred to "monitoring". The charge I make against the Government is that they have not monitored the experiment at all. The Policy Studies Unit is the only body to produce an assessment—in September 1997—of the way in which conditional fee agreements have worked. It looked at 60 lawyers who had dealt with 197 cases. The Policy Studies Unit called over and over again in its report for "further research" on the effect of non-specialist firms and the monitoring and investigation of solicitors' methods of risk assessment. It called for the gathering of more information, for the following-up of calculations of the uplift of fees and for more evidence into the effect upon barristers.
The Government announced in December that KPMG was carrying out a business analysis of the financing of CFAs and their effect on lawyers. So far we have not seen it. I can only assume that when the decisions were made or when the consultation paper was drafted and produced, the KPMG report was not, and still is not, to hand.
The injured person who under these proposals will have no choice but will have to enter into a conditional fee agreement will face the following disadvantages. First, he will face increased costs. He will be charged the cost of up-front financing of disbursements—of counsel's fees, experts' fees and court fees. A firm of solicitors cannot be expected to carry any ongoing load of such disbursements. A firm with some 50 CFAs in operation at any one time is liable to be carrying a heavy and continuing burden of disbursements, as one agreement succeeds upon another, on which it will have presumably to obtain financing, and ultimately the cost of that financing will fall upon the client.
Secondly, the injured person will have to face the payment of an uplift in his lawyer's fees—the success fee of up to 100 per cent. of the ordinary fee—and that is in effect a premium that the injured person will have to pay to his lawyers for undertaking the risk of failure. He may lose up to 25 per cent. of his damages—the cap voluntarily placed on the uplift calculation. The injured person will also have to pay insurance—the accident-line premiums at the moment vary between £95 and £300—and also, and importantly, he will pay at the beginning before risk assessment can be properly managed; and no doubt as the case goes along there will not be the same quality control that exists at the moment when the Legal Aid Board requires, as each step in a case takes place, that the step is supported by counsel's opinion.
I know of only one assessment of conditional fee agreements, provided to me by the senior partner of a large, nationwide firm of solicitors with a large litigation department. As at 9th January this year, it had entered into 491 conditional fee agreements—the House will recall that the figure for the Policy Studies Unit was 197—of which 56 had been successfully completed and four had failed. The rest were ongoing. The average percentage success fee in 37 of the successful cases was 25.18—that was the average uplift it had charged—and it had recovered £21,311.26 in fees. On the other hand, the estimated cost of the four lost cases was £15,000. This firm, which has a very large turnover, had entered into a large number of conditional fee agreements. On balance, on 9th January, it was ahead by some £6,000, but only one more unsuccessful case out of the 56 cases would have left it behind. For small to medium sized firms, many of which may be encouraged to advertise for fresh clients, the ability to spread the risk over a large number of cases simply does not arise. A loss rate of 8 per cent., as in the example I have quoted, cannot be confidently predicted.
As for the Bar, the individual barrister who does not operate in partnership will have the riskier cases. There will be no early settlements for him. I cannot accept that it is in the public interest that the risk in litigation should
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fall on the individual barrister. Even if it does not encourage him to act unethically by settling at too low a figure, or withholding evidence, and matters of that kind which are occasionally raised as spectres, he could still be bankrupted by a string of unsuccessful cases which, on the cab rank principle, he cannot refuse. As I have said, the risk cannot always be accurately assessed even at the door of the court.
It may be that these fears will prove to be unjustified—experience will show. The views of plaintiffs who have entered into conditional fee agreements could be obtained. That is why it is premature to move wholesale to one method of funding—the conditional fee agreement.
I welcome the Government's undertaking to take reserve powers to allow them to establish a contingency legal aid fund, which was first urged by Justice in 1966 and is supported by many people. I will assume that your Lordships are all familiar with the way in which a conditional legal aid fund will work. The Association of Personal Injury Lawyers has suggested an interesting variant—that the negligent defendant should pay a fixed percentage of damages awarded into the fund, so that the wrongdoer, and not the victim, would pay. The Bar Council proposal is that a fixed percentage of the damages recovered by the successful plaintiff should go into that fund.
There are two critical issues. The first is the set-up costs. Both CFAs and CLAF are expected in the long-term to be self-financing. But the model provided for the Bar Council by Mr. Martin Chalkley in the preliminary feasibility study suggests start-up funding of possibly £30 million which will be required to be provided either by an assignment of part of the legal aid fund or by a loan. The Government's thinking on this may perhaps be best assessed from the consultation document, which says:
"[The government] remains unconvinced that a Claf which required subsidising from public funds, whether as a start up loan or ongoing support, has sufficient priority of funding or would be an appropriate use of taxpayer's money".
