Lords Sitting of 23 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 Norwich.

Schools: Use of Museums and Galleries
Baroness Brigstocke Baroness Brigstocke asked Her Majesty's Government:
What steps they are taking, in the light of the review of the National Curriculum for England and Wales and the development of the National Literacy Strategy, to ensure that schools are encouraged to make full and effective use of museums, galleries and heritage sites.
The Minister of State, Department for Education and Employment (Baroness Blackstone): My Lords, the Government are well aware of the great educational value of museums, galleries and heritage sites. They provide a wealth of wide-ranging learning opportunities for schools which can make a valuable contribution to the policies we have put in place for raising standards. However, to be effective they need to work in collaboration with schools and LEA advisers so that their educational programmes complement the requirements of the national curriculum. Schools will benefit from those museums and galleries that provide a high quality experience which can help them meet their learning targets.
Baroness Brigstocke: My Lords, I thank the Minister for that reply. Perhaps I may express my worry that a child of five who is starting primary school this September will, for six years, have no entitlement to history, geography, music, art or design technology as core subjects in the national curriculum. They are all subjects, are they not, which can be enriched and supported by museums and galleries? Is the Minister aware of the results of a recent survey by the South Eastern Museums Education Unit of 126 schools in Greater London and Hertfordshire over the past two years which shows that many primary schools were making regular visits to museums just because museums support the teaching of national curriculum core subjects? Are the DfEE and the Department for Culture, Media and Sport working together to preserve the important role museums play in the education of young children?
Baroness Blackstone: My Lords, I accept entirely that it is important that my department and the DCMS should work closely together in encouraging schools and colleges for older young people to make the maximum use of what museums, galleries and heritage
952
sites can offer. Similarly, it is important that museums and galleries, many of which provide excellent educational programmes, should work closely with our schools in putting on programmes of which the schools can make the very best use.
Lord Quirk: My Lords, the Question makes reference to the review of the national curriculum, presumably at the end of the present period of moratorium. May I ask the Minister whether her department will be issuing fairly soon a consultative document on the new curriculum?
Baroness Blackstone: My Lords, perhaps I should go back to the whole issue of the primary curriculum which was raised by the noble Baroness, Lady Brigstocke. There is no intention that, in concentrating on our literacy and numeracy targets, work that is going on in our schools in history, geography, art and any of the other six core subjects should be disrupted. It is just a matter of creating a somewhat more flexible timetable for teachers so that they can focus on those important targets. Everyone in your Lordships' House—the noble Lord, Lord Quirk, above all—will agree that if children cannot read or deal with the most basic numeracy they will be unable to benefit from any other parts of the curriculum. We shall be issuing curriculum guidelines in the near future.
Lord Hunt of Kings Heath: My Lords, does my noble friend agree that most, if not all, schools well recognise the benefit of those visits, but that for schools, especially in poorer areas, there can be real problems if funds are tight and the voluntary contributions asked for from parents are insufficient to cover the cost of an individual visit? Can she hold out any hope of special assistance for schools in such areas?
Baroness Blackstone: My Lords, again I accept that it is vital that children from disadvantaged areas, inner cities and homes where they may be least likely, because of poverty, to be taken to museums and galleries by their parents should have access to the excellent provision that can be made by our museums. Indeed, many schools in our inner cities are working hard to achieve that. I cannot tell my noble friend whether there are any additional funds to be made available for that purpose, but perhaps I may take that up with my right honourable friend the Secretary of State and let him know.
The Viscount of Falkland: My Lords, does the Minister agree that our admirable museum and gallery structure was set up in the 19th century, mainly with educational purposes in view, and that in order to continue that tradition and maintain the vast numbers of treasures that there are in our museums and galleries it is necessary to get young people into the habit of visiting those places young? Only the

953
Minister's department can help to do that. That would benefit them and the survival of the galleries and museums.
Baroness Blackstone: My Lords, yes. It is the Government's policy to encourage access to all of our museums and galleries. One of the things that my right honourable friend the Chancellor of the Exchequer was able to do in the Budget last week was to announce additional funds for museums and galleries to promote that access. It is also important that my department should encourage educational institutions to make the maximum possible use of what museums and galleries can offer. It is doing that. However, it is up to head teachers and subject teachers to make the best use of those provisions. The Government cannot instruct them to do so, but we are doing all that we can to encourage that.
Baroness Blatch: My Lords, does the Minister agree that the children in inner city areas, deprived or not, are not so disadvantaged because they live within reasonable distances of museums and galleries, but that children in rural areas are disadvantaged because they face practical problems in reaching museums and galleries? Does she further agree that the increase in petrol prices announced in the recent Budget will make it increasingly difficult for children in rural areas—my Lords, it is not a laughing matter—to make such visits in the towns?
Baroness Blackstone: My Lords, children living in London have a big advantage because they are near to national museums and galleries. However, that is not true of children from all our cities and, regrettably, not all museums run education programmes. I accept that access for children from rural areas might be more difficult and that everything possible should be done to encourage schools to take children from rural areas to visit museums in our cities. The increase in petrol prices would be a small part of the total cost of such visits. I do not believe that it would be the main factor in discouraging a school from taking pupils a long distance to visit a museum.
Lord Annan: My Lords, does the Minister realise that the publications department of the National Gallery has a wide range of school aids, not merely books, and that Mrs. Patricia Williams of that department recently attended a conference at the conference centre in Birmingham—that repulsive looking building—where there was an even wider range of such aids for helping schools in this matter?
Baroness Blackstone: My Lords, yes, I am familiar with the education programmes set up by the National Gallery and the V&A, both of which have particularly strong programmes. The head of the education department at the National Gallery was for many years a member of my staff at Birkbeck College.

Former Soviet Army Officers: Retraining
2.45 p.m.
The Earl of Carlisle The Earl of Carlisle asked Her Majesty's Government:
How much they have spent since 1991 on retraining unemployed former Soviet army officers in Russia; and what financial contribution the Russian Federation has made towards such projects.
Lord Hoyle: My Lords, since 1991, the British Government have spent £3,651,000 on retraining projects for unemployed former Soviet army officers in Russia. The Russian Federation has made no specific financial contribution towards such projects.
The Earl of Carlisle: My Lords, I thank the Minister for his helpful Answer. Will he join me in congratulating Squadron Leader Max Jardine of the Royal Air Force, who has been the project officer for this interesting experiment? Is the Minister aware that 2,000 former Soviet Union officers are unemployed in Estonia and Latvia? Will he extend this valuable project to those two northern states not only in order to be even-handed but also because, as he may realise, the devil finds work for idle hands?
Lord Hoyle: My Lords, I am grateful to the noble Earl for congratulating Squadron Leader Max Jardine, who has worked tirelessly and single mindedly in support of these programmes. I am sure that your Lordships will wish those congratulations to be passed on to the squadron leader and I shall ensure that that is done.
As regards extending the programme to other Soviet states, we are happy to provide advice to other nations. However, we do not have the resources to establish similar schemes in other countries. Resettlement is only one area in which we can support countries of central and eastern Europe; for example, bilateral arrangements with Estonia, Latvia and Lithuania cover areas such as English language training, the provision of military training teams and the secondment of UK civil servants and military personnel to provide advice to the Ministry of Defence. We are always willing to provide advice.
Baroness Rawlings: My Lords, given the importance of the stability of the Russian Federation, can the Minister comment on this morning's news that the Russian president, Boris Yeltsin, has taken the unprecedented step of dismissing his entire government and has taken over temporarily as prime minister? What implications does that have for the political and economic stability of the country and the region as a whole, particularly since

955
President Yeltsin has stated that the move is an attempt to give new impulse to economic reform rather than a change in economic policy?
Lord Hoyle: My Lords, I am afraid that I must say that that has nothing to do with the Question on the Order Paper. Indeed, it is far too early to comment on that matter.
Lord Stoddart of Swindon: My Lords, perhaps I may ask a different question, but one on the same lines. Bearing in mind that President Yeltsin has sacked his government because they are unable to glean from the Mafia and other "businessmen" the tax which is necessary to keep Russia going, is it not odd that British taxpayers should be forking out for the retraining of Russian officers?
Lord Hoyle: My Lords, I must say to my noble friend that I do not believe the two are connected. Indeed, we believe, along with our European allies, that it is in our interests and the interests of security and co-operation in Europe that we should help Russia with the resettlement and reorganisation of her army. For that reason, we undertook that project.
Lord Chalfont: My Lords, may I return to the Question on the Order Paper and ask the Minister from which Vote the money is taken? To be more specific, does it come from the defence budget?
Lord Hoyle: My Lords, I must write to the noble Lord in answer to that question; I note the point he makes.

Leasehold Valuation Tribunal
2.50 p.m.
Baroness Gardner of Parkes Baroness Gardner of Parkes asked Her Majesty's Government:
Whether they are satisfied with the working of the Leasehold Valuation Tribunal and the basis of the appeals from that tribunal to the Lands Tribunal.
Baroness Farrington of Ribbleton: My Lords, the leasehold valuation tribunals have provided an effective means of resolving a variety of disputes relating to leasehold property without the risks of high and uncertain costs associated with court proceedings. We shall be monitoring the operation of their recently introduced role in hearing service charge disputes and applications for the appointment of a manager. There has been some concern about appeals to the Lands Tribunal, which has the power to award costs. The procedures at the Lands Tribunal are kept under review, and, if it is decided that there is scope for change, interested organisations will be consulted. We are generally satisfied with the basis of appeals from the Leasehold Valuation Tribunal to the Lands Tribunal.
Baroness Gardner of Parkes: My Lords, I thank the Minister for that reply. Is she aware that there is an
956
anomaly as regards the right of appeal? Under the Housing Act 1996, leave to appeal from any decision must be obtained from the Leasehold Valuation Tribunal, whereas under the Leasehold Reform, Housing and Urban Development Act 1993, an appeal can be !edged on any ground? Does she know that the Leasehold Advisory Service is extremely concerned that unscrupulous landlords are using that right of appeal as an intimidatory tactic to worry tenants into agreeing higher prices than those determined by the tribunal? Will the Government consider rectifying that anomaly?
Baroness Farrington of Ribbleton: My Lords, we are aware of concerns that different rules apply to appeals relating to service charge disputes and applications for the appointment of manager under the Housing Act 1996. In those cases, there is a requirement to seek leave to appeal from either the Leasehold Valuation Tribunal or the Lands Tribunal. In other cases, there is an unqualified right of appeal. The Government are committed to leasehold reform and plan to issue a consultation paper later this year. That will provide an opportunity to consider the working of the leasehold valuation tribunals and the arrangements for appeals against their decisions.
Lord Ackner: My Lords, is the Minister aware that the problem to which attention has been drawn arises quite simply from the situation that the opportunity to act with oppression is given to a landlord where an appeal is of right? Where an appeal requires the leave of either the tribunal or the Lands Tribunal, that opportunity does not occur because of the conditions that can be appended to leave to appeal. Will not the Government consider urgently making leave to appeal to the Lands Tribunal a requirement in every case?
Baroness Farrington of Ribbleton: My Lords, as I tried to explain to the noble Baroness, Lady Gardner of Parkes, we are aware of the concerns which have been raised in this field. We have a manifesto commitment to introduce commonhold reform and we appreciate that the two areas of leasehold and commonhold reform need to be considered together because they are closely connected. Therefore, we shall consider those matters in due course.
Baroness Gardner of Parkes: My Lords, will the Minister tell the House whether she is aware of the fact that Judge Marder, who is president of the Lands Tribunal, has issued guidance for those seeking to appeal under the 1996 Act, which is the one which requires leave to appeal. In that guidance he says:
"It may be appropriate to refuse leave to appeal where there is no substantive point at issue between the parties and the application appears to be oppressive, eg, where the application appears to be exploiting deeper pockets in order to deter other parties from asserting their rights".
Does not the Minister think that fear of the enormous cost which could be involved for ordinary people in being forced to answer an appeal at the Lands Tribunal is a very real deterrent for many people?
Baroness Farrington of Ribbleton: My Lords, we are aware of those concerns and are aware also of the

957
points which are being raised. We are monitoring the situation closely and we shall seek to act in the appropriate way, as necessary.

Equal Pay
2.55 p.m.
Earl Russell Earl Russell asked Her Majesty's Government:
What plans they have to expedite progress towards equal pay.
Baroness Blackstone: My Lords, the Government's New Earnings Survey for April 1997 shows women's average hourly earnings, excluding overtime, were 80.2 per cent. of that of men. Government policies will enable more women to train for and enter higher status jobs and will encourage employers to pay full and fair rates. The introduction of a national minimum wage will also help to reduce the gap between men's and women's pay, since women form a large proportion of those workers who will benefit from this measure. The Equal Opportunities Commission is currently undertaking a review of the Sex Discrimination Act 1975 and Equal Pay Act 1970 and the Government will consider the review when it is formally presented later this year.
Earl Russell: My Lords, I thank the Minister for repeating, with a change I believe of only six words, a Written Answer to me of 16th February. I am sure that she is familiar with the draft consultation paper issued by the Equal Opportunities Commission entitled Equality in the 21st Century. Will she pay particular attention to four proposals in that document: the proposal to change the negative ban on discrimination into a positive right to equal treatment; the proposal to incorporate the law on sexual harassment within the right to equal treatment; the proposal to consolidate the law on pregnancy and maternity leave; and the proposal to incorporate, where possible, the provisions of European Community law in British law? In that context, will the Minister agree that Europe is a girl's best friend?
Baroness Blackstone: My Lords, I am delighted that on this occasion at least the Government are found to be consistent and that the Answer I have given today is the same as the Written Answer which I gave to the noble Earl on 16th February.
It is obviously too early to comment on the Equal Opportunities Commission review, and we shall wish to do that when it has been completed. However, I believe that all the issues which the noble Earl has raised will be addressed by the commission, and the Government would certainly wish to see progress made in all those areas to ensure that we have equal rights at work and move slowly towards achieving genuine equal pay. Although there have been improvements, we are still not there.
958
Finally, as regards the European Union, that is an area in which the Commission and the Community have in some respects been ahead of the UK and we can benefit from the work that they have done.
Baroness Lockwood: My Lords, can the Minister tell me which government departments are currently undertaking a pay audit in keeping with the code of practice on equal pay issued by the Equal Opportunities Commission in 1997?
Baroness Blackstone: My Lords, all government departments have to evaluate their pay systems as a condition of delegated pay. As part of that evaluation process, they are expected to review their systems for any sex bias and provide details of how any discrimination issues have been handled. The Cabinet Office monitors the results closely. However, I believe that the record of government departments in that respect is very good.
Baroness Platt of Writtle: My Lords, does the Minister agree that one of the most important ways to encourage progress in equal pay, especially for technologically qualified women but also for many other women, is to persuade employers to provide flexible working arrangements so that these women do not lose touch with their expertise in the subjects concerned and can pursue their careers, possibly on a part-time basis?
Baroness Blackstone: Yes, my Lords; family friendly working arrangements, as I believe they are now called, are something that the Government very much want to encourage in a variety of ways, both, as the noble Baroness said, through making it easier for women with small children to work part-time if they wish to do so and through providing reasonable opportunities for women—and, indeed, men—who have small children to take time off if their children are ill and for employers to be understanding in that respect. Moreover, we are keen for these women to be given adequate leave after either having a baby or adopting a child.
Lord McCarthy: My Lords, does my noble friend agree that the major practical problem in enforcing equal pay is the time involved in getting settlements out of industrial tribunals and the RUT? The important aspect is that we should have a way of taking collective cases to industrial tribunals and taking class actions to deal with disputes. That has long been a part of the policy of the present party in office. When will the Government do something about that?
Baroness Blackstone: My Lords, I entirely agree with my noble friend that long delays in industrial tribunal cases can be a serious disincentive to women who may have been discriminated against in pursuing their cases by that route. However, the Government wish to consider the outcome of the Lord Chancellor's working group on representative actions before making a decision on the matter. Such changes would allow a single body to bring an action on behalf of a whole class