The other problem is adverse selection. There is no research into the reaction of plaintiffs to CFAs. We do not know whether they are successful. The Government assume that clients would choose to pay an uplift—increased costs—rather than a fixed proportion of damages recovered. If the APIL solution were adopted, whereby defendants pay the percentage to the fund, I think they would be much more likely to choose a CLAF approach. What is needed is full assessment, and that requires time.
That is what this Question is about. "No win, no fee" is nothing more than a slogan. Remember the American attorney who advertised, "I don't charge my clients anything. I just give them 50 per cent. of what I get for them". In 1997, legally aided accident victims recovered £502 million in compensation at a net cost to the Legal Aid Board of £34 million, a fraction of the total legal aid budget of £1.4 billion. This is not something to be thrown away lightly. I ask for time.
7.47 p.m.
Lord Ackner: My Lords, we live in very strange times. From the Statute of Westminster in 1275 until a little less than 10 years ago speculative litigation was contrary to public policy. This was because it was considered that it affected, as it does, the independence of the lawyer so that his advice might be distorted, he might exploit his client and he might engage in practices which were contrary to the interests of justice and thus undermine its integrity.
Section 58 of the Courts and Legal Services Act 1990 changed the situation and made conditional fee arrangements permissible. It was introduced, I am sorry to say, and I believe quite unintentionally, on a false prospectus. We were told initially that only 5 per cent. could be added to the cost of the solicitor. Later on it was increased to 10 per cent., then to 20 per cent.; and then, with great hostility from the Lord Chancellor's own advisory committee, it went up to 100 per cent. But as has been pointed out, it was intended, and an amendment was made by the noble Lord, Lord Mishcon, that it would have no effect on legal aid. As a result we have Section 15(4)(a) of the Legal Aid Act 1988 which provides,
"A person shall not be refused representation for the purpose of any proceedings on the grounds (however expressed) that it would be more appropriate for him and a legal representative of his to enter into conditional fee agreement (as defined by Section 58 of the Courts and Legal Services Act 1990)".
Despite the noble and learned Lord the Lord Chancellor, at the annual meeting of the Bar Council, drawing attention to the fact that,
"Supporters of legal aid must never cease to emphasise that it is a highly successful public social service",
it is now proposed that legal aid should go in money recovery cases and in its place should come the conditional fee. The noble and learned Lord the Lord Chancellor may recollect the debate that took place on the Conditional Fee Agreements Order—which the Government then very nearly lost—in 1995, and his comments as regards the uplift. He said, at col. 1153 of Hansard for 12th June 1995:
"Personal injury cases, as the noble and learned Lord has rightly observed, are a low risk area of litigation from the standpoint of plaintiffs. In the vast majority the plaintiff succeeds in whole or in part. In fact I understand that around 95 per cent. settle, to the advantage of plaintiffs, without any court order. In my view the first thoughts of the noble and learned Lord on the Woolsack on this subject were correct. A 10 per cent. or at most a 20 per cent. uplift was sufficient incentive. He should have adhered to that".
I do not know whether that accounted for the statement that has already been referred to in Access to Justice: A Fair Way Forward produced, I believe, for the Labour Party Conference in 1995, where it is said,
"We regard conditional fees as an experiment to be monitored closely".
I emphasise those observations because it was the Lord Chancellor's own advisory committee who advised the noble and learned Lord's predecessor in 1995 that, given the novelty and the potential risk to litigants of this untried scheme, it must be effectively monitored and merely monitoring a sample was not, in the Committee's view, sufficient.
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Conditional fees were introduced in July 1995 and all the Lord Chancellor's Advisory Committee was permitted to do was to commission the Policy Studies Institute to provide a report on a sample. That was done in the report, which is entitled The price of success. Reference has already been made to the size of the sample. I merely wish to refer to three excerpts from the report. At page xvii it states,
"Many of the potential problems identified before conditional fees were introduced seem to have been successfully addressed".
That is an observation which the Government have relied on frequently. In the next sentence the report continues,
"However, there are still two areas of difficulty, and these are the two most crucial elements to the success of the scheme: the estimation of risk and the calculation of the uplift".
I turn to the conclusions at page 84 and read out this short excerpt:
"In this section, the conclusions of the rest of the report are brought together and recommendations made. The recommendations almost all consist of further suggestions for future research or monitoring. Although the survey has answered many questions about conditional fees, it has probably raised more".
Finally, and perhaps most important of all, is the following quotation from page 86. It is headed "Assessment of Risk". It states,
"The research raises serious questions about the way in which solicitors assess the probability of success of cases. Personal injury claims generally have a very high success rate, yet solicitors in this survey rated a large proportion of cases as having relatively small chances of success. There are a number of possible explanations"—
and these are referred to—
"This is a crucial issue, because it affects the level of fees that the client pays to compensate the solicitor for the risk of not being paid at all. If the public suspects that solicitors are inaccurately estimating the risk, it will undermine their confidence in the whole system. If they believe that solicitors are doing so in order deliberately to inflate the uplift, despite rules on professional conduct, there is a risk that the whole conditional fees system could be brought into disrepute. This would have serious implications for the extension of conditional fees [in other areas]."
It then sets out the various respects in which further inquiries should be made and cautions against any extension to other areas of civil litigation until the problems that it raises are addressed.
In the speech which the noble and learned Lord the Lord Chancellor made at Cardiff, which was in the month after this report was published—and the report went to him par excellence, no mention at all was made of the report—there was this observation,
"Conditional fees are working well in the personal injury field".
Were they, my Lords? Not from the perspective of the litigant. The average level of uplift was 43 per cent. That is in a field where 90-plus per cent. of the cases were bound to succeed. In 10 per cent. (one in ten) cases, the uplift was between 90 per cent. and 100 per cent.
I remind your Lordships of the Lord Chancellor's comments that 10 per cent., or at the most, 20 per cent., was quite appropriate in this field. So prima facie some—and may be a greater part—of the litigants, to use the vernacular had been "ripped off". Why was not this mentioned? Has there been—as it would appear—some economy with the truth? Only further monitoring

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can show what happened to the claims. Were there any writs? Were they followed by actions? Were the actions fought out, and with what result?
There was a debate in this House on 9th December on the Lord Chancellor's Cardiff statement. I submitted—largely on the material which I have mentioned—that we do not know enough yet about conditional fee arrangements and how they work, to allow them to take the place of legal aid.
There was a television programme on 20th January, File on 4. Again, this would have been well known to the Lord Chancellor and his department because featured on that programme was his right-hand man in the other place, Mr. Hoon, who observed—I quote from page 11 of the transcript:
"There was a specific piece of academic research conducted by the PSI into a number of cases, by no means the total, but which concluded that there were no substantial difficulties about the way that the scheme worked and indeed which encouraged us to consider extending conditional fees".
There is no indication that those carrying out the research had any form of reservation or anxiety.
Fortunately, the lady who carried out the research, Miss Yarrow, was also on the programme and, having heard what Mr. Hoon had said, she said:
"We're concerned that solicitors may not be calculating accurately the risk of success of the case, and it's on that calculation that the whole success fee is based. They seem to he saying that cases are higher risk than they actually are, and that then means that the client is going to pay more. I think the issues about the way the success fee is calculated have not really been resolved, and more attention needs to be given to this before such a drastic action is taken"—
that is, of course, replacing legal aid—
"And so far we haven't seen any signs from the Lord Chancellor's department that they are addressing this issue. Instead they've tended to concentrate on the positive aspects of our findings",
which I read out a short while ago.
I tabled a Written Question on 18th February in these terms, to ask Her Majesty's Government:
"Whether, since the publication in September 1997 by the Policy Studies Institute of its report, The Price of Success, they have carried out or caused to be carried out any research to determine whether the practice of conditional fees is working; and if not why not".
Back came the answer, signed by the Lord Chancellor:
"In the five months since the Policy Studies Institute report was published, I have not commissioned further research on the practice of conditional fees. As the noble and learned Lord will know, the Policy Studies Institute report concluded that many of the potential problems identified with conditional fees before they were introduced appear to have been successfully addressed. I accept that further research, at the appropriate time, may be necessary and I plan to seek views on what further research might prove useful in the consultation paper that I plan to issue shortly".—[Official Report, 18/2/98; col. WA 49.]
I submit to your Lordships that that is grossly unsatisfactory.
In the observation made by my noble and learned friend the Lord Chancellor on the legal aid Statement on 4th March, he said:
"the overall picture that emerges is that the scheme seems to be working as intended".—[Official Report, 4/3/98; col. 1211.]
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I submit that on the material I have produced, it is doing no such thing. If the monitoring had continued, one would have seen clear evidence of the extent to which litigants had been required to pay, on the Lord Chancellor's own approach, more than was appropriate. That is why I used the words "economy with the truth". I respectfully submit that at this stage it would be quite wrong to carry the use of conditional fee agreements any further and that attention should be applied to the approach of the Bar Council in its Conditional Legal Aid Fund suggestions.
8.4 p.m.
Lord Brightman: My Lords, I appreciate that this Unstarred Question is primarily focused on conditional fee agreements between lawyers and their clients—the lawyers being rewarded financially for winning the case and penalised if the case is lost. But I hope that I will not be straying too far from the question if I confine myself to a few words in favour of the contingency legal aid fund, commonly called CLAF, in which the lawyer is not involved financially.