959
of people and would require individuals to give up their right to have their cases heard individually. However, the implications of such a fundamental change in policy need to be thoroughly considered.
I should stress that the Government welcome the review of the Equal Opportunities Commission on equality legislation, which recommends that the courts should provide for representative actions and collective remedies. As I have already said, we shall give full and careful consideration to all the recommendations of the EOC for changes to the law.
Lord Avebury: My Lords, can the Minister tell the House how many Permanent Secretaries are women and what proportion of the total that represents? Further, is she satisfied that the promotion opportunities for women within the Civil Service are being looked at as part of the Government's reforms?
Baroness Blackstone: My Lords, this is something which is under active consideration in my department. I believe that Ministers in the new Government have been encouraging all departments to look at promotion opportunities for women in the Civil Service. We know that there is now a much higher proportion of women entering the Civil Service at all levels. However, what we have not yet seen is enough of them coming through to positions right at the top. The Government very much hope that that will happen.
Lord Evans of Parkside: My Lords, does my noble friend agree that some of the worst examples of unequal pay occur at the very bottom end of the scale, where hundreds of thousands of women enjoy even less in wages than men who earn poverty wages? Does she also agree that one way to strike a blow for equal pay and against poverty pay would be to give the National Minimum Wage Bill an uninterrupted and speedy passage through this House?
Baroness Blackstone: Yes, my Lords; I very much hope that that will happen. The introduction of the national minimum wage will help to end the worst cases of exploitation of vulnerable, low-paid workers, whether working full-time, part-time, on a temporary or casual basis, or even at home. Indeed, some of the worst paid women workers are actually home workers. In doing so, the national minimum wage will contribute towards easing the pay inequalities which, unfortunately, still exist between men and women.
The Lord Bishop of Norwich: My Lords, in the consideration of equal pay, has the Minister given any thought to those mothers who choose to stay at home to care for their children in the belief that this is a full-time and worthwhile job?
Baroness Blackstone: My Lords, those mothers who wish to stay at home looking after their young children should be able to do so. It is vital that the Government
960
ensure that they communicate that fact and that they do not in any way imply that it is not a worthwhile thing to do.
Earl Russell: My Lords, I thank the Minister for some helpful answers. However, does she realise that there is also a steadily growing impatience to speed up progress on the subject? In that context, can the noble Baroness tell the House when the Government intend to take measures to implement the European Union working hours directive and the parental leave directive?
Baroness Blackstone: My Lords, I recognise that many women—and, I hope, many men—want to see the discrepancy in the pay of men and women completely removed. Unfortunately, I cannot give the noble Earl a precise date in answer to his question. But if I am able to obtain one I shall write to him with that information.

Business
3.5 p.m.
Lord Carter: My Lords, at a convenient moment after 3.30 p.m. my noble friend Lord Hoyle will, with the leave of the House, repeat (after the proceedings on the Bank of England Bill) a Statement that is to be made in another place on the report of the Home Affairs Committee on the police disciplinary and complaints procedure.

Business of the House: Debate on Ceremony of Introduction
Lord Carter: My Lords, it may also be for the convenience of the House if I repeat the information contained in a special notice issued to all Peers on Friday last. It stated that the debate tabled for tomorrow on the Motion of my noble friend the Lord Privy Seal concerning the report from the Select Committee on the Ceremony of Introduction has been postponed to a later date. Personal circumstances would have precluded by noble friend from being in the House tomorrow. It has been agreed through the usual channels that it would not be appropriate for someone else to move that Motion on his behalf. Therefore, a date for the debate on the Ceremony of Introduction will be agreed through the usual channels and will be announced to the House at the earliest opportunity.
Community Care (Residential Accommodation) Bill
Brought from the Commons; read a first time, and to be printed.
Fireworks Bill
Brought from the Commons; read a first time, and to be printed.

Bank of England Bill
3.7 p.m.
Report received.
Clause 1 [Court of directors]:
Lord Mackay of Drumadoon Lord Mackay of Drumadoon moved Amendment No. 1:
Page 1, line 8, at beginning insert—
("() The Bank of England shall henceforth be known as the Central Bank of the United Kingdom ("the Bank").").
The noble and learned Lord said: My Lords, in speaking to this amendment I shall, with the leave of the House, speak also to Amendments Nos. 16, 18 and 24 which appear on the Marshalled List in my name. Those noble Lords who have been following the progress of the Bill will be aware that amendments in fairly similar terms were debated in Committee in the Moses Room. At that time, those amendments were moved by my noble friend Lord Mackay of Ardbrecknish. I regret that I was not able to be present on that occasion because I was in fact in the Chamber debating the Crime and Disorder Bill. Your Lordships may feel that the two subjects are not easily mixed. It has been suggested to me that the amendments merit further consideration by your Lordships—a view with which I completely agree—because they raise an important issue which is symptomatic of the fact that this House is increasingly being required to consider a number of very important constitutional matters.
This Bill has been presented to Parliament after the Government have carried out a thorough and detailed review of the operations of the Bank of England. Although the Bill is by no means lengthy as regards the number of pages and clauses, it includes—as I read it—a number of important and indeed radical changes to the constitution of the Bank of England, the manner in which it is to be regulated and, most important of all, the role with which it is to be charged vis-à-vis the monetary policy of the United Kingdom.
When major institutions—whether they are public institutions or companies in private ownership—carry out a radical review of their operations, structure, constitution, and management, it is not uncommon for the institution concerned at the same time to consider whether the role which it now has, and the manner in which it is to proceed in the future, is best served by retaining the name under which it has operated or traded, in some instances for many hundreds of years. Undoubtedly that exercise ought to be carried out during this Bill's passage through Parliament.
As I believe was observed when the Bill was in Committee, the Bank of England was founded by Royal Charter in 1694. As my noble friend Lord Mackay of Ardbrecknish helpfully informed your Lordships, like many valuable institutions in the United Kingdom it was founded by a Scotsman, William Paterson. In the same year a number of London-based Scots thought that Scotland should also have a national bank. The following year by Act of Parliament—at that stage it was the Scottish Parliament—the necessary Act was passed and the Bank of Scotland came into being.
962
However, from the outset the two banks differed fundamentally in their role. Ever since its creation the Bank of England has been closely associated with the government. One reason it was set up was to make a loan available to the King to enable him to conduct a war. The Scots were much more practically oriented. They set up the Bank of Scotland to meet the needs of commerce. It has continued to play a major role in the commercial life of Scotland ever since.
It is becoming increasingly obvious to those of us who follow the constitutional changes which are taking place at the moment that the review of major institutions, such as the Bank of Scotland, and the creation of new institutions, such as the new Scottish parliament, will have major ramifications which are not immediately obvious. I suggest that what we are discussing is a good example of that phenomenon. When the Scotland Bill reaches your Lordships' House, noble Lords will have to discuss the procedures by which the voice of Scotland and the voice of the new Scottish parliament are to be heard in the corridors of power in Brussels, Strasbourg and elsewhere. I anticipate that when we debate that Bill we shall have many interesting discussions on the best way forward. Your Lordships may be interested to learn that already some civil servants in the Scottish Office have been despatched to Brussels to set up an office to further the hearing of the Scottish voice. That office has already been nicknamed "SCOT.REP" to mirror "UK.REP" which is the colloquial way of referring to our ambassador there.
When the single currency is established—as many in this House anticipate it will be, if the present Government remain in office long enough to achieve their objective—that same issue will arise as regards the Bank of England. If the Bank of England is to represent the United Kingdom on the committee which is to be set up in Frankfurt, and in other discussions which will take place throughout the European Union, I believe there is great scope for confusion and for potential conflict between the new Scottish parliament on the one hand and the United Kingdom Government and the Bank of England on the other. It is important that those who will have to deal with the Bank of England, in the future—assuming that the single currency is adopted—should be well aware that it does not represent England, but rather the whole of the United Kingdom.
Those of us who are Scots are sometimes irritated and sometimes amused by the confusion that arises over where Scotland fits in to the United Kingdom. Every time I take a taxi from King's Cross station to your Lordships' House and present a Scottish banknote to pay my taxi fare, I await with a measure of anticipation the reaction of the taxi driver who holds up my banknote and examines it on both sides to check that it is genuine. That, of course, is amusing. So, too, was an experience to which I was subjected many years ago when I went to study at the University of Virginia. Having been there some six weeks I attended a football game with an attractive lady student from North Carolina who inquired where I came from. I told her I came from Edinburgh, Scotland. She asked how long I had been in the United States. When I replied, "six weeks", she said

963
without pausing, "If I may say so, your English is remarkably good". These are whimsical examples, but they serve to illustrate the confusion which undoubtedly exists in the outside world as to where Scotland fits into the general picture of the United Kingdom, and where the Bank of England, which is, of course, a public body, fits into the United Kingdom.
This Government pride themselves on being prepared to think the unthinkable and to change the names of government departments if that serves to get their message across better. We know, of course, that they sought to change the name of their party. I hope that I have spoken with an element of humour in moving this amendment, but I trust that will not disguise the fact that I believe this is an important issue. When the Minister responds to the amendment I hope he can inform your Lordships what the senior officials in the Bank of England think about this measure which was, of course, debated previously. There is anxiety that unless this historical nettle is grasped, confusion may arise in the future. I beg to move.
3.15 p.m.
Lord Newby: My Lords, I speak in favour of this group of amendments. The current title of the Bank of England is clearly illogical given its role vis-à-vis the United Kingdom as a whole. We would hardly introduce a Bill simply to change the title of the Bank of England, but within this Bill we can try to adopt a more logical title. It is also an appropriate time to do this given the changing nature of the Bank and of the constitutional arrangements within the United Kingdom. The new title that is proposed in the amendment would help to reflect that.
I certainly believe that the way in which those in Scotland view the monetary policy committee might be enhanced if it was seen to represent a bank that clearly represented the United Kingdom as a whole. Later we shall discuss other measures which might improve the credibility of this new institution with those north of the Border. I shall not detain the House further. I believe that the arguments are clear and self-evident. As I said, we support this group of amendments.
Lord Boardman: My Lords, I cannot dispute any of the points made by my noble friend. I agree with them. However, I remind the House of arguments that I put forward in Committee as to retaining the name of the Bank of England. Over centuries it has acquired a reputation for integrity, straightforwardness and competence which is unequalled throughout the world. I have travelled to many international conferences for bankers. The Bank of England stood out supreme by name and reputation. I shall be very sorry to see that lost for something which, although logical, would be misunderstood. Much as I support what my noble and learned friend said, I find it difficult to support the amendment.
Lord Mackay of Ardbrecknish: My Lords, perhaps I may say a few words before the Minister responds. I fully understand the point made by my noble friend Lord Boardman. A number of people have made it over
964
the past few weeks. The issue was before the Committee and now, thanks to my noble and learned friend Lord Mackay of Drumadoon, it is before this Report stage.
Of course the Bank of England has a long history and in financial circles I hope that most people understand that it is the central bank of the United Kingdom. But, frankly, I am not sure that that hope would be realised if I quizzed many people in the financial sector, especially abroad. Like the noble Lord, Lord Newby, I would not have suggested this point on its own, but two things are happening. First, this Bill changes the policy nature of what the Bank of England does; we shall come to the substance of that later. Secondly, and at the same time, a Bill is going through another place, shortly to come before your Lordships' House, which will change the way in which the United Kingdom is governed. For the first time in 300 years there will be a government of Scotland as well as of the United Kingdom. As my noble and learned friend said, that government of Scotland will set up an office in Brussels. It will not be, of course, a member state, but it will be there. If the Government pluck up enough courage to move to a European central bank, with each central bank of a member state having a representative on it, it will become increasingly odd that the representative from the United Kingdom will come from the Bank of England. That is a difficulty.
I sometimes think that the Government have not realised the considerable change to the geography of the United Kingdom that they are making with the passage of the Scotland Bill and the Welsh Bill. My noble and learned friend Lord Fraser of Carmyllie drew the Committee's attention to wording in the Bill relating to the principle of what one calls the Bank. Is it the Bank of England or the "Central Bank of the United Kingdom"? He pointed out the phrase in Clause 16 which states that the Monetary Policy Committee will collect,
"the regional, sectoral and other information".
My noble and learned friend Lord Fraser of Carmyllie asked where the Scottish information will be collected. Is Scotland a region? I should not need to say this to the Treasury, considering that—I am not sure what percentage of "Scottishness" the noble Lord, Lord McIntosh brings to the Treasury team—there are three and a bit Scots in the Treasury team. They will understand exactly what I mean when I say that the one way to irritate a Scotsman (aside from beating him soundly at rugby as happened yesterday) is to call him English or to call Her Majesty the Queen of England, or to call Scotland a region.
The noble Lord, Lord McIntosh of Haringey, said that a new phrase had been devised: "the home countries". Interestingly, the noble Lord has not come forward with an amendment to the clause to which my noble and learned friend drew attention to get round the problem as regards how Scotland is included in the phrase,
"regional, sectoral and other information necessary".
The two issues—the perceptions we must now have of the United Kingdom and the roles of the member countries in the United Kingdom—are linked. My noble and learned friend has done us a service in bringing

965
forward this amendment at Report stage so that we can discuss the matter in this House rather than in the Moses Room.
There is a difficult balance between the considerable history of the name of the Bank of England and its status in Britain and around the world, to which my noble friend Lord Boardman referred, and the reality of the new way in which we shall run our country, with governments in Scotland and in Wales. A government in Scotland will have considerable powers. One wonders whether "the Bank of England" is the right name.
A journalist on the Herald, Mr. Ben Brogan, rang the Bank of England after we discussed the matter in Committee. Paraphrasing from memory, he asked, "What do you think of this?" The spokeswoman, I think, of the Bank of England said that she saw the logic of it. If even a spokeswoman from the Bank of England sees the logic of it, I wonder whether the Government will see the logic of it.
Lord McIntosh of Haringey: My Lords, the noble and learned Lord, Lord Mackay of Drumadoon, questioned what position Scotland takes in relation to the United Kingdom. The noble Lord, Lord Mackay of Ardbrecknish, talked about us changing the geography of the United Kingdom. I look at a map with the south at the bottom and the north at the top. Therefore my answer to the noble and learned Lord is that Scotland is where it has always been, on top; and I do not expect any change in that. I do not think that any change in wording is necessary in that respect.
If the noble Lord, Lord Mackay of Ardbrecknish, will forgive me, I do not know whether I am another half Scot on top of those others in the Treasury team. I am only half-Scots. However, I recognise that it was the McIntoshes at the Battle of Culloden who were in the centre of the line who were perhaps the bravest. But they were also foolhardy in that they advanced before the order was given and contributed substantially to the rout of Charles's army. I do not propose to follow noble Lords in the direction of the foolhardiness on which they have embarked.
I am grateful, as I was in Committee, to the noble Lord, Lord Boardman. He said today that the Bank of England is a byword for integrity, straightforwardness and competence. I took care to record what the noble Lord said at Committee stage. He said that the Bank of England was the hallmark of respectability and responsibility throughout the world and he would be sorry to see the disappearance of that name. That is exactly the Government's position. Of course we understand the theoretical correctness of the amendments which have been moved. Of course we understand that there is an illogicality in calling the Bank, which in Europe will represent the United Kingdom, the Bank of England. But it would mean effectively abandoning a reputation built up over more than 300 years. It would mean an irrevocable break with the past.
The risk that I see is that such a change would send the wrong signals and damage the Bank's credibility as an institution. I note that when the European Monetary
966
Institute considered the role of the Bank of England under the new arrangements it made no reference to the name. I seriously wonder whether we are not anticipating difficulties which are not likely to occur.
Although I could have done so, I made no investigation of the cost of such a change. I did not go to see whether the old lady of Threadneedle Street had her name carved in stone above the portals of the Bank. I suspect that throughout the United Kingdom there must be many representations of the Bank of England which would have to be changed if the name were changed. Enough is enough. Let us deal with the serious issues in the Bill. Let us not create a new name for a bank which would be an unknown entity on the world stage. I hope that the noble and learned Lord will not press his amendments.
Lord Mackay of Drumadoon: My Lords, I am grateful to the Minister for responding to the amendment in his characteristically friendly and open manner. While I fully confess to injecting an element of humour into what I said, I believe that underlying this issue there are certain practical difficulties. I hope that once the Bill becomes law, and once the Bank of England seeks to implement its provisions, it will do its best not only to educate the citizens of this country as to its new role, but also to make it clear that it is a different institution altogether from the Bank of Scotland and the Bank of Wales. I thank noble Lords who have contributed to this short debate. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 [Functions to be carried out by non-executive members]:
3.30 p.m.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 2:
Page 2, line 25, leave out subsection (4) and insert—
("(4) The sub-committee shall elect one of its members to be its Chairman.").
The noble Lord said: My Lords, as a brief postscript to the remark made by the Minister in the previous debate as to the amount of "Scottishness" he brings to the Treasury team in reminding us about Culloden, perhaps I may tell him that such is the importance of his clan that the chief of that clan is in fact called "The McIntosh". So we now have two "The McIntoshes", and we shall have to be very careful about the one we face in this House. If the noble Lord moves too far forward of the rest of his troops, I assure him that we shall be on the lookout to cut him down in the way his ancestors were cut down at Culloden.
In Committee we examined on a number of occasions the question of who appoints people to either the court of the Bank of England or to the monetary policy committee. A number of us asked questions at various stages as to why it always seemed to be the Chancellor of the Exchequer—either directly or following consultation. I suggested that the Bank appeared not so much an independent Bank, as the Chancellor of the Exchequer's Bank.
The Minister defended the position of the Chancellor of the Exchequer by pointing out to us that the Chancellor was, on behalf of the people of this country, the shareholder in the Bank of England, and for that reason it was appropriate that he should make the appointments. We shall discuss later a variation in the method of appointment. However, it seems to me that the Minister had a good argument when he asked us who else would make the appointment if not the Chancellor of the Exchequer, given the Chancellor of the Exchequer's position. As a result of the arguments we had in Committee, this is the only amendment that calls into question one of the Chancellor's direct appointments.
I bring this matter before the House because I believe that this is a different kind of appointment from the appointment of members of the court or members of the monetary policy committee. In Clause 3 we are discussing a sub-committee of the court of directors of the Bank, which will have certain tasks delegated to it as outlined in subsection (2). The sub-committee will have a quorum of seven and will be, in a way, the non-executive directors of the bank. One of the things its members will do, for example, is decide the pay of the Governor.
As the Bill stands, the Chancellor, having appointed every member of the court, rather than leave the court or the sub-committee to decide on its own chairman, will designate one of the directors—or rather, he "may" designate one of the directors. We had an interesting discussion on that matter too. I asked a question during the course of discussion on the major amendment as to why the wording was "may" and not "shall". The Minister said that,
"if he [the Chancellor] does not designate somebody as chairman, then the sub-committee of the court itself will have to make that designation, because Clause 3(7) says that the sub-committee shall he responsible for its own procedures. I hope this answers that question".—[Official Report, 3/3/98; col. CWH29.]
That reply answered the question as to why the wording was "may" and not "shall". However, it raised the possibility that the Chancellor and the Treasury conceived of a situation in which the Chancellor would not appoint the chairman of the sub-committee but would leave it to the sub-committee itself. That led me to wonder: as the Chancellor has appointed all the men and women to the court, and may actually allow the sub-committee to appoint its own chairman, why do we not say that the sub-committee should always appoint its own chairman, and at least take one of the appointments inside the Bank's system out of the hands of the Chancellor?
The Minister said that he would reflect on the matter, since a number of other noble Lords joined in the debate on the issue. As he has not tabled any amendments of his own, I can only conclude that, on reflection, he prefers the matter the way it is. Ministers always prefer it the way it is—that is what they are advised to think. However, I would advocate a little independence for the members of the court. They are appointed by the Chancellor, and therefore one assumes that all of them are men and women in whom the Chancellor has confidence. Surely he can leave them to decide who should be chairman of the sub-committee.
I hope that the Minister will accept this amendment. I shall even be content if he tells me that it is not very well worded and that he will return to the matter at Third Reading. However, I feel that the hand of the Chancellor ought to be removed from this very small inside appointment in the Bank, and the sub-committee itself ought to be able to appoint its own chairman. That, after all, is what happens in many outside organisations. I beg to move.
Lord Stewartby: My Lords, I, too, hope that the Minister will welcome this amendment for the reasons that my noble friend gave. I cannot think of any other organisation that I have ever come across where a sub-committee of a board or a court does not have control over its own procedures. For the Chancellor of the Exchequer to have authority in that way, penetrating down into the affairs of the Bank of England, seems a perverse form of governance. I hope, if the noble Lord has not yet arrived at the view that this change needs to be made to the Bill, that he has not yet completed his process of reflection.
Will the Minister also place on record a definitive answer to the point that I raised in Committee as to whether or not the Governor and deputy governors are directors of the Bank? From the way in which Clause 3 is framed it seems that the only directors of the Bank are the non-executive members of the court: whereas Clause 1 states that the Governor and the two deputy governors are among those who comprise the court of directors. The natural interpretation would therefore be that they are directors. If they are not directors, there are problems.
In Committee the Minister said that it was intended that the Bank of England should be run as far as possible in the format of a company subject to the Companies Act. If the Governor was not a director of the Bank of England, he would not be able to sign the accounts; he would not be responsible for all the normal duties that a director is liable to perform under the Companies Act. On the other hand, if the Governor and the two deputy governors are directors of the Bank, then the wording at the beginning of Clause 3 is misleading. The rubric refers only to the:
"Functions to be carried out by non-executive members",
yet the text refers to the sub-committee consisting of the directors of the bank and under those circumstances would include the executive members in the form of the Governor and the two deputy governors. I hope that the noble Lord can clarify that point on this occasion.
Lord Boardman: My Lords, I too support the amendment. It seems to me that the Government are trying to have it both ways. Under the Bill the Chancellor retains all the appointments. It is as though the committee is purely a subsidiary of the Government, to respond to and do what the Chancellor says. When challenged about events that happened last week in regard to the conflict between interest rates and taxation, which have been a constant source of debate in the past few days in the press, the Chancellor takes the view that "The Bank of England has nothing to do with me". Yet he makes quite sure that it has everything to do with

969
him under this Bill. He will have complete control of every appointment and whatever happens. For him to turn round and say, "It has nothing to do with me", is unfortunate.
I hope that this small concession which would result from the amendment would achieve the logical sequence of a committee appointing its own chairman and not having him imposed on it. As my noble friend said, and as was said throughout the debate, that is what would follow. The Chancellor would not impose his appointment upon the committee. That would go one step towards making the Bank appear to have some independence from the Treasury.
Lord McIntosh of Haringey: My Lords, first I wish to deal with the point raised by the noble Lord, Lord Stewartby. I indicated to him informally between the Committee stage and today that I might have been wrong in the advice I gave the Committee. I was not wrong. The Governor and the two deputy governors are not directors of the Bank. If I carried the analogy with the Companies Act far enough to convince the noble Lord that it was a good idea that they should be directors of the Bank, then I carried it too far.
The Bank of England is established under a Royal Charter of 1694, as we have already heard. There is no need for the Governor and deputy governors to be called directors of the Bank because the role of directors is different from that which applies under the Companies Act. Therefore, the wording of the Bill is consistent throughout in Clauses 1, 2 and wherever else the issue occurs.
There may be some possibility of confusion in understanding the role of the chairman of the sub-committee of non-executive directors. The chairman of the sub-committee not only chairs the sub-committee but also the court when the Governor is not present. So the responsibilities of the chairman of the sub-committee go beyond that sub-committee itself and cover the court as a whole.
In effect, the senior non-executive member is acting as a deputy chairman of the board and in the discussion it has been seen and should be seen as an important appointment. It is in that light that I invite noble Lords to adhere to the view which I adhere to, that it is right for such a person to be appointed by the Chancellor of the Exchequer rather than by the members themselves. The non-executive members of the court will have important review functions with respect to the performance of the Bank, including the procedures of the Monetary Policy Committee and the Bank's internal financial controls. They will also set the remuneration of the Governor and deputy governors.
The senior non-executive, as the representative of this group, has an important role in safeguarding the interests of the shareholder—that is the Government and ultimately the taxpayer—in the management of the Bank. I am sorry to repeat myself, but it is important to remember that the Bank is not a private company; it is a public corporation carrying out public policy functions. Its sole shareholder is the Government. It is
970
sensible for the Chancellor, who represents the shareholder interests of the Bank, to designate the senior non-executive member because the Chancellor can be held fully accountable for his choice.
The noble Lord, Lord Mackay of Ardbrecknish, made a point about the word "may". The value of the choice being made by the Chancellor is particularly strong at this time because immediately after the Bill comes into force, the initial selection of the senior member could be difficult. There could be non-executive members who do not know each other well. Under those circumstances, the Chancellor, having recommended their appointment, is well placed to choose a senior member to head the sub-committee. Indeed, he has done so.
Noble Lords have not referred to the appointment of Dame Sheila Masters as the senior non-executive member. I remind the House that she is a partner at KPMG and vice president of the Institute of Chartered Accountants of England and Wales. She has been a director of the Bank since 1994. She has had a distinguished public service career as well, having been seconded to the Department of Health as director of finance of the NHS management executive for the period 1988 to 1991. She has been a member of the Inland Revenue Board since 1992, a member of the Chancellor's Private Finance Panel since 1993 and a commissioner of the Public Works Loan Board since 1995. So she has substantial experience, in both the public and the private sectors. In case there may be some fears about control on the part of the noble Lord, Lord Mackay of Ardbrecknish, her experience has not been predominantly in the Treasury or the Bank itself. So we have a good precedent for a sensible choice by the Chancellor of the Exchequer, being the shareholder representing the taxpayer and being accountable to that extent.
I do not recognise the statement that some noble Lords made that it is normal for sub-committees to decide on their own procedures. If I am involved in an organisation, whether it is in the private or the public sector, and I am involved in setting up a sub-committee, I make sure before it is set up that its objectives, procedures and timescale are set out and that its chairman is appointed in advance. Otherwise it will not perform the function that the main committee requires. I think the analogy is sound and I invite the noble Lord not to press his amendment.
3.45 p.m.
Lord Barnett: My Lords, before my noble friend sits down, will he reflect on something else that was said? The words now in subsection (4) are:
"The Chancellor of the Exchequer may designate one of the directors to chair the sub-committee".
I understood that to mean that he may also not designate one of them. Is that what the Bill says?
Lord McIntosh of Haringey: Yes, my Lords, I said that at Committee. I repeat that "may" allows the possibility of "may not". If a future Chancellor of the Exchequer wishes to delegate that power, because

971
he knows that he has a team of non-executive directors who know each other well and work well together, he can do so.
Lord Mackay of Ardbrecknish: My Lords, the intervention by the noble Lord, Lord Barnett, brought us back to the real puzzle. It is that if the defence put up by the Minister today of the position that the Chancellor appoints the chairman of the sub-committee has validity, the subsection ought to read "The Chancellor of the Exchequer shall designate". We were told how important it was that it should be done at the hands of the Chancellor of the Exchequer. He will chair the court when the Governor is not present. I will wager that there are not too many occasions on which the Governor is not present. He will act as a deputy chairman of the board. But there are two deputy governors who will do much of the work of the Governor. So I do not think it can be quite likened, as the Minister said, to any other kind of company. It is a special organisation.
It seems to me that if the Minister's argument were valid, this subsection would say "shall appoint". The Minister told us whom the Chancellor has appointed. I have no problems with that and would expect the Chancellor to appoint someone first-rate to the post. I would expect him to appoint someone first-rate to every position in the court of directors of the Bank. So I am still less than satisfied with the answer. I should be more satisfied if the Minister were to tell me that the case was that on all occasions, because of the importance of the job, the Chancellor "should appoint". There would be no "may" about it.
However, given what the Minister said at Committee and again today, when he did not detract in any way from what he said at Committee, I am still bemused as to why the Chancellor is not taking the power, without any qualification; or alternatively why the sub-committee itself is not allowed to do so. In fact, I am so unconvinced by his argument that I shall seek the opinion of the House.
3.50 p.m.
On Question, Whether the said amendment (No. 2) shall be agreed to?
Their Lordships divided: Contents, 48; Not-Contents, 78.

Division No. 1

CONTENTS

Ailesbury, M.

Gainsborough, E.

Archer of Weston-Super-Mare, L.

Gilmour of Craigmillar, L.

Belstead, L.

Gray of Contin, L.

Biffen, L.

Halsbury, E.

Boardman, L.

HolmPatrick, L.

Bruntisfield, L.

Home, E.

Butterworth, L.

Hylton-Foster, B.

Cadman, L.

Kimball, L.

Cavendish of Fumess, L.

Kinloss, Ly.

Chesham, L.

Kitchener, E.

Clanwilliam, E.

Knollys, V.

Courtown, E. [Teller.]

Layton, L.

Cullen of Ashbourne, L.

Leigh, L.

Davidson, V.

Long, V.

Dean of Harptree, L.

Mackay of Ardbrecknish, L.

Ellenborough, L.

Mackay of Drumadoon, L.

972

Macleod of Borve, B.

Palmer, L.

Milverton, L.

Rankeillour, L.

Monro of Langholm, L.

Stewartby, L.

Naseby, L.

Strathclyde, L. [Teller]

Newall, L.

Strathcona and Mount Royal, L

Noel-Buxton, L.

Swinfen, L.

Northesk, E.

Teviot, L.

Oppenheim-Barnes, B.

Weatherill, L.

NOT-CONTENTS

Acton, L.

Jenkins of Putney, L.

Annan, L.

Kilbracken, L.

Archer of Sandwell, L.

Lockwood, B.

Barnett, L.

Lofthouse of Pontefract, L.

Bassam of Brighton, L.

McIntosh of Haringey, L. [Teller.]

Berkeley, L.

Blackstone, B.

Marsh, L.

Blease, L.

Mason of Barnsley, L.

Brooks of Tremorfa, L.

Merlyn-Rees, L.

Bruce of Donington, L.

Merrivale, L.

Burlison, L.

Milner of Leeds, L.

Carmichael of Kelvingrove, L.