There is unfortunately some confusion between the two schemes owing to the similarity of names. The contingency legal aid fund, CLAF, is sometimes called the "Conditional Legal Aid Fund". I refer, for example, to Hansard of 4th March at col. 1209, which does not stand alone. That can readily be confused with the conditional fee agreement which the plaintiff negotiates with his lawyers. This can lead to a misunderstanding on a quick reading of Hansard. To avoid any confusion, I intend to refer to the conditional fee agreement as "the solicitor scheme", for want of a better label, and then it cannot be confused with CLAF, which has no financial association with the solicitor or barrister.
It has always been a mystery to me why governments have not been enthusiastic about CLAF. That lack of enthusiasm has been evident from time to time, and certainly since the then Lord Chancellor's consultation paper in 1991. CLAF has much to commend it. It has a first-class track record in Hong Kong, where it has thrived for 14 years. Once set up, it is self-financing. It covers not only the plaintiff's legal costs if the action fails, but also the plaintiff's liability to pay the defendant's legal costs, which the solicitor scheme does not. It can sit happily alongside the solicitor scheme and the state legal aid scheme.
CLAF is a virtuous scheme because the solicitor, who is an officer of the court with a duty to the court that overrides his duty to his client, is not financially involved in the success of his client's case. It cannot be denied that under the solicitor scheme this officer of the court is gambling on the success of one party to the litigation. I do not know whether some solicitors may feel a little embarrassed by a marked conflict between their interest and their duty. I should not be surprised if they do.
Despite the fact that the CLAF scheme can exist happily alongside the solicitor scheme and the state legal aid scheme, it has been continually cold-shouldered by governments. The usual argument against CLAF is that the solicitor scheme would cream off the strong cases,

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leaving only weak cases for CLAF— what is called in the consultation paper of March 1998 "adverse selection". I should like to spend a few brief moments examining the supposed reasons for this.
First, it is said that the solicitor scheme would—I quote from pages 27 and 28—
"be more profitable for lawyers".
Speaking entirely for myself, I do not much like the sound of that argument. I would prefer a scheme which was better from the point of view of the litigant, but I entirely agree that CLAF does not purport to create any profit for the lawyer. It yields him no profit at all, except his ordinary costs. It is also said that under the solicitor scheme,
"The lawyers could offer more competitive terms to the client".
I fail to see why that should be so. No reason is given. Anyway, is not competition a good thing?
Thirdly, it is said that the client would prefer,
"to pay a mark up on costs under [the solicitor scheme] rather than a surcharge oil potentially high damages".
Why? No reason is given for this assertion. Why should a plaintiff prefer to pay to a solicitor an extra x per cent. of his legal costs rather than pay y per cent. of his damages to CLAF? I am not convinced by these supposed arguments for preferring the solicitor scheme to CLAF. CLAF has one advantage over the solicitor scheme. Under CLAF the plaintiff does not have to put his hand into his pocket to pay for insurance cover against the risk of being liable for the legal costs of the successful defendant. Under CLAF if the defendant wins, CLAF covers the cost. Per contra, the solicitor scheme does not of itself protect the unsuccessful plaintiff from having to pay the costs of the successful defendant. If the plaintiff wants cover he must take out insurance.
It is not possible in this short debate and at this hour to do justice to the arguments in favour of CLAF. I do not argue against the solicitor scheme; it is part of our law and is on the statute book. But I ask that the arguments in favour of CLAF are given further consideration.
8.11 p.m.
Lord Goodhart: My Lords, my noble friend's Question is extremely timely because of the publication by the noble and learned Lord the Lord Chancellor of the consultation paper last Wednesday. There is much in that consultation paper that I can support. Speaking for myself, I support the extension of conditional fee agreements (CFAs) beyond their existing boundaries. I support this proposal reluctantly because there are undoubtedly serious problems with CFAs. We face the danger of going the way of the USA where I believe contingent fees have done immense damage to the legal system, although that is in part because of features such as civil juries which do not exist in this country.
I accept however that it is unrealistic today to expect an uplift of the legal aid ceiling in real terms. For many who do not qualify for legal aid and cannot afford to take the risk of fighting a case and losing it, CFAs are better than nothing. Again speaking for myself, I support
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some of the other proposals in the consultation paper, such as having contracts with the Legal Aid Board, a strengthening of the criteria for the grant of legal aid, support for public interest cases and the Community Legal Service. But I strongly believe that it is premature to withdraw legal aid where it now exists before CFAs have proved themselves.
The PSI study to which my noble friend Lord Thomas of Gresford and the noble and learned Lord, Lord Ackner, have referred was encouraging as far as it went on CFAs in personal injury cases, but it was not conclusive. Certainly, it is not a sufficient basis for taking an irrevocable decision to withdraw legal aid from personal injury cases. We all know that personal injury cases, particularly those involving road accidents, are specially easy and suitable for CFAs, but beyond road accident cases—even in other kinds of personal injury case—it is far from clear that affordable insurance will be widely available, that in many cases solicitors will be able to take on the case with a reasonable mark-up—one that does not exceed 25 per cent. of the total damages—or that a significant number of solicitors will be willing and able to take on CFA cases at all.