Monkswell, L.

Carter, L. [Teller.]

Murray of Epping Forest, L.

Cledwyn of Penrhos, L.

Nicol, B.

Clinton-Davis, L.

Northbourne, L.

David, B.

Orme, L.

Davies of Coity, L.

Paul, L.

Dean of Thornton-le-Fylde, B.

Pitkeathley, B.

Dixon, L.

Plant of Highfield, L.

Donoughue, L.

Prys-Davies, L.

Dormand of Easington, L.

Puttnam,L.

Evans of Parkside, L.

Ramsay of Cartvale, B.

Farrington of Ribbleton, B.

Randall of St. Budeaux, L.

Gallacher, L.

Rea, L.

Gladwin of Clee, L.

Rendell of Babergh, B.

Glenamara, L.

Richard, L. [Lord Privy Seal]

Gould of Potternewton, B.

St. John of Bletso, L.

Graham of Edmonton, L.

Shepherd, L.

Greene of Harrow Weald, L.

Simon, V.

Gregson, L.

Stallard, L.

Hardy of Wath, L.

Stoddart of Swindon, L.

Haskel, L.

Stone of Blackheath, L.

Hogg of Cumbernauld, L.

Strabolgi, L.

Howie of Troon, L.

Symons of Vernham Dean, B.

Hoyle, L.

Taylor of Blackburn, L.

Hunt of Kings Heath, L.

Thomas of Macclesfield, L.

Hylton-Foster, B.

Turner of Camden, B.

Irvine of Lairg, L. [Lord Chancellor.]

Wedderburn of Charlton, L.

Whitty, L.

Janner of Braunstone, L.

Williams of Elvel, L.

Resolved in the negative, and amendment disagreed to accordingly.
Clause 4 [Annual report by the Bank]:
3.57 p.m.
Lord Barnett Lord Barnett moved Amendment No. 3:
Page 3, line 5, at end insert—
("() The report mentioned in subsection (2)(a) shall, in particular, include a review of the Bank's performance in relation to its objectives and strategy, as determined by the court of directors of the Bank, in the financial year to which the report under this section relates.").
The noble Lord said: My Lords, I shall move Amendment No. 3 on behalf of my noble friend Lord Peston and myself, my noble friend having been delayed for a short while. I am hoping that the amendment will not take long because it is sensible, intelligent and so obvious that the Government are bound to accept it.
Amendment No. 3 seeks to add the words,
"The report mentioned in subsection (2)(a) shall, in particular, include a review of the Bank's performance in relation to its objectives and strategy, as determined by the court of directors of the Bank, in the financial year to which the report under this section relates".
As I indicated, it is clearly a sensible amendment and the other two amendments grouped with it are consequential. For example, Amendment No. 5 seeks to insert the words,
"a statement of the Bank's objectives and strategy, as determined by the court of directors of the Bank, for the financial year in which the report is made".
In other words, that should be included in the report. I know that my noble friend will recognise how sensible the amendments are and I therefore need not take up any more of the time of the House. I beg to move.
Lord Mackay of Ardbrecknish: My Lords, I am intrigued at the confidence of the noble Lord, Lord Barnett. I noted his words, that his noble friend was "bound" to accept the amendment. I am not sure from where he gets his confidence. Unfortunately, his noble friend Lord Peston is not present; he will not be here for some time and the debate cannot go on long enough to await his arrival.
The noble Lords, Lord Peston, and Lord Barnett, made some important points in Committee in relation to the objectives and strategy of the Bank and what they were in relation to the court of directors. Later on we shall come to the objectives and strategy of the Monetary Policy Committee, which will not at all be related to what the court of directors does. The one thing we clearly obtained from the Minister in Committee was that the Monetary Policy Committee was totally independent and would not take instructions from the court of directors or anyone else. Perhaps I shall have a question mark on the "or anyone else" later in the proceedings, but at the moment I shall take it at its face value. Therefore, we wondered in Committee what the objectives and strategy of the court could be if it was not to be at all involved in the objectives and strategy of the monetary policy committee.
We had an interesting discussion in Committee and I hope the Minister will accept that he is, to quote his noble friend, bound to accept these amendments. If he is, he could perhaps explain them to us; and if he is not, perhaps he can say a few words about the objectives and strategy of the court.
Lord McIntosh of Haringey: My Lords, my noble friend Lord Barnett is half right. Certainly, the speeches that were made in Committee in support of similar amendments were sensible and intelligent. I did have some problems with the wording of the amendment and I am glad to see that the problems I had are now resolved in the wording that is before us.
The particular difficulty I had was that it was not clear whether my noble friends, in moving the amendments, wanted a review of the Bank's performance in the year to which the report related—that is, the previous year—or the current and future year—the year in which the report is made. Amendment No. 3 now provides that
974
there should be a report for the previous year and Amendment No. 5 complements it by saying that there should also be a statement of the Bank's objectives and strategy for the financial year in which the report is made.
In answer to the noble Lord, Lord Mackay of Ardbrecknish, it is of course for the court to decide what the content of its statement of objectives and strategy should be, but I should say to him that it goes very much beyond the monetary policy aspects which are the responsibility of the Monetary Policy Committee. As I made clear in Committee, the Bank has very many other responsibilities which are properly the subject of the report referred to in the amendments and the court of directors is also responsible for the management of the Bank.
The amendments, as they are now re-presented to the House, seem to us to be a useful clarification of the reporting responsibilities of the court and its sub-committee, and the Government are happy to accept them.
Lord Barnett: My Lords, I am most grateful to my noble friend. I always knew that he was a very sensible fellow, but he is particularly so now. I beg to move.
On Question, amendment agreed to.
Lord Barnett Lord Barnett moved Amendment No. 4:
Page 3, line 7, leave out ("period") and insert ("financial year").
On Question, amendment agreed to.
Lord Barnett Lord Barnett moved Amendment No. 5:
Page 3, line 8, at end insert (", and
("(b) a statement of the Bank's objectives and strategy, as determined by the court of directors of the Bank, for the financial year in which the report is made.").
On Question, amendment agreed to.
Clause 6 [Cash ratio deposits]:
The Earl of Home The Earl of Home moved Amendment No. 6:
Page 3, line 25, after ("with") insert (", and the payment of fees in lieu of such deposits to,").
The noble Earl said: My Lords, in moving this amendment, I wish to speak also to Amendment No. 19. In Committee we discussed which institutions should produce cash ratio deposits for the Bank. This amendment specifically allows for the payment of fees in lieu of deposits for other categories of institutions for which the provision of cash ratio deposits is not appropriate. When I moved the amendment on fees and charges in Committee, the Minister gave us an interesting insight into the Government's thinking on CRDs, but he did not give any answer to the amendment. So, in effect, I am asking the same question today in a rather different form.
In Schedule 2 to the Bill the Government admit that they have no idea who might, at some stage in the future, be called upon to put up cash ratio deposits with the Bank. If they had a clue as to who these people might be, they would not have proposed paragraph 1(2) in that schedule. They have therefore given themselves carte blanche to require anyone they like to put up

975
CRDs with the Bank. Extending this argument further, they cannot therefore know whether requiring a group of institutions, as yet unknown, to put down CRDs is an even remotely appropriate way for the Bank to be repaid for whatever services it is supplying to this, as yet, still mythical group of institutions.
The Minister also said in Committee that they did consult but that it was difficult to publish the responses for confidentiality reasons. I accept that full responses may not be able to be published, but I would be surprised if any of the institutions which did respond would object to the Government publishing the number of institutions that approved the proposal and the number which came up with alternative proposals and what they were, albeit on an unattributable basis. I personally am aware that some institutions proposed "turnover" as an appropriate yardstick and some thought that it would be better to pay fees based on the number of transactions.
At no stage in Committee did the noble Lord tell us why fees based on turnover or the number of transactions were unacceptable to him. Institutions which do very little lending but have other businesses which benefit greatly from stability, which is one of the responsibilities of the Bank, will get away with paying very little, while others whose business is predominantly lending will bear an undue proportion of the burden. That is obviously inequitable, so I hope he will now tell us why these other methods have been rejected.
Further, the noble Lord said in Committee that careful consideration had,
"been given to alternative methods of funding, such as fees and charges".—[Official Report, 3/3/98; col. CWH 39.]
But what is he actually funding: the Bank's balance sheet or its profit and loss account? Fees contribute to the Bank's p and 1, and only ultimately to the balance sheet through reserves. So what the noble Lord is actually saying is that he believes that the Bank really needs the deposits. On that basis, I am beginning to wonder who is providing liquidity for whom.
The noble Lord, Lord Peston, said in Committee that he had always assumed that the Bank has an extraordinarily good deal in terms of cash ratio deposits. He is absolutely right. At the moment the Bank is receiving more than £2.5 billion in interest-free deposits. But it will now get an even better deal for doing less and the institutions providing CRDs will get an even worse deal.
When we talked about this previously the Minister set great store by the fact that banks and building societies benefit from the Bank's vital function as a provider of liquidity to the financial system. If this is such an important function of the Bank, meriting the Bank receiving, at a conservative estimate, some £180 million on an annualised basis as a result of CRDs, why is it not even mentioned in the memorandum of understanding? The MOU talks about stability, the infrastructure, an overview of the system, efficiency, effectiveness and even promoting the City of London. Sadly, no mention is made of Edinburgh. But it likewise makes no mention of the two functions for which it could be of some real worth to banks and building societies; namely, as a provider of liquidity and as a
976
lender of last resort. Nor are these functions deemed to be worthy of inclusion in the Bank's latest annual report under the heading of the Bank's core purposes.
If providing liquidity into the system is such an insignificant part of the Bank's rationale, not to be mentioned in these two places, one can only assume that the banks and building societies are being asked to fund other functions of the Bank of England. The Treasury justification that banks and building societies uniquely benefit from the Bank's provision of liquidity clearly ignores all the other responsibilities discharged by the Bank for which banks and building societies will be paying, but others not, under this proposal.
Limiting the categories of institutions required to fund the Bank in this way goes totally against trends in the financial services sector as well as the other government policy initiatives in this area. Barriers between different types of institutions are indeed breaking down as the Government know: for instance, banks offering insurance; insurance companies offering banking services; and supermarkets selling mortgages.
The integration of financial services companies was one of the reasons behind the establishment in the first place of the Financial Services Authority. It seems odd that in this era of integration the way the Government have chosen to fund the Bank of England goes totally against that.
The noble Lord tried to justify singling out these two types of institutions by saying that they typically borrow short and lend long. If the Minister had looked at the actual experience of these institutions he would have seen, as regards building societies, that while the majority of their liabilities, for instance, are repayable at short or even no notice, in practice these funds have proved over the long term to be extremely stable. These liabilities are backed, by and large, by mortgage assets bearing extremely flexible interest rates. For banks and building societies in particular, withdrawals of deposits can usually be countered by increases in interest rates rather than by the use of liquidity.
The noble Lord also said that CRDs are used very commonly in other countries as a way of approximating the benefit of liquidity. That is the weakest excuse I have heard for a long time for justifying any course of action. By all means look at what others have done, but are the Government really not prepared to look at other ideas? What is good for others is by no means necessarily good for us. I know that other ideas have been put forward.
In this amendment we have tried to help the noble Lord by specifying some of the categories of institutions most likely to benefit from the revised role of the Bank. The noble Lord will no doubt have seen that we have actually tried to help him because we have left in his catch-all subsection. A mix between cash-ratio deposits and fees payable by other institutions is a much fairer way of paying for the Bank's role in the future. I beg to move.
4.15 p.m.
Lord McIntosh of Haringey: My Lords, the noble Earl rightly reminded us of the debate we had in Committee and I am grateful to him for raising the matter again. But I am afraid that my answer will be very similar to that made in Committee because, despite the changes in his approach and in the speech he has just made, the fundamental objections still apply. As the noble Earl recognised, the Bank of England has been funded for a very long time by a system of voluntary cash-ratio deposits. This Bill replaces the voluntary scheme with a statutory basis which makes the income secure.
If we adopt a prudent, step-by-step approach and complement that by consultation, as we have done, the most obvious first step is to say, "The system of voluntary cash-ratio deposits has survived without serious criticism. If our objective is to make the income secure then the first step is to keep the cash-ratio deposits system and make it statutory." The amendment widens the population of institutions that fund the Bank to include all institutions authorised under the Financial Services Act 1986.
The noble Earl says that the Bill makes it possible for us to extend the institutions obliged to pay under the cash-ratio deposits system. In Schedule 2, paragraph 1, we specify that the,
"eligible institutions for the purposes of this Schedule [are]
"(a) an institution authorised under the Banking Act 1987"
and
"(b) a European authorised institution".
It is true that sub-paragraph (2) says:
"The Treasury may by order amend sub-paragraph (1) as they think fit"
but in order to do so it would have to consult and have the approval of Parliament. I remind the House that the Committee on Delegated Powers and Deregulation was satisfied with the order-making procedures proposed here.
So in practice there is a restriction on the Government widening the population of institutions who fund the Bank. The current voluntary scheme applies only to banks authorised in the UK. The proposed statutory scheme also applies to building societies. The noble Earl made a point about the difference between building societies and banks. The point we are making is that both typically borrow short and lend long. Their balance sheets contain loans and other assets of long maturity and deposit liabilities, many of which can be recalled at short or no notice.
The noble Earl reminds us that building societies—and although he did not say so, some banks—are backed by mortgage assets. But the important point is the potential need for access to liquidity. That is measured by the potential maturity proposed in the CRD scheme in the consultation document.
Other financial institutions brought under the fee system proposed by the amendment include security firms and insurance companies who typically match the maturity of their assets and liabilities much more closely. As I made clear in Committee, the Government believe
978
that it is appropriate for deposit-taking institutions to place CRDs to provide income for the Bank because they clearly benefit from the Bank's function as a provider of liquidity to the financial system.
Only a few banks actually have accounts with the Bank of England to settle obligations with each other but the other deposit-taking institutions manage their liquidity through deposits and credit facilities with the settlement banks, which in turn ultimately depend on their access to liquidity from the central bank. In effect this insures deposit-taking institutions against the risk they run from having liabilities at call but assets which are less liquid. So there is a dividing line between deposit-taking institutions which depend on access to central bank liquidity and the other institutions, referred to in the amendment, which do not.
I wonder whether there is some confusion between the more narrow issue of the funding of the Bank, with which this part of the Bill and the amendment are concerned, and the regulatory and supervisory aspects. The FSA is the institution which will have responsibility for ensuring that individual institutions operate prudently. It is already a requirement under existing legislation that banks and building societies conduct their business in a prudent manner. We do not want to use the cash-ratio deposit scheme, which is a funding scheme, to try to do the FSA's job for it.
On reflection, I wonder whether it is that confusion which to some extent lies behind this amendment. In the interests of prudence in the drafting of the Bill and keeping to the least possible change as we introduce a statutory scheme rather than a voluntary one, I hope the House will agree that what we have proposed is the most sensible solution and that the noble Earl will not press his amendment.
The Earl of Home: My Lords, what the noble Lord has said about it being on a voluntary basis is certainly true. I shall reserve judgment to see what the level of those deposits turns out to be because if they continue to be required at anything like their present level, producing some £2.6 billion in deposits and £180 million for the Bank's profit and loss account, that is way beyond what the costs to the Bank might be of providing the particular liquidity to which the Minister referred.
Lord McIntosh of Haringey: My Lords, I am grateful to the noble Earl for giving way. I neglected to say something to him. In his opening speech he made a perfectly legitimate point about the amount of money required to fund the Bank. I gave assurances in Committee that the amount would be closely scrutinised and kept to a minimum. I assure him that in so far as money has been raised to fund the Bank's supervisory functions, which are now being transferred, that will no longer be subject to cash ratio deposits. I am sorry that I did not repeat those assurances earlier this afternoon.
The Earl of Home: My Lords, I thank the noble Lord for that. It will be at least some comfort to the institutions involved. However, I am still concerned about the enormous importance which the noble Lord gives to liquidity. No bank runs itself assuming that if times get

979
difficult the Bank of England will provide liquidity for it at any particular moment. No sensible bank can rely on the Bank of England to do that. The Bank of England has no legal or, indeed, moral obligation to put money into any bank or group of banks which happen to need it at a particular moment. Any bank running its business sensibly will have its own stand-by alliance with other banks. As the Treasury knows all too well, the internationalisation of money means that it can now come from an enormous number of different places. I really do not believe that nowadays any bank in the City of London or elsewhere runs its business on the assumption that the Bank of England will pump money into the system. All banks have their own prudential limits. We all have our own methods of calculating our own liquidity.
I accept what the noble Lord said about matching maturities. The fact is that unless the figures drop dramatically, the banks and the building societies will be funding an awful lot more than what the Bill states that they should fund. They are paying for all kinds of other functions of the Bank from which they do not benefit any more than anybody else. When the noble Lord rethinks this, I hope that he will recognise that the amounts of money which the banks and the building societies are being asked to put up is totally disproportionate to the cost of the benefit that they might get from liquidity. In the hope that the noble Lord will look at this again, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 11 [Objectives]:
Lord Barnett Lord Barnett moved Amendment No. 7:
Page 5, line 14, leave out from ("stability") to ("the") in line 15 and insert ("as a precondition of supporting").
The noble Lord said: My Lords, this amendment stands in the names of my noble friend Lord Peston and myself. I apologise once again on behalf of my noble friend because I had hoped that he might be here for this amendment, which deals with one of the most important parts of the Bill, Part II on monetary policy. Our amendment seeks to deal with the whole question of whether price stability should be pursued at the expense of the Government's own economic policy. That is what the Bill says as it now stands. It states that price stability should be the No. 1 priority and that the Government's economic policy will come second if and when they achieve price stability. I make it clear that I am strongly in favour of achieving price stability.
I hope that the noble Lord, Lord Mackay of Ardbrecknish, will not mind my saying that his amendments, Amendments Nos. 8 and 9, which are grouped with this amendment, seem somewhat contradictory. I hope that the noble Lord will pardon my saying that. He knows that I generally have enormous regard for him. Amendment No. 8 seeks to delete the words "subject to that" but then seems to say that those words should stand because Amendment No. 9 states,
"but only insofar as it can do so without prejudice to paragraph (a)".
To put it mildly, to say that Amendment No. 9 contradicts Amendment No. 8 is my customarily respectful way of saying that in his two amendments the noble Lord, Lord Mackay, is talking somewhat nonsensically. I am being polite to the noble Lord—as he knows, I always am.
As I have said, this is an extremely important matter because we return to the question of how price stability should fit together with the Government's own economic policy. I hope that my noble friend the Minister will not mind me saying that we have heard some contradictory remarks from him both at Second Reading and in Committee. I refer first to Second Reading, when he said:
"Price stability—low inflation—is an essential precondition of achieving the Government's objectives of high and sustainable levels of economic growth and employment".—[Official Report, 13/2/98; col. 1383.]
My noble friend and I have accepted what the Minister meant by that and we have sought to include those words in the Bill. As it now stands, the clause does not refer to preconditions. It states that price stability comes first and that only when that has been achieved does the Government's economic policy have to be considered. That does not make any sense to us. We believe that price stability and the Government's economic policy should come together. The Bill, therefore, does not say what the Government are minded for it to say. In Committee, my noble friend the Minister quoted what he said at Second Reading:
"I quoted Alan Greenspan in his Humphrey-Hawkins testimony last year. That sets out the position very clearly. He said"—
My noble friend was quoting Alan Greenspan, so I am quoting my noble friend quoting Alan Greenspan. I am sure that it is clear—
"'Our objective has never been to contain inflation as an end in itself, but rather as a precondition for the highest possible long-run growth of output and income—the ultimate goal of macroeconomic policy'".—[Official Report, 3/3/98; col. CWH58.]
Fine, I agree entirely. I would not be so rude as to say that I disagree with Alan Greenspan because he is much more intelligent on these matters than I would dare to suggest for myself or even for my noble friend Lord Peston who is, as we all know, a very bright and intelligent economist. However, I am not sure whether even my noble friend would compare himself with Alan Greenspan who has been doing a practical job, if that is not too insulting of economists generally, in the Federal Reserve Bank.
Therefore, if Alan Greenspan is right and if my noble friend the Minister was right to quote him, he should accept our amendment. It is quite straightforward. There is nothing difficult about it. It is very simple. We are saying that price stability should not be "and … subject to that", but we are not saying that price stability should override the Government's economic policy. I am sure that my noble friend, being the sensible man that he is—as I stated on a previous amendment which he was kind enough to accept—recognises that what I and my noble friend propose this time is equally sensible. On 3rd March my noble friend said:
"Price stability and high employment go hand in hand. Achieving price stability will help to achieve high employment, and achieving high employment will help to achieve price stability".
I agree with him entirely. He went on to say:
"If I may anticipate my noble friend's question, I am sure he will then ask me, as he did, quite reasonably, why we do not give them equal status".

981
That is precisely what I seek to do today. I thought that I was right then and I believe that I am right today. My noble friend went on to say:
"Why do we not say 'price stability and the Government's economic objectives'? I think we do so, and I am surprised to be able to call in aid the noble Lord, Lord Stewartby".
He was surprised but nevertheless called him in aid. He added:
"If we are to give targets to the Bank of England, we have to give it targets which are explicit and which do not involve internal contradictions, otherwise they will simply be warm words. Somebody used the term 'weasel words".—[Official Report, 3/3/98; col. CWH 58.]
I hope my noble friend agrees that I do not often use weasel words and that I have not done so on these amendments. I have used the Government's own words, or at least my noble friend's words. I am sure that my noble friend would never use weasel words. I believe that what is proposed in Amendment No. 7 makes good sense and that therefore my noble friend will feel able to accept it.
Amendment No. 10 is also grouped with Amendment No. 7. I do not know whether I am supposed to speak also to that. I see my noble friend nodding. The amendment is quite simple. It deals with the regions. In Committee noble Lords debated membership of the monetary committee which should include someone from the regions, but that is another matter with which this amendment does not deal. The amendment deals with the Bank's objectives which should take account of regional policy and the problems in the regions. This is a big issue. I and other noble Lords who are members of the Select Committee upstairs have been to Europe to examine the European central bank. We are aware that the European central bank will have to take account of even bigger regions. However, the Bank of England (as I understand it will still be called) must take account of the Government's economic policies, but that will be a secondary objective to price stability under Amendment No. 7. If the Government accepted Amendment No. 10 they would simply be doing what the Bank would sensibly do anyway, knowing the members of the monetary committee; namely, they would take account of the problems of the regions.
The Minister has made clear that the objectives of the Bank shall be explicit and not involve internal contradictions. That is quite right. To add that the Bank should take account of the problems of the regions does not involve an internal contradiction; nor is it other than explicit. Knowing its own good sense it will do that anyway. One is not using weasel words but explicit words. I am quite confident in this matter. I am not so confident now that I see my noble friend smiling. However, I hope that, if he recognises these as sensible amendments, he will accept them. I beg to move.
4.30 p.m.
The Deputy Speaker (Baroness Lockwood): My Lords, I must point out that if this amendment is agreed to I cannot call Amendment No. 8.
Lord Mackay of Ardbrecknish: My Lords, as the noble Lord, Lord Barnett, has kindly pointed out,
982
Amendments Nos. 8 and 9, which form part of this grouping, are my amendments. The noble Lord, Lord Barnett, is correct that Amendment No. 10 is separate from the other three and I shall deal with that at the end of my contribution. Clause 11 is central to the Bill. The clause gives the Bank of England operational independence over monetary policy and spells out how it should carry that out. In Committee and in the other place there was considerable discussion about the relationship between the maintenance of price stability and, subject to that, support of the economic policy of Her Majesty's Government, including their objectives for growth and employment. Neither in the other place nor in Committee here were participants in the debate entirely satisfied with what the Government said. The noble Lord, Lord Barnett, put the case well. Is price stability the principal objective? Are the objectives in paragraph (b) secondary objectives? As I understand the amendment moved by the noble Lord, Lord Barnett, it seeks to give those objectives the same status. I shall come to that matter in a moment. I do not believe that my amendment does so.
In the other place there was an interesting Second Reading exchange to which I drew the attention of the Committee. To be precise, I must quote some of the interventions by Mr. Dafydd Wigley because the key points that I wish to make are those of the Chief Secretary to the Treasury, Mr. Alistair Darling. The exchange was concerned solely with Clause 11. Mr. Wigley asked the Chief Secretary:
"The Bill gives overriding priority to maintaining price stability. Growth and employment are subject to that".
Lord McIntosh of Haringey: Or words to that effect.
Lord Mackay of Ardbrecknish: I shall quote the Minister. Mr. Wigley's point was that the Government should not make employment secondary to the control of inflation. Mr. Darling gave the following answer:
"The right hon. Gentleman is mistaken. Clause 11 shows that the Government's objectives are high levels of growth and employment".
Mr. Wigley intervened again to say that the Bill said "subject to that". Mr. Darling replied:
"The right hon. Gentleman is reading it the wrong way round. The Bank's objective is to maintain price stability, but that is in support of the Government's objectives of growth and employment".—[Official Report, Commons, 11/11/97; col. 712.]
I am still puzzled, despite what the noble Lord, Lord McIntosh of Haringey, told me in Committee, because if I read it correctly "price stability subject to that" means that the primary objective is price stability. Once I have made sure that that is all right I can look at the other matters referred to under paragraph (b), growth and employment and other matters not specified.
In Committee the Minister tried, at col. CWH 57, to clarify the situation:
"As the Bill says, the monetary policy objective of the Government is to maintain price stability and, subject to that, to support the Government's objectives for growth in employment. But in turn high levels of growth in employment will also create the conditions for price stability on a sustainable basis".

983
That may or may not be correct. If it is correct the wording in the Bill does not reflect it. The present wording of the Bill clearly states that the relationship between price stability and growth and employment is such that price stability is on top and growth and employment are to be considered after that has been assured.
I understand that in the world of economists there is considerable argument about the relationship between price stability and employment. I do not believe that I can do much better than quote the evidence given by the noble Lord, Lord Eatwell, to the Treasury Select Committee of another place. He said:
"One group of theorists believes that there is no particular medium-term relationship between the level of unemployment and the rate of inflation. Another group believes that the key relationship runs from the level of unemployment to the rate of inflation, and from this group monetary policy is a means of controlling the level of output and so controlling the level of inflation".
Clearly there is disagreement among economists on how those factors relate to one another.
The noble Lord, Lord Barnett, has tried to rephrase the clause so that the point made by the Financial Secretary is clearer. I have tried to rephrase the clause so that the clause itself and the meaning of the words "subject to that" are clearer. In answering my points in Committee, the Minister referred me to the Bundesbank. I read afterwards with interest what I had heard from him:
"The Bundesbank is required to regulate the quantity of money in circulation and of credit supplied to the economy, with the aim of safeguarding the currency".
The Minister pointed out that that was comparable to price stability. It was also required by law to support the general economic policy of the federal government, but only insofar as it can do so without prejudice to the performance of its own function of safeguarding the currency.
That is where I got my wording. The words are not exactly the same, because they are different in the Bundesbank Act from those in the Bill. So that instead of "subject to that", I have rephrased the provision to maintain price stability and:
"to support the economic policy of Her Majesty's Government, including its objectives for growth and employment but only insofar as it can do so without prejudice to paragraph (a)."
That is pretty close to the Bundesbank Act which the Minister quoted with approval. It also makes it clear that it is price stability that is the primary concern of the MPC. Does the noble Lord, Lord Bruce of Donington, wish to intervene, as I have mentioned Europe? Perhaps he does.
The Minister went on in Committee and said:
"If we started to bring in all sorts of other targets—a later amendment is a target on exchange rates—this would be a target on growth and employment. The members of the Monetary Policy Committee would scratch their heads and say, 'We have a choice. We can either protect one or the other. Which should we do? The Government have not told us which we should do'."—[Official Report, 3/3/98; CWH58.]
As I understand it, the noble Lord, Lord Barnett, will probably say to them, "You must look at them all. You must not make one of them your primary concern". On the other hand, I have made it clear to them in my
984
amendment that it is price stability with which they are concerned. That is their principle concern. I am therefore clarifying the position.
I read Clause 11 as doing that also, but as there is clearly doubt, even in the mind of the Financial Secretary to the Treasury, I felt, in a helpful way, that I should come to the Government's aid in writing down in the Bill what the Financial Secretary said he wished to achieve.
If we are uncertain over these matters, we should not be too worried about it, because I noticed in the MPC meeting on 4th and 5th February an interesting quote at paragraph 28 which said that uncertainty was a normal state of affairs in economic policy making, so it obviously agrees with the uncertainty caused in this debate. The noble Lord, Lord Barnett, and I, from different points of view, wish to make Clause 11 clearer than it is. The noble Lord is saying that the MPC must look at those other issues, because he is one of the theorists who believe that they are tied closely together. I suggest, as per the Bundesbank, that the MPC should look principally at price stability.
I have a great deal of sympathy with Amendment No. 10. I shall talk, perhaps at length, on this general area later. My only point is the one that I made in the first debate, relating to national and regional aspects. Is Scotland among the national aspects, or are Scotland and Wales among the regional aspects? Having brought us devolution, the Government will have to sort out their terminology. The draftsmen will have to sort out their terminology. I am content with Amendment No. 10. If the Minister accepts that, I shall cheer because it will go some way towards addressing the problems which the noble Lords, Lord Montague, Lord Barnett, Lord Peston and I aired in Committee. I fear that the Government will not accept it. I do so on the rule of thumb that when the amendments moved by the noble Lord, Lord Barnett, were accepted a few minutes ago, his speech was brief. As he spoke for longer on this occasion, I suspect that the Government are not going to accept them.
4.45 p.m.
Lord Bruce of Donington: My Lords, I am most grateful to my noble friend Lord Barnett for having introduced the amendment and for the interesting participation of the noble Lord, Lord Mackay of Ardbrecknish. In general, after listening to the debate, I am more than ever convinced of the undesirability of endeavouring to incorporate what must be the generalities of economic argument into an Act of Parliament, because, of course, Acts of Parliament cannot possibly encapsulate economic theories which are the subject of considerable debate. They are not always even in nature among economists themselves.
I look, for example, at the term "price stability". What does it mean? I do not see anything that might have been incorporated as a definition of the words used. What do they mean? What do the Government mean, and what do the Opposition mean, by "price stability"?
I have been studying these matters for some time. I have always been given to understand that in a competitive society stability is not what one requires. In