I therefore urge that legal aid be retained alongside CFAs until it is clear that the latter will provide adequate access to justice for those who now qualify for legal aid. To retain legal aid at least on a temporary basis for personal injury cases will not be expensive. The net cost to the state of legal aid in personal injury cases in 1996–97 was £34 million, a mere 2.3 per cent. of the total net cost of legal aid. As against that, legally-aided plaintiffs in personal injury cases recovered £500 million in damages. When the recovery of state benefits out of those damages is taken into account the Government may even make a profit out of it. A particular problem for legally-aided plaintiffs is the funding of disbursements. The PSI study found that disbursements were funded by litigants in 75 per cent. of cases. Certainly, solicitors will be reluctant to fund disbursements. The Personal Injury Bar Association has said that the proposed reforms risk enfranchising middle England at the cost of disfranchising the poor.
I believe that there is a way that may well avoid most of these problems. I refer to the Contingency Legal Aid Fund to which the noble and learned Lord, Lord Brightman, has already spoken. In the debate last December I specifically raised the question of CLAF. I chaired the committee which reported on it for JUSTICE in 1975. However, I very much regret that the Government in the discussion paper have given a qualified negative reaction to the CLAF proposal. I hope that they can be persuaded to think again. The proposals for CLAF have been supported in different versions by the Bar Council, the Law Society, JUSTICE, the Consumers' Association and the Association of Personal Injury Lawyers. The Bar and the Law Society have so far not agreed on a single common CLAF scheme, but I do not believe that there is any difference of principle between them. I hope that a common scheme can be agreed between them reasonably soon.
The original CLAF scheme as proposed by JUSTICE provided for the CLAF success fee to be a percentage of damages. However, I am not persuaded that there is

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much to be said for altering that scheme so as to make the success fee a percentage of costs. CLAF will then be directly comparable with a CFA, except that the success fee will go to CLAF and not the lawyers. The lawyers will receive fees, including payments on account where appropriate, in the normal way, win or lose.
CLAF has two big advantages over CFAs. First, from the point of view of the administration of justice it removes the risk that lawyers will be tempted to commit professional misconduct to avoid the risk of personal loss. Cases of damaging documents being discovered half-way through litigation are well known and happen from time to time. It is hard enough for lawyers to bring themselves to disclose such documents when they suffer no penalty worse than perhaps some slight embarrassment or the of their clients. It will be much harder for them to do so if disclosure may cost them thousands of pounds, or perhaps tens of thousands of pounds, in lost costs. Secondly, CLAF has a very considerable benefit for lawyers. They have the certainty of recovering their proper profit costs and disbursements, including payments on account. I believe that most lawyers would prefer not to gamble on winning the case. That is even more true, of course, for solicitors than it is for the Bar, given that solicitors have much higher overheads.
The Achilles' heel of CFAs is the cost of funding firms' own work when they will not get paid for it until completion or settlement of the case, and they will not get paid at all if the case is lost. That needs a considerable extension of credit. Few firms, except the big City firms which will not do CFA work anyway, can obtain that amount of credit or, even if they could get it, could afford the cost of servicing it. The result will be that CFA work will be concentrated in the hands of a small number of firms with high CFA turnover—the kind of firm to which the noble and learned Lord, Lord Ackner, referred.
Client choice will, as a result, be limited, and in rural areas almost certainly non-existent. The Government's main objection to CLAF is adverse selection. I do not believe that that will happen. The great majority of firms, as I have already suggested, would prefer not to gamble on CFAs. The CLAF mark up, from the point of view of the client, will probably be lower than the CFA mark up because of the wider spreading of risk. Adverse selection could be, and indeed probably would be, avoided, by requiring all firms that become members of the CLAF scheme to undertake not to offer CFAs. The client will then have a choice of firms offering either CFAs or CLAF. The client can choose between them.
The client is likely to prefer a scheme when the mark-up is fixed by an independent body and not by the solicitors' firm which is likely to have a far greater knowledge than the client does, himself or herself, of what is a fair and reasonable mark-up. The client is, again, likely to prefer a scheme which avoids a conflict of interest between himself or herself and the lawyers acting.
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The Government recognise that some of the savings from the reduction in legal aid will have to be used for transitional arrangements. I suggest that some of that money should be put into a pilot scheme for CLAF in a part of England which includes a major urban centre and more rural areas. The pilot CLAF will then run in that area alongside CFAs, and, of course, if too few solicitors sign up initially for the pilot scheme, it can be aborted at that stage without involving any costs. If a substantial number of solicitors signs up, then CLAF is likely to succeed.