985
fact, price competition among firms and nations, possibly even among banks, is just trying to freeze something that cannot be frozen without abolishing the nature of competitive society. Competitive society thrives, not on stability but on instability. To endeavour to put that into an Act of Parliament seems to me to be highly dangerous.
I was first given the opportunity to express those views in the debate on the Maastricht Treaty. I still think that it was extreme folly to put an economic formula or a series of formulae into a treaty, because they would be bound, sooner or later, to be falsified by events. I have the utmost sympathy with the Chancellor of the Exchequer and my noble friend Lord Barnett, who are trying to freeze these things into a frame and lay them down as a policy for eternity. I can sympathise deeply with that, but human nature is somewhat more fragile. Even the commercial and banking sectors of world and national economies have been known to be a little fragile also, and not least the banking professions themselves.
Therefore, I wonder how the Governor of the Bank, to whom has now been entrusted the fixing of interest rates—I observe that they have gone up six times since he has been appointed and the Chancellor of the Exchequer has been relieved of the responsibility—will interpret "price stability". I fear, and I hope that I am not being unduly prophetic, that the whole thing will fall to pieces very quickly if the definitions of "price stability" and "growth and employment" are to be kept within their ordinary meaning. Apart from that, I have nothing more to say on the matter.
Lord Howell of Guildford: My Lords, I hesitate to intervene in the debate as I did not have the privilege of taking part in the Committee. However, I am moved by the shrewd and perceptive scepticism of the noble Lord, Lord Bruce of Donington, to remark on the amendments. I have great sympathy with the thoughts behind the amendment tabled by the noble Lord, Lord Barnett. Indeed, I have great sympathy with many of his views on subjects in economic and other fields. However, from outside the Committee, I must offer the view that there is a fatal flaw in the intention.
I understand that the noble Lord, Lord Barnett, is trying to introduce an element of balance into an utterly unscientific area where many economists claim all kinds of precision which does not exist. The noble Lord seeks to avoid the kind of zealotry and pursuit of one particular branch of objective policy which in the end turns to dust and proves to the outside world what it knew already—that economists do not understand much about the relationship between the economy and the real world.
The flaw is that government objectives are never clear. I am not making a party point—I refer to any government. Their objectives are never clear and, what is more, they change rapidly, even from day to day and certainly from week to week and month to month. In this case, one is asking for a link with something that is broadly identifiable; price stability. However, as was said by the noble Lord, Lord Bruce, nowadays even that
986
is an amorphous subject. In America, the CPI is revised frequently in radical ways and no one knows precisely what prices are doing. One is seeking to link a vaguely identifiable objective with something which is much more amorphous and ephemeral; that is, the set of government objectives.
If your Lordships think I am speaking in too many generalities, let us take today, this moment, now, when there is total confusion about whether the British economy is growing or shrinking. No one knows which sectors, in so far as one can divide the modern economy into sectors, are performing in which ways. It is believed that there is something called the "service sector", which is growing rapidly and may be promoting a degree of inflation. It is believed that there is something called the "manufacturing sector", which is alleged to be shrinking in the face of the high pound. But as no one understands how nowadays one can dissect and disaggregate services from manufacturing, or what a service is, or what a manufacturer is—they are sectors and concepts which belong to a past age and not to the age of the information intensive economy—it is hard to conclude from such general observations what is happening.
No doubt the distinguished members of the monetary policy committee are in the same dilemma as the rest of us. Indeed, it appears that recently they were at sixes and sevens about which way to go. Some say, "We must look at what we believe to be the monetary conditions. They lead us to the view that the monetary situation is loose. Heaven knows, if it is the Government's objective—and we have no idea whether it is or not—one day to put us into the EMU the pound will drop like a stone and inflation will go through the roof. We have been taught by the Bundesbank to think two years ahead in setting monetary targets and in thinking about short-term interest rates and therefore we must put interest rates up". That is one line of thought.
The other group apparently say, "Wait a minute, we don't know that the pound is going to fall. All we see is increasing difficulties in the manufacturing sector, increasing pressures on the economy and definite signs that overheating has finished and that the economy should be going into a downturn. We will look very silly, won't we, if we are found to be putting up short-term interest rates when we should be putting them down." Presumably, that is the kind of debate that has occurred among the price stability gurus who comprise the monetary policy committee.
If they were asked to link such considerations to the Government's policy they would be not less confused but even more confused because they would not have the slightest idea what the Government's policies are at this moment either in relation to growth or employment. In the longer term, it is like motherhood and apple pie. We are all in favour of people being employed, although even the concept of employment is dissolving because we do not know what the nature of work is in a modern society. In many societies, including this one, many people in future will not be in the old-fashioned sense employed. Therefore, it may not be that the objective of policy should be employment; it should be gainful,

987
dignified work and status and usefulness. Many people are writing books saying that the whole idea of employment belongs to an industrial age that has passed.
To return from that diversion, even if we knew what employment was, and even if we knew how to define growth,—indeed, only in the past fortnight the Office for National Statistics has issued elaborate new details of how to measure GNP and GDP because it is beginning to believe that the old-fashioned measures do not reflect what is happening in the economy—to ask the monetary authority, the independent Bank of England experts, to link their struggle with the vagaries of monetary policy to the even more amorphous and uncertain tasks of trying to define government policy and objectives in relation to growth, which we are not sure about, and employment, which turns out to be an outdated concept, is asking a hell of a lot. In fact, it is asking them to do something which turns a very difficult task, and one which is currently dividing them and leaving them uncertain, into an impossible task.
I hate to part from the noble Lord, Lord Barnett, on these matters, so great is his wisdom and experience but, with great reluctance, I am driven to the view that what is in the Bill is about as good as one can get. It does not mean much in modern conditions. The monetary policy people are in a great state of confusion. That would be added to if they were asked to take more account of these ever-changing and vague concepts of government national economic objectives in a world where national economic objectives as opposed to the broader macro-objectives of the global economy, which is something different, are becoming much more difficult to define. We would be setting our monetary experts an even more difficult task. Therefore, in this case I support the Government against the amendment of the noble Lord, Lord Barnett.
As regards the amendment in the name of my noble friend Lord Mackay, I see what he is trying to do. I understand that in an uncertain and fog-filled world he is trying to distinguish more clearly price stability and to give the independent monetary authority some chance of sticking to that without becoming too diverted by all the other economic policy debates which over the years have excited us and filled us with passion, but in respect of which, thanks to the ill advice of the economic profession, now at its low point in terms of incompetence and failure to interpret the modern world, we have been misled. Only recently has this country begun to escape from the clutches of the national macro-economic policymakers with commendable results which are at last putting us ahead in the world rather than being a passenger and a humiliating laggard.
Lord Newby: My Lords, we are in danger of talking ourselves into a state of complete depression on this subject. The members of the monetary policy committee are portrayed as mariners on a boat in a thick fog with no charts. While nobody in debates off or on the Floor have argued that these matters are easy, I suspect that while they are difficult and complex people dealing with monetary policy and so forth are capable of getting to grips with them.
988
I am not sure that I support the thrust of Amendment No. 9; I am even less sure that the wording strengthens the clarity of the Bill. One can argue either that the amendment is stronger than the existing wording of the Bill or vice versa. I believe that the form of words in the amendment does little to advance the cause of the noble Lord, Lord Mackay.
I welcome the amendment of the noble Lords, Lord Peston and Lord Barnett, for its attempt to tilt the balance in terms of consideration of monetary policy towards growth and employment, I wonder whether the word "precondition" has such a different meaning from the concept of "subject to". It seems to me as a layman in these matters that the difference is extremely slight. The clarity which has been sought does not flow from the wording. However, as I agree with the sentiment behind Amendment No. 7, I hope that the Government will be sympathetic towards it. To the extent that it differs from what is in the Bill, it differs in a direction which I support.
I support also Amendment No. 10 in terms of strengthening the degree to which the Monetary Policy Committee is required to look at the national and regional aspects of the consequences of what it does. That thought arose in Committee and on other amendments to the Bill and I hope that the Government will feel able to accept that amendment.
5 p.m.
Lord Davies of Coity: My Lords, I rise primarily to ask the noble Lord, Lord Mackay, for some clarification regarding Amendments Nos. 8 and 9 and the way in which he presented them from the Dispatch Box.
However, before dealing with that I should say that I believe that there will be tremendous problems in evaluating growth, unemployment and questions of price stability. But in establishing an economic policy, that has to be carried out and it seems that the Bill is doing precisely that.
However, I understood from the noble Lord, Lord Mackay, that he wants to remove from line 15 "subject to that". When he moved his amendment, I understood him to say that he wanted to add the words,
"but only insofar as it can do so without prejudice to paragraph (a)".
The written word refers also to the removal of,
"including its objectives for growth and employment".
I did not understand the noble Lord, Lord Mackay, to say precisely that. I am sure that he wants that to be removed. If that is the case and he has inserted into the Bill
"but only insofar as it can do so without prejudice to paragraph (a)",
and he is supporting the economic policy of Her Majesty's Government, what value is there in removing the words, "including its objectives for growth and employment"?
Lord Mackay of Ardbrecknish: My Lords, I agree that I did not address that. In Committee we discussed other matters such as exchange rates and, by removing "growth and employment", just referring to the economic policy of the Government. I include all

989
aspects of the Government's economic policy and not just those listed here. I rather hope that the noble Lord might support that as an idea.
Lord Boardman: My Lords, this debate shows the fallacy in the Government's thinking in separating monetary policy from general economic policy and handing over monetary policy to the Bank of England, leaving the Bank of England to operate quite independently and without any safeguards except those in the Bill to which we shall come in due course. We are leaving the Monetary Policy Committee to make its own assessment of monetary policy without regard to any detailed knowledge of the economy. Indeed, before this was thought about last year, the Chancellor did that in his assessments of economic and monetary policy by weighing one matter against the other. That was standard practice. He is now handing over the monetary policy to the independent monetary committee and saying, "It has nothing to do with me. I will get on with the economic policy".
That has led to this confusion which we have here where it is "subject to" certain economic factors. Indeed, according to my noble friend, in the other place the words "subject to" seem to have been omitted altogether from its thinking. It is quite impossible to deal with monetary policy divorced from economic policy. The two factors must be borne in mind together.
The amendment of the noble Lord, Lord Barnett, is perfectly sensible, but I prefer that of my noble friend Lord Mackay. However, they both have the same purpose in mind; that is, to separate economic policy from monetary policy, which is to have priority. If the Government's intention is that the Bank of England will manage monetary policy and the Chancellor of the Exchequer will manage economic policy, so be it, but let that be clear on the face of the Bill. That is what the amendments in the name of my noble friend Lord Mackay aim to achieve and I support the purpose of those amendments.
It is extremely unfortunate that that confusion has arisen. I am perhaps digressing slightly, but it will be far worse if there is a European central bank. I hate the thought of what would happen in those circumstances. However, that is a different subject which I shall not develop. I support the amendments of my noble friend Lord Mackay.
Lord Stewartby: My Lords, at the risk of being called in aid again by the noble Lord, Lord McIntosh, I must say that I do not believe that the Government's wording of Clause 11 is too bad. The task which the members of the Monetary Policy Committee will have to discharge is extremely difficult. The foggier the criteria that they must follow, the more difficult it will be for them to do it. You cannot follow two birds at the same time without the risk of missing both of them. After all, those chaps do not have two barrels; they have only one. They must be very closely focused on the target which they are trying to hit.
I should have preferred this clause to stop at the end of Clause 11(a)—"to maintain price stability", because any respectable monetary economists who are likely to
990
be appointed to the committee are bound to take into account the surrounding economic circumstances. It goes without saying that they would do that.
To the extent that the Government have felt, perhaps with a bow in the direction of some of their supporters, that they should include a direct reference to the economic policy of Her Majesty's Government and growth and employment, then I would find it least difficult to accept the wording which the Government have chosen; namely, that that should be subject to the principal objective of maintaining price stability. I would prefer the version of my noble friend Lord Mackay, because it is rather more explicit. In setting a task for the Monetary Policy Committee, the Government need to be as explicit as possible. Its members have a very difficult task. As my noble friend Lord Howell said, there are widely divergent views about the nature of economic growth and performance at present with one sector apparently advancing very strongly and the manufacturing sector finding extreme difficulty as a result of the strength of sterling.
The problem that arises if one introduces any reference to supporting economic policy is that the relationship between price stability and economic policy in the short run is so difficult to establish. If the members of the Monetary Policy Committee are to have to look over their shoulders all the time at the precise implications of movements in interest rates, growth and employment and other aspects of economic policy, they may be side-tracked from their principal and overriding objective; namely, the maintenance of price stability. That is something which will be specified.
In answer to the noble Lord, Lord Bruce of Donington, I should say that the way in which price stability is to be understood by the Monetary Policy Committee will be by way of a missive from the Treasury by notice in writing. At this stage, even that is not established. But assuming that the Treasury, by notice in writing, will give sensible instructions to the Bank, then those instructions need to be as simple, straightforward and comprehensible as possible. The members of the committee will have regard to those wider issues but it is essential to have the clarifying phrase in Clause 11(b), either "subject to that" or, as I prefer, the wording of my noble friend Lord Mackay. However, it must be made quite clear that the committee has a primary objective of price stability and not a more vague, generalised economic objective.
Lord McIntosh of Haringey: My Lords, I have a problem; namely, whether to speak to the debate or the amendments. They are rather different. I believe that I owe it to your Lordships to do both. Therefore, perhaps I may start by speaking to the amendments. Clause 11 says:
"In relation to monetary policy, the objectives of the Bank of England shall be—

(a) to maintain price stability, and

(b) subject to that, to support the economic policy of Her Majesty's Government, including its objectives for growth and employment".