The Bar Council announced today that it proposes to form a working group, including bankers and insurers, who can join with consumer representatives as well as lawyers, to report on the structure and funding of a CLAF scheme and its relationship with CFAs. The working party is unlikely to be able to report by 30th April, which is the closing date for responses to the discussion paper. It should be able to respond within a further two or three months. It is not realistic to expect the profession to provide the reasonable amount of funding that is required to get the scheme started. That will, if it is to have any hope of success, have to be provided by the Government, but there is every prospect that that initial funding will be capable of being repaid, with interest, within a relatively short period of time. Thereafter of course CLAF will be able to continue to operate on a zero net basis.
In view of the advantages of CLAF, I would ask the Government to co-operate with the Bar Council and its working party, and to take no steps in the meantime which would rule out CLAF on a pilot-scheme basis. I would ask the Government to postpone the abolition of legal aid in personal injury cases until it is clear that it is viable to do so.
8.25 p.m.
Lord Kingsland: My Lords, the Opposition adopt the views expressed by all noble Lords tonight so far on the positive role that a pilot project would play in relation to CLAF. They equally urge caution upon the noble and learned Lord the Lord Chancellor in relation to his recent expressions of support for CFAs.
If your Lordships glance at the principle that lies behind CLAF and gaze at the same time at the principle that lies behind the CFA, it will quickly be clear that the advantages of CLAF over the CFA are, in principle, powerful. CLAF is a nationwide system whereby premiums are paid by the winners to finance the losses of the losers. In the case of CFA, that insurance exercise is conducted discretely in each solicitors' firm that enters into a CFA scheme. The difference there of course is that the losers are paid by a national insurance policy.
There are a number of question marks over the viability of CFAs. First, we have seen no clear and hard evidence that the insurance companies are prepared to make available, at reasonable prices, the appropriate insurance for losers under a CFA scheme. Indeed, if one reflects upon it, that is not surprising. It is rather like a bookie in relation to a race containing horses of whose form he has no idea; likewise, insurance companies have

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not developed experience of the form of solicitors' firms or the nature of the risks that are undertaken in particular pieces of litigation. That may be something that develops over a period of time; but we are not in a position to say at the moment that insurance will be there at the right price.
Secondly, as the noble and learned Lord, Lord Ackner, said, it is not at all clear that premiums fairly reflecting the risk that solicitors take in engaging in litigation would be fairly set. That does not mean that I am casting aspersions on the integrity of the solicitors profession. Solicitors have to make their assessment at an unreasonable moment: before they know anything about the nature of the case and the risks that it will entail and before they have seen any of the most pertinent documents.
Again, as the noble Lord, Lord Thomas of Gresford, said, there is an enormous requirement for credit which a firm of solicitors will have to underwrite, which will unnecessarily add to the cost of any premium that they demand from their clients in the event of success.
All those things do not, of course, lead us to conclude that CFAs will never work; but they inject a large dose of caution into our approach to them. The House, I am sure, is delighted that the noble and learned Lord the Lord Chancellor is taking this long and careful look at legal aid. Its costs need keeping under control, and the service that it provides to people who otherwise do not have access to justice must be reviewed constantly. In his overall review of legal aid, the Opposition applaud particularly his desire to extend legal aid into areas such as the provision of social welfare, immigration and other areas where preventive legal advice will save so much money by avoiding ensuing litigation. All that is to be greatly applauded.
But it is a great puzzle to me that of all the ingredients in the legal aid budget at the moment, the one ingredient upon which the noble and learned Lord the Lord Chancellor has fastened has been personal injuries and the need to take them out of tax-paid legal aid. As your Lordships well know, this is the one section in the legal aid budget which effectively washes its face. The net saving of taking it out of the budget completely will be no more than £20 million. If the noble and learned Lord the Lord Chancellor wants to place, as his first priority, a dramatic reduction in the legal aid budget, two or three other areas are far better candidates than personal injuries.
In saying that, I am not saying that CFAs should be rejected out of hand. I am saying that they should be seen in context and should not be allowed to race ahead of the careful consideration of CLAF. Let us take the advice which has come from the Liberal Democrat Benches and from noble and learned Lords; let us have a pilot project for CLAF, a continuing review of CFAs and, above all, a clear desire to put the interests of the poorest litigants first.
8.30 p.m.
The Lord Chancellor: My Lords, the noble Lord, Lord Thomas of Gresford, asks me to postpone my own
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proposals to extend access to justice through conditional fees in the light of the Bar's proposals in Access to Justice and,
"until the fullest investigation and research has been completed",
into conditional fees, and what he calls their "associated problems".
In publishing a consultation document on this subject only last week, I made plain that I have been listening to the legal profession, to insurers, to bankers and, most importantly, to those who claim to speak for people who seek justice through the civil courts. I, my junior Minister and my officials have had many discussions since I set out last October in my Cardiff speech my vision for greater access to justice. The consultation document re-affirms the approach I set out then, explaining my proposals in more detail and reflecting arguments put to me about the pace of change. I welcome the qualified support which the noble Lord, Lord Goodhart, felt able to offer to many parts of the consultation paper.
One concern put to me was that lawyers would not be able to modernise their practices quickly enough, nor would the insurance industry be ready early enough with the full range of products necessary to make fullest use of conditional fee agreements, by next month, when I had indicated I might seek to bring changes into effect. I now expect to make these changes some months later. This will give practitioners more time to plan for the radically different arrangements for financing civil cases which I propose to set in place.
The noble Lord, Lord Thomas of Gresford, mentioned the anticipated KPMG report and observed that a decision was taken to publish the consultation paper proposing the substitution of CFAs for legal aid in personal injury cases prior to publication of the KPMG report. However, its findings were available to us. They are being put into the form of a report with examples for publication. I anticipate that publication will be within about a couple of weeks. The report will indicate that conditional fees offer profitable business to lawyers even where they, rather than their clients, meet the up-front costs of insurance and running the case. I anticipate the report, which will be published, and your Lordships will study it and form a view.
The body looked at the impact of taking on conditional fee agreements in small, medium and large firms in terms of their cash flow and in circumstances where they would no longer receive payments on account from legal aid. The indications are that they move into a positive cash flow quite quickly and that profits then flow steadily. However, I appreciate that your Lordships will desire to await consideration of the published report.
I have also accepted that medical negligence cases should remain in legal aid for the present. I believe that the market will, in time, cater adequately for such cases, but that that time is not quite come. Thus, again, I am giving lawyers, insurers and others not only time to adjust but also a sound basis on which to plan. However,

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meanwhile we must tackle the poor results which are often obtained for clients in medical negligence cases. This is why I propose that legal aid should be available in those cases only through solicitors who can show themselves expert in this field.
We recognise that in the transitional period there may be other kinds of personal injury cases which do not readily attract conditional fees. They might have very high investigative or overall costs so that lawyers, as they currently arrange their business, may not be able to fund them, or they may raise a novel point of law. We have, therefore, carefully proposed a transitional fund to provide some continuing public subsidy in such cases. And, again, that will allow time for the lawyers and others to adjust.
In all, I have given the profession and others something of a breathing space compared with my original timetable, which, I accept, some regarded as too exacting. Therefore, I have responded to the Latin dictum, festina lente, but I believe that I must make some measured progress. Therefore, I address the question: why am I unready to delay further? The answer is that radical reform of civil justice and legal aid is both necessary and urgent. The costs of going to law are simply too high for the majority of people who neither qualify for legal aid, nor are so rich that they can simply disregard the financial risks of litigation. The extension of conditional fees will bring those people access to justice, which they are presently denied.
I am asked why we could not extend conditional fees without restricting legal aid. The answer is twofold. First, the money available for legal aid is finite. If it is to meet as much need as possible, we should not be wasting it on cases that can be funded privately. Secondly, legal aid tilts litigation in favour of those who are legally aided. They carry little or no financial burden or risk. Yet their unaided opponents in practice do not recover their costs if they win. This is widely perceived by many as unfair and can be a means of advancing a blackmailing claim which it is cheaper for a defendant to settle than to fight. It is not a system that should be used unless there is no reasonable alternative.
The present arrangements are glaringly unsatisfactory. The bill which the taxpayer is required to meet through civil legal aid has shot up dramatically year on year to help fewer and fewer people.
Meanwhile, conditional fees, where they have developed, have already helped nearly 35,000 people to pursue claims. We can reasonably surmise that most of these could not have afforded or contemplated otherwise. That is in just two-and-a-half years. Cases supported by conditional fee agreements have secured £30 million in damages for wrongs which would otherwise almost certainly not have secured redress. Although the noble Lord has referred to the problems of conditional fee agreements, they have been working well since 1995. As I and my junior Minister have
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said, the complaints which reach us are never about conditional fees; they are about the unfairness and excessive cost of legal aid.
I have referred before to the study of the Policy Studies Institute. It did say that many of the potential problems identified before conditional fees were introduced seemed to have been successfully overcome. I accept entirely that the institute's report said that further research would be desirable. That is not surprising when conditional fee agreements have not been able, alongside the present terms of legal aid, to reach their full potential to bring access to justice.
Let us look at the so-called problems of conditional fee agreements and, first, insurance. This is desirable against the risk of having to meet the opponent's costs if the action is unsuccessful, and disbursements—such as the costs of medical or other expert reports—will not then be recoverable from the other party. Premiums for personal injury proceedings, in which conditional fee agreements have been allowed since 1995, are typically £100 to £150. For many of those who will gain access to justice, which they are denied now, that is not an excessive sum.