991
The effect of the amendment tabled in the names of my noble friends Lord Barnett and Lord Peston would be to make the clause read:
"The objectives of the Bank of England shall be to maintain price stability as a pre-condition of supporting the economic policy of Her Majesty's Government, including its objectives for growth and employment".
Amendment No. 10 follows on from that, and I will deal with it separately. On the other hand, the amendment of the noble Lord, Lord Mackay, would make the clause refer to the objectives as being,
"to maintain price stability and to support the economic policy of Her Majesty's Government",
but only in so far as it can do so without prejudice to paragraph (a). I want to suggest to the House that those three are all virtually the same; there is no significant difference between them. Although there have been differences in debate, I am delighted that, from one side, my noble friend Lord Barnett and, from the other, the noble Lord, Lord Mackay, have come round to the Government's position in the wording of their amendments.
What is the Government's position and what possible disagreements are involved? The key to it lies in the remarks made by the noble Lord, Lord Boardman. I do not agree with him. He suggested that you cannot make a distinction between economic policy in general and monetary policy in particular. I believe that you can and you have to, if you are doing so in the context of setting monetary policy targets for the Monetary Policy Committee of the Bank of England. That is the key to the difficulties which the noble Lord, Lord Mackay, had about the Chief Secretary's remarks in response to Mr. Dafydd Wigley on Second Reading on 11th November last year in another place.
The Chief Secretary meant that the Government's central economic objective is,
"to achieve high and stable levels of growth and employment".
That quote comes from the Pre-Budget Report of November 1997. What we are saying in Clause 11, when talking about the objectives of the Bank of England in relation to monetary policy, is that price stability is the most appropriate contribution that monetary policy can make towards sustaining high and stable levels of growth and employment.
Of course, there are other aspects of economic policy which are not being devolved to the Monetary Policy Committee of the Bank of England. The Budget is evidence of that fact. That committee was not invited to write the Budget. But, in the limited sense of monetary policy and the role of the Bank of England, it is correct to say, as we have said, that price stability is the most appropriate contribution that monetary policy can make to sustaining high and stable levels of growth and employment. Therefore, monetary policy must come first in the statement of objectives and the statement of general economic principle has to be set out after that, following the words "subject to that" in the clause.
My noble friend Lord Bruce said there is much doubt as to what price stability is. Clause 12 spells out that price stability is, as Humpty-Dumpty would say, "what I intend it to mean"; in other words, the Government
992
actually spell out in Clause 12 what price stability is to be taken to consist of—namely, 2.5 per cent. inflation, neither much more nor much less.
5.15 p.m.
Lord Mackay of Ardbrecknish: My Lords, I apologise to the Minister for intervening. I listened to an economics professor say quite clearly that price stability had to mean zero inflation; but 2.5 per cent. inflation is not price stability. Inflation may be more stable than it has been at some time in the past, but it is not price stability. I recommend the professor of economics.
Lord Mackintosh of Haringey: My Lords, with due respect to my noble friend Lord Peston, we are not dealing with professors of economics; we are dealing with the instructions which the Government give to the Bank of England. We say, as Humpty-Dumpty says, "When I say a word, it means what I state it to mean". It means 2.5 per cent. and not too much more and not too much less. If we want to change that, we will change it in accordance with the wording of Clause 12.
After that, I take comfort from the words of the noble Lord, Lord Howell of Guildford, who said that the wording we have is the best that we can do. I loved the grouse moor metaphors of the noble Lord, Lord Stewartby: you cannot follow two birds without the risk of missing them both. When I made my maiden speech many years ago, a noble Lord said later in the debate,"The noble Lord has shot my fox". It is an equally unfamiliar metaphor to me as that of shooting birds. However, I recognise it for what it is; namely, support for the Government and support for our wording. It would not make very much difference which amendments we were to adopt. The amendments on the Marshalled List do not express the more radical views which have been expressed, especially by my noble friends. On the basis that the Government have done the best that they can, I invite the House to reject the amendments and hope that my noble friends and the noble Lord will not insist upon them.
Lord Barnett: My Lords, we have had a most interesting, if brief, debate. I know that the noble Lord, Lord Mackay, loves to bring in a little party politics. Once again, he tried to bring in one of my many successes as Chief Secretary to the Treasury to show that he agreed with the noble Lord. To be honest, I do not care whether or not he does. I believe he said that he was being rather contradictory. However, I shall not comment on his quote about my noble friend Lord Eatwell. There are many economists around, including, among the best of them, my noble friend Lord Peston who attached his name to the amendment.
However, the plain fact is that the noble Lord's amendments agree with the Government. I am glad to see that my noble friend Lord McIntosh agrees with me in that respect. Of course, my noble friend had to call in aid two noble Lords opposite. Indeed, the noble Lord, Lord Howell of Guildford—I nearly called him "my noble friend" because, very often, we tend to agree—said that government objectives can never be clear. But then he was prepared to leave the Government's

993
objectives as set out in the Bill. My noble friend Lord Peston and I are seeking to make the Government's objectives even clearer. Indeed, calling in aid what my noble friend said both on Second Reading and in Committee, we used his words to make it clearer.
My noble friend Lord Bruce also did not know the meaning of the term "price stability". I hope that he will forgive me, because I do not intend to go into that. I deliberately avoided referring to Maastricht because I did not wish to provoke my noble friend. I know how easily provoked he is.
The noble Lord, Lord Mackay of Ardbrecknish, prefers price stability to mean zero inflation. There is no use his pointing—the plain fact is that is what he said. He prefers to quote economists and others who believe that price stability has to mean zero inflation. Perhaps my noble friend Lord Peston agrees with that. I see him nodding. That is where my noble friend and I disagree. I do not believe for a minute that one needs to have zero inflation to have price stability. Incidentally, the noble Lord, Lord Howell of Guildford, prefers to leave the Bill as it is. I believe he called the Bundesbank in aid—or rather I believe some of his noble friends did so. The plain fact is that the Bundesbank may not be able to define price stability or economic objectives, but it may be said that it "ain't done too bad" over recent years without being able to define that. If that is what the noble Lord is saying, I tend to disagree with him.
Our amendment makes the matter simpler, not more complicated. We do not propose to give a definition of price stability. I return briefly to what my noble friend said on price stability. He referred to Clause 12(1), which states, that,
"what price stability is to be taken to consist of, or
(b) what the economic policy of Her Majesty's Government is to be taken to be".
All we seek to do in our amendment is to do just that. We propose that the Government's objectives on price stability or their economic objectives should be as one. We propose nothing more complicated than that. I know that my noble friend the Minister does not always agree with his brief.
Noble Lords: Oh!
Lord Barnett: My Lords, I do not refer to my noble friend Lord Bruce of Donington. Does he agree on this occasion?
Lord McIntosh of Haringey: My Lords, what a shocking suggestion! Are you inviting me to resign?
Lord Barnett: My Lords, I would never dream of it. I think my noble friend should be promoted, although I would be the last person in the world to recommend it because my recommendations may not necessarily be productive. I would not dream of saying that. All I mean to say is that my noble friend can be flexible in his interpretation of his brief. I had better say for the benefit of the record that he shakes his head. He never disagrees with his brief. However, he can be flexible at times.
994
I hope that he does not mind my saying that and going that far. My noble friend was not present when we discussed our previous three amendments—I apologise on his behalf—but I am happy to tell him that they were all totally accepted by the Minister. I hope that he will accept this amendment also because all we seek to do is to spell out exactly what is the Government's policy. Is my noble friend willing to speak again and say that he will accept the amendment?
Lord McIntosh of Haringey: My Lords, I have already indicated to the House that I cannot accept any of these amendments. I have invited my noble friend to withdraw the amendment.
Lord Barnett: My Lords, it is an interesting point that I should withdraw amendments with which I agree. But given that we shall have another opportunity—I hope—on Third Reading, or whenever, to consider these matters again, I accept my noble friend's request. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 8 and 9 not moved.]
Lord Barnett Lord Barnett moved Amendment No. 10:
Page 5, line 16, at end insert ("in their national and regional aspects").
The noble Lord said: My Lords, I had hoped that my noble friend might reply to this amendment. I am sorry that it is grouped with other amendments. For the moment I shall move this amendment to give my noble friend an opportunity to respond to this whole question of regional objectives. I beg to move.
Lord McIntosh of Haringey: My Lords, my noble friend is being perfectly fair. I neglected to address Amendment No. 10 when I responded to this group. It is right that I should discuss it. I understand his concerns but I have already made it clear that Clause 16(2) states that the Bank's Court will keep the procedures of the Monetary Policy Committee under review to ensure that it collects the necessary regional and sectoral information in order to meet its monetary policy objectives. The Bank has a well-established network of regional agents and has a wealth of distinguished regional contacts represented in its Court, enhanced by recently announced appointments. Therefore my first answer to my noble friend is that the amendment is not necessary; its aim is covered.
I am duty bound to respond to the noble Lord, Lord Mackay of Ardbrecknish, who said that the word "regional" would offend the Scots. In Committee I undertook to consult the draftsman again on whether it is appropriate to use the word "regional" to describe information relating to Scotland. The noble Lord will not be too surprised to hear that the draftsman said that it is appropriate. In this context it is clear that the word "regional" is simply being used to describe geographic areas. So in this sense "regional" would encompass Scotland, or the lowlands of Scotland, or it could encompass the lowlands of Scotland and Cumbria as an economic region. There is no offence of any kind

995
intended or, I believe, would be taken by the people of Scotland and Wales from the use of the word "regional". I think the noble Lord will find that the word is used in this broader sense throughout legislation and throughout government. On that basis, I invite my noble friend to withdraw Amendment No. 10.
Lord Barnett: My Lords, I am obliged to my noble friend. I did not understand why my noble friend said that he rejects the amendment because it is not necessary. One could equally argue that it will not do any harm to include it as all it does is to spell out what the Government have in mind anyway. My noble friend can hardly say that the amendment does any harm. All he said was that it is not necessary.
Lord McIntosh of Haringey: My Lords, I responded to that point in Committee. With the leave of the House, I said then that unnecessary words of themselves do harm. I believe that is the case.
Lord Barnett: My Lords, I warn my noble friend that I shall bear in mind for other occasions the comments that he has just uttered as regards unnecessary words. He said they were not necessary and in this case they could do harm. I doubt that. I should be surprised if they did harm. However, in view of what he has said, and because I am fond of him I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 [Specification of matters relevant to objectives]:
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 11:
Page 5, line 17, leave out ("may") and insert ("shall").
The noble Lord said: My Lords, in moving Amendment No. 11, I speak also to Amendment No. 12. I have tabled these two amendments genuinely to be helpful to the Government. When we discussed Clause 12 previously both the noble Lord, Lord Peston, and I were puzzled about the first line of the clause, which states that,
"The Treasury may by notice in writing".
We are puzzled about the word "may". The Minister pointed out that we had not read the entire clause properly and did not understand what it meant. However, the Minister said that he would seek the advice of draftsmen. Clause 12(1) refers to what one might call the "one-off situation"; namely, a measure that the Government may adopt if they feel that something has gone wrong. That is encapsulated in Clause 12(1) which states,
"The Treasury may by notice in writing to the Bank".
Clause 12(2) refers to what I might call the normal annual position. Clause 12(3) refers to what will be done as regards the normal annual position. On reflection, I thought that it would be far better to refer to the normal position first and then stipulate the emergency position. However, the Bill refers first to the emergency position—the "may" position—and the "shall" provision
996
follows. I should prefer it to be the other way round. I do not claim to be a draftsman but I believe that my amendments achieve that.
The Bill states that the Chancellor will every year,
"before the end of the period of 7 days beginning with the day on which this Act comes into force, and at least once in every period of 12 months",
send a notice to the Bank to state what price stability will consist of; and what the economic policy of the Government should be; that he will publish the notice and lay a copy before Parliament. That should be first because that is what he will do every year. Then after that should be the provision that he may,
"by notice in writing to the Bank",
at other times—I presume in emergencies—do the other thing. I believe that that would have been neater. It would have made my reading of the clause easier. I beg to move.
Lord Peston: My Lords, before the Minister replies, as my noble friend pointed out we have discussed this matter many times in the past. After all my years in your Lordships' House I should have learned my lesson by now. However, my problem is that the word "may" logically implies "may not". It is inconceivable that the Government mean "may or may not"; therefore, the clause means "shall". So for perhaps the last time in my career in your Lordships' House, I seek a convincing explanation of why, since "may" means "shall", we do not use the word "shall". I believe that my noble friend said in Committee that "may" means "shall"; he said that it has to happen. For the moment, I pause in the hope that the Minister can explain to me the point of "may" rather than "shall", and if "may" is used, why not "may not"?
5.30 p.m.
Lord Renton: My Lords, this is the first time I have intervened in debates on the Bill. I support the amendment. One of the things that worries me about the independence of the Bank of England from the Treasury is that it would be possible for the Treasury to fix a bank rate, for example, which was contrary to the economic interest of the country. If the Bank of England were to do that, there would be trouble. But if the Treasury is required to say by notice in writing to the Bank what price stability is to be taken to consist of, and what the economic policy of Her Majesty's Government is to be taken to be, it would not solve the problem I have mentioned but it might mitigate it.
Lord McIntosh of Haringey: My Lords, I hope that I did not say in Committee that "may" means "shall". It has always annoyed me when anyone has said that because it is patently not true. My noble friend is of course right to say that "may" allows the possibility of "may not". The explanation of the wording of Clause 12 is quite different. If I did not make it clear at Committee stage, I am grateful for the opportunity to try again.
Clause 12(1), which gives the Treasury the power to give notice to the Bank specifying what price stability and the Government's economic policy are, allows the

997
Treasury to give such notices whenever it thinks fit. But Clause 12(2) means that the Treasury must specify these matters at least once in every 12 months.
I have sought the draftsman's view on the wording of this clause in the light of our debate. He has confirmed that he is content that the clause is clear as drafted. You might say, "He would be, wouldn't he?", but, when one thinks about it, I believe that the logic is sound. Subsection (1) deals with the general; namely, the Treasury's power to give the notice. Subsection (2) deals with the specific; that is, the Treasury's duty to give notice at least once in every period of 12 months. I suggest that it is appropriate to go from the general to the specific in so far as the specific qualifies the general. I hope that the noble Lord will withdraw the amendment.
Lord Peston: My Lords, may I seek clarification from the Minister? Does he say that if "shall" replaces "may" the clause will be different? It would help me very much if my noble friend could tell me the answer to that.
Lord McIntosh of Haringey: My Lords, I am saying that we want a level of permissiveness, of allowing the Treasury to give notice when it thinks fit, but we wish to qualify that by saying that whatever the Treasury decides to do it must—that is the specific—do it at least once every 12 months.
Lord Mackay of Ardbrecknish: My Lords, I think we are in danger of coming close to splitting hairs. My suggestion is that one states as the principal clause one's normal position: that annually one will do it. Then one qualifies that by saying that if one feels obliged to do so, one can do it at other times as well. I should have thought that that was the logical way round. I appreciate that once the draftsman has made up his mind, it is often difficult to get him to change it: the very good reasons given become the position that one has to defend.
I believe that there was nothing wrong with my amendment. It is interesting to note that the Minister did not suggest it was defective. I believe that such drafting would have shown the casual reader—if there ever will be casual readers of the Bill—what the Treasury will do every year, and that if the Treasury thinks fit it could do this at other times.
Clearly I shall not succeed in having the clause changed. My career as a draftsman has been short but sweet. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 12 not moved.]
Clause 13 [Monetary Policy Committee]:
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 13:
Page 5, line 39, at end insert ("in accordance with the procedures of the Commissioner for Public Appointments").
The noble Lord said: My Lords, in moving the amendment, I speak also to Amendment No. 14.
The amendments are related only in so far as they deal with the method of appointment of the four members of the Monetary Policy Committee. They are not related in any other way. Amendment No. 13 is merely an additional probe to an amendment I put forward at Committee stage. But Amendment No. 14 is a serious amendment arising from the debates at Committee stage.
The four appointments we are discussing are what I might describe as the away team of the Monetary Policy Committee. The home team will be the Governor, the two deputy governors and two of the employees, as outlined in Clause 13(2). Currently there are only four of them, but once the Bill is enacted there will be five members of the home team, and four members of the away team.
Those people will decide monthly on the interest rates to be pursued in this country. From the last debate we had, it was perfectly clear, however one reads Clause 11, that the Monetary Policy Committee will be an extremely important body. It will be a body constructed by the Chancellor appointing people to it. We are looking now at the four members of the away team, the outsiders so to speak, who will be appointed to play a major part in making that decision. Arguably, this will be the most important public body in the land—far more important than many others.
At Committee stage, I posed the question of the method of appointment. The Minister gave me some reassurance. Perhaps he can do so again, although I would prefer him to put the reassurance on the face of the Bill. The Minister pointed out that appointments to nationalised industries and public corporations are under the remit of the Commissioner for Public Appointments. He told me that a review was going on; a consultation document was out; and the Government expected to respond in the course of the next few months. He also told me that any extension of the remit of the commissioners, for example, to include the Monetary Policy Committee, would not need primary legislation. It would be dealt with by an Order in Council.
Having reread what the Minister said, I was unsure whether the Government believed that these four appointments should be made in the same way as other appointments, through the Commissioner for Public Appointments: being advertised, applied for, and so on. I shall be grateful if the Minister can clarify that. If the Government believe that they should be appointed in the same way as members of nationalised industries and other public corporations, is it not time that these matters were on the face of important Bills such as this one, so that no one is in any doubt?
Amendment No. 14 refers back to Amendment No. 10, proposed by the noble Lord, Lord Barnett, and to one or two other points made earlier. Those four members will be extremely important. They must therefore understand the needs of the economy of the whole of the United Kingdom. In Committee, we had an interesting debate on the need for manufacturing industry to feel that it had someone on the monetary policy committee who understood it and its problems. We also discussed whether we needed to be sure that