There will, of course, be people who could not afford even a sum of that order or the up-front costs of running the case. But this need not be a bar to their bringing proceedings with conditional fees. It is surely not unreasonable to ask that the solicitors, who stand to make very substantial profits when cases are successful, bear those costs.
We are also talking to the insurance industry about new products under which the insurance premium would not have to be paid in advance, but afterwards, and only in successful cases where damages are secured.
I shall say a few words about risk assessment. Certainly it is my purpose that solicitors should no longer be able to rely on receiving their full fee, inclusive of overheads and profit—win, lose or draw. I want them to be more discriminating about their client's prospect of success. The more forward-looking firms have long ago faced up to the need for better risk assessment.
There was much said about the uplift before conditional fees were introduced. It was supposed that solicitors would charge the maximum uplift and leave their clients with little in damages. Those fears have simply not been realised. The Policy Studies Institute found that three-quarters of the cases it looked at had success fees of half of the solicitor's fee or less. The average success fee was 43 per cent. That study also found that the Law Society's recommendation that a success fee should not exceed one quarter of the damages awarded was almost always met. The early fears about the uplift were unfounded.
I listened with care to what the noble and learned Lord, Lord Ackner, said about personal injury claims and his suggestion that in the light of the considerable success achieved in that class of litigation an average success fee of 43 per cent. is too high. That is

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certainly a proposition coming from him to which I listened with care and on which I shall invite the Law Society's express comments.
I have explained why in my view there is no need for me to hold back on my proposals and why, to the contrary, there is every reason to move ahead. I shall now respond briefly to the suggestion that we should delay specifically to investigate the Bar's proposal for a contingency legal aid fund. It is true that my main concern about that proposition is adverse selection.
The Bar's proposal is that in time it would be possible for a fund of this kind to be self-financing, meeting the costs of difficult losing cases from a success fee in other cases. In the short term, because costs would be incurred before cases were won and success fees received, the fund would inevitably be in deficit. The Law Society has made a similar proposal, although it would give the solicitor a wider choice of the terms on which he wished to finance the case.
The proposed Contingency Legal Aid Fund would not address the point I raised at the outset; namely, the prospective unfairness that if it supports an action which fails, the successful opponent is left to bear his own costs. That alone should give many pause.
More importantly, as we discuss in the consultation document, the Government find it hard to believe that a fund of the kind proposed would in fact be self-financing, even in the long term, while conditional fee agreements continued to be available outside the CLAF. A lawyer who saw that a case had good prospects would see financial advantage in taking it on a conditional fee agreement. If he turned instead to the Contingency Legal Aid Fund, he would know that when he won, as expected, the fund would take a share of his success fee. What I require persuasion about is that there would always be a temptation, to which many would yield, to run stronger cases on conditional fee agreements while allocating to the fund the weaker cases.
Lord Goodhart: My Lords, I wonder whether the noble and learned Lord would be prepared to take into account the suggestion which I made in my speech that solicitors should be required to elect
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between offering CLAF and offering CFA, in which case they would not be in a position to cherry-pick stronger cases, if indeed that is a risk.
The Lord Chancellor: My Lords, I certainly did hear that suggestion made by the noble Lord, Lord Goodhart, in his interesting speech, and certainly I shall consider it. The proposition appears to be that solicitors should divide themselves into two classes: those who do cases on CLAF and those who do cases on conditional fee agreements. By giving an immediate response today. I do not desire to suggest that. I shall not consider the suggestion fully. Of course I shall consider it fully and carefully. However, my first reaction is that I do not really see that it meets the point that many cases which would otherwise go into the CLAF would be taken by those parts of the profession that would opt for conditional fee agreements to the exclusion of the CLAF, with the adverse economic consequences for the CLAF that I see.
It is also worth noting that the Bar's fund would not be open to all kinds of case. To illustrate how the fund might eventually be self-financing, and might make relatively modest claim on the taxpayer in the meantime, I have noted that the proposal confines itself to categories of case in which there are, relatively speaking, good prospects of securing good damages.
I have the gravest doubts as to whether the proposal could be made as attractive as it may seem at first sight. But we have invited views. If there is a genuine prospect of a self-financing fund, I suggest that it is a fair point that it could find financial backing in the private sector. In principle, the Government would welcome that as an additional means of improving access to justice.
I conclude on the following basis. We are ready to listen to any comments or proposals. We have opened a consultation process lasting until 30th April. I shall reflect with care on everything that was said during tonight's debate and will read it carefully in the Hansard report tomorrow. Although few speakers have participated, we have had a valuable debate. As I said, I shall consider the matter. However, I have to confess that, at first blush, I am not persuaded that we are fundamentally wrong in the broad approach that we are putting forward. But, my Lords, we will see.
House adjourned at eleven minutes before nine o'clock.