999
there were people on the committee who had knowledge of the whole of the United Kingdom. Noble Lords who took part in that debate from both sides made valid points which concerned us all about manufacturing industry and, if I may so describe them, the regional aspects of economic policy.
The amendment I have tabled homes in on Scotland. For reasons I mentioned earlier, the Government have deliberately decided, as a matter of policy, to change the whole way in which the United Kingdom is governed. We are no longer to have one central government for all policy issues in the United Kingdom. We are to have three governments—and possibly four, if the talks in Northern Ireland reach a conclusion in reasonably short order.
The economies of the nations that make up the United Kingdom can be very different. I started out being mildly worried about this matter; however, I became more concerned when I read the CVs of the four excellent people who have been appointed to the monetary policy committee. It seemed to me that, apart from experience beyond this country, their working lives have been very much in a triangle consisting of Oxford, Cambridge and London. Indeed, the furthest north any of them seemed to think they should go in their professional careers—I hope I am not to be told that they spend a fortnight on holiday in Scotland once a year—is Oxford or Cambridge. I have still not worked out which of the two is further north—I keep hoping that somebody will tell me—but neither is terribly far north, considering the Midlands, the north of England, Scotland, Wales and Northern Ireland.
I shall not read the details at great length. Professor Goodhart is a professor of banking and finance at the London School of Economics. I shall turn to his past in relation to other matters. I do not think that he has ever in his career been north of Cambridge and the LSE—he taught in both. DeAnne Julius is the odd person out. Not only is she a woman; she is also not an academic economist. She works as the chief economist of British Airways. Nothing in her CV, unless Washington is north of Oxford and Cambridge, which it probably is—I am told it is not—suggests that she has worked outside that interesting triangle. Sir Alan Budd is the third. His appointments have all been very much within the triangle I mentioned. Professor Buiter is the last; he is professor of international macro-economics at Cambridge University. Prior to that, he was at the London School of Economics and Yale. To my knowledge, Yale is not in Scotland. Nor indeed is Bristol, where I note that he also worked, as he did at Princeton. He is obviously much travelled in his career; however, his travel does not include Scotland or any other part of the United Kingdom beyond Oxford, Cambridge and London.
My concern is this. Over my political lifetime there have been situations—not prevalent at present, but which did exist for many years—where the economies of Scotland and perhaps the north of England were quite different from the economy of the south-east of England. The economy of the south-east of England was often over-heating, and therefore in need of higher interest rates, when the economies further north were
1000
still in decline. Their old industries such as steel, coal and shipbuilding were declining, and there were serious problems. Frankly, higher interest rates were not part of the solution to those problems. They aggravated the problems. While, as I say, that is not happening currently, it has happened more often than not in the past. I am therefore very worried that the monetary policy committee will be looked upon from the north as merely a group of people meeting in London, largely drawn from London or close by, who have no knowledge and perhaps no interest (that would not be a fair accusation, but it will be the one that is levelled) in the economies of the other parts of the United Kingdom.
My argument is even stronger given the changes that are being made in the government of the United Kingdom by the Government this Session. While I fully accept that Treasury matters are reserved—indeed, the Minister gave that assurance in Committee—I must say to him that debate in the Scottish parliament will not be reserved. Its members will be allowed to debate anything they wish to debate. If they feel that the interest rates being pursued by the monetary policy committee are not in the best interests of Scotland, they will start debating the matter loud and long. They will be forced to do so, since they will have as their responsibility economic development, financial assistance to industry, inward investment and the promotion of trade and exports from Scotland.
That brings me directly to the question of the value of the pound, which is a matter that must concern members of that parliament. Tourism is also a factor, and the value of the pound plays an important part. Just as noble Lords are probably finding that the Easter Recess can be spent quite cheaply abroad. I suspect that people from abroad are finding this country, including Scotland, slightly more expensive than it once was because of the value of the pound. So although the Treasury's responsibilities are not devolved, there are many aspects which are devolved and which will be very much influenced by the decisions of the monetary policy committee.
My amendment is couched in the most sensible terms. Indeed, I even accept that the Chancellor of the Exchequer will continue to make the appointment, which I hope shows that I have listened to the Minister. What I am saying is that one of those members should be appointed on the advice of the First Minister of the Scottish Executive. I keep being told that the First Minister is to be Mr. Donald Dewar. Donald Dewar and I are friends; we go back a long time. I should be perfectly confident in the good advice that he would give the Chancellor. Indeed, I suspect that I should be perfectly confident in the good advice that any First Minister would give the Chancellor. So I do not think that I am being unreasonable in the way I have phrased this matter. I have changed the amendment quite markedly since Committee stage. I have thought about it, and I have tried to be practical. I have tried to give the Minister an amendment which he can accept, but which, if your Lordships decide to insist, would actually work, because the First Minister would exist and would be able to give advice. That would be very important.
I am not alone in believing this. The Law Society of Scotland thinks that there is merit in this case. Indeed, from my point of view support came from a very unlikely quarter—but support is coming from the most unlikely quarters these days. I now find that the National Union of Students considers that I am quite one of its heroes, having voted down one of the Government's proposals on fees. I suppose that the change of position in the Chamber brings new supporters. The supporter that I now pray in aid is the Scottish Trades Union Congress, which is very dominant in the Labour movement in Scotland. The Scottish Trades Union Congress made a submission to the Chancellor of the Exchequer ahead of the Budget in which it asked for Scotland to have a seat on the influential Bank of England committee which sets interest rates. It goes on to say, as I have, that there have been times over the past 50 years when interest rates did not seem quite right for Scotland. It also accuses the Bank of being "particularly insensitive" to the impact of interest rates on regional economies. It states:
"The STUC believes that the latter"—
that is, an appreciation, an awareness, of the economic priorities of the different parts of the UK—
"will only happen when seats on the monetary policy committee, and on the Bank's court, are allocated by region".
The Minister will tell us that, indeed, seats on the court are being given to people from a wide range of interests and places in the United Kingdom. I paid tribute to that in Committee and do not wish to take away from that. It is a plus, and is good for the Government on that basis. However, we also know that the court has no influence over the important issues the monetary policy committee will decide: namely, interest rates. So the Government cannot pray in aid that they have good regional or cross-sectional industry representation on the court and that that will do. The Government also say that the court and the monetary policy committee are quite separate when it comes to deciding interest rates. The STUC obviously understands it as well, as it goes on to say:
"We therefore call on the Chancellor to review representation on the monetary policy committee to ensure that Scotland's circumstances are properly taken into account".
It may think that I am an unlikely ally in this regard, but the STUC is correct. If the Government will not listen to the Opposition I hope they will listen to their friends in the Scottish Trades Union Congress. It is an important amendment. I believe that I have couched it reasonably. The Chancellor will still make the appointment and it will be on the advice of the First Minister. I cannot believe that a good professor of economics cannot be found in any of the Scottish universities. It would be a real insult if that is the Government's answer. There will be a number of people in Scotland, in the universities, business and commerce, who would make excellent members of the monetary policy committee. One of them ought to be on it. I therefore commend my amendment to the Minister and to the House. I beg to move.
Lord Newby: My Lords, I wish to speak on the amendment relating to the appointments to the monetary
1002
policy committee. In Committee I argued that there was a strong and compelling reason for there to be regional representation among the four appointees. That remains the case. The difference between the growth of different sectors of the economy, which bears differently in different regions, only serves to underline the strength of that argument.
I also argued in Committee that the amendment put down at that stage by the noble Lord, Lord Mackay, was defective in that it unduly constrained appointments to the court. At that stage he argued that one representative should be from Scotland and one from Wales. I still believe that to state that a region or nation should have one of the four as a representative as of right and that Wales, Northern Ireland and—dare I say it—Yorkshire should have to scrabble around possibly for one other regional place seems an imbalance and an undue constraint. Therefore, I cannot bring myself to support the amendment today.
However, I would welcome any assurance that the Minister can give that it is an issue that the Government take seriously. Throughout our discussions on a number of amendments, whenever we have considered the way in which the monetary policy committee is to be viewed from the nations and regions of Britain, the Government have taken a rather cavalier view that as long as there are half a dozen or a dozen good men and women and true from a little charmed circle in the south east taking decisions, everyone will meekly agree that that is the way forward. That seems to me an unduly arrogant and "south-eastist"—if there is such a word—view of the world. It would strengthen the credibility of the committee if there were representatives of the nations and regions of Britain. I would welcome any assurance that the Minister can give that it is something to which the Government will give due consideration.
Lord Molyneaux of Killead: My Lords, I wish briefly to intervene to support the points made by the mover of the amendment. As one who has had experience, though not as a member of the devolved Parliament at Stormont, still less the government at Stormont, I can testify this. On every issue involving public expenditure the blame will land not at the door of the local representatives in Scotland, and not at the door of the First Minister, perhaps to be called a Taoiseach to line up with our friends south of the Border. The blame will be allocated to the Treasury and the Bank of England. The blame will not be attached, oddly enough, to this Parliament at Westminster but to the party in power at Westminster, with no respite. For that good reason, as a sympathiser with noble Lords on the Front Bench, I should not like to see them subjected to the kind of abuse that will be heaped on their heads, no matter what kind of case they try to make. I beg them to think seriously about the amendment.
Lord Peston: My Lords, as the noble Lord, Lord Mackay of Ardbrecknish, is aware, I am sympathetic to the contents of the amendment. But I am not persuaded, for rather general reasons, that what is proposed should be on the face of the Bill. I thought that my noble friend Lord McIntosh said in Committee that it was the

1003
Government's general view that appointments ought to be made in accordance with the procedures of the commissioner for public appointments. I understood him to say that and I hope he will say something similar now. I regard that as a general statement, nothing to do with appointments to the Bank of England's monetary policy committee. I hope it would be a general characteristic of legislation from now on. It seems a pity to single out the Bill for it because, in due course, with respect to other Bills, one would either have to propose it for every other Bill, rather than the Government saying: "We shall do this generally", or an occasion will arise where we shall say: "What is there about this set of appointments that they will not come under that rubric?"
I hope my noble friend will be able to say either specifically, or in terms of where the Government hope to go, that in broad principle what is in the amendment is right and from now on it will apply to appointments made directly or indirectly by the Government. I hope that that is what my noble friend will say and therefore this is not an amendment to be pressed.
Similarly, on what I dare not call the "Scottish question"—I do not wish to raise the hackles of any Scots—the fact is that on any appointments made in connection with any Bill, someone is bound to say: "What about the Scots?" I take the cynical view that dawned on me in my earlier years here that we ought to pass a Motion at the beginning of every Parliament. Clause 1 would state, "What about the Scots?", and Clause 2 would state: "What about the Welsh?" That would save much of your Lordships' time and be in keeping with the spirit of the age of being highly efficient.
I believe strongly that governments, in making appointments to bodies of this kind, ought not to go for what are called charmed circles. I was a member of such a circle in my time and I am aware of its benefits, but it is quite wrong. One ought to be sensitive to the feelings of people away from central London. I cannot believe that my right honourable friend the Chancellor of the Exchequer is completely unaware of the existence of Scotland and the sensitivities of the Scots. I agree with the noble Lord, Lord Mackay of Ardbrecknish, that not merely was the greatest economist who ever lived a Scot, but that there are plenty of good Scots economists there. I cannot believe that when replacement appointments come up people will be unaware of such matters.
Where I take slight issue with the noble Lord, Lord Mackay of Ardbrecknish, is on the notion that if policy goes wrong—and I tend to feel that interest rates have gone high enough and sterling has gone high enough—it is not only Scotland that will suffer from that policy error but large parts of England will. Therefore, it is a pity if we simply bring up the Scots as the only possible sufferers. It seems to me that the noble Lord, Lord Mackay of Ardbrecknish, has made his points extremely well, but I am not persuaded that they require to be set out on the face of the Bill. If that happened, then every Bill should have such a clause in it, which we would not want to see.
1004
When my noble friend speaks, I am certain that he will not say, "Who cares about the Scots?" Quite the contrary. I am not convinced that we need the proposed wording in the Bill at this stage. Perhaps I may say directly to the noble Lord, Lord Mackay, that he and I will both see a Scot on the committee before long, in my judgment.
Lord Boardman: My Lords, I support my noble friend's amendment, Amendment No. 14. I wish to add one reason to those he gave why Scotland should be specially considered for a representative of some kind on the monetary policy committee. Banking forms an important part of the Bill. In banking, Scotland has always retained an independence and is somewhat jealous of its banking system which is not generally shared throughout the rest of the United Kingdom. It was necessary in my banking days to treat the Scots somewhat differently; they would insist on that. I believe that they have a powerful case for being represented, not necessarily in the banking sense, but so that they can look to somebody on the monetary committee who they believe will be able to understand the banking affairs of Scotland and represent their case.
6 p.m.
Lord McIntosh of Haringey: My Lords, perhaps I can address each amendment in turn. I thank the noble Lord, Lord Mackay, for agreeing to group these amendments together, though he is right in saying that they are different subjects.
On the issue of the procedures relating to the Commissioner for Public Appointments, I do not intend and would never wish to back down on our manifesto commitment to implement the Nolan recommendations fully. We published a Cabinet Office Paper—Opening up Quangos—which proposed extending the remit of the Commissioner for Public Appointments to nationalised industries and public corporations. That paper was published for consultation in 1997 and the results should be available within the next few months. I can confirm that appointments to the Monetary Policy Committee come within the scope of that consultation.
Noble Lords will recognise that there are unique sensitivities in the Monetary Policy Committee appointments, given the degree of huge market interest in the committee's deliberations and decisions. We certainly need to take those into account. However, I cannot say that we will anticipate the consultation and our response to it only for the Monetary Policy Committee. I can only express our general determination to open up as many public appointments as possible and leave the decision on the Monetary Policy Committee, as for all other public appointments, until the consultation has been completed.
In regard to legislation, clearly it would not be appropriate to put individual references to the Commissioner for Public Appointments into each piece of legislation going through Parliament. If we did that, we would have to do it for all existing legislation on the statute book. Instead, having established the principle and debated it in Parliament, we will proceed to open up appointments to the regime of the Commissioner for

1005
Public Appointments by Order in Council rather than by what would otherwise be enormously complex primary legislation.
I turn to Amendment No. 14. I recognise the difficulties that noble Lords proposing these amendments face. When different versions were proposed in Committee I was able to say, "If you make appointments taking account of regional needs, the national needs for Scotland, the needs of manufacturing industry and so forth, you crowd out the scope for appointment to what are, after all, only four appointments, whereas the emphasis should be on obtaining the best people regardless of where they come from".
The noble Lord, Lord Mackay of Ardbrecknish, responded to that and fined down his objections to one single point; that is, the need for somebody to be appointed on the advice of the First Minister of the Scottish executive. In doing so, he is once again leapfrogging the Government. The way in which the noble Lord embraces Scottish devolution with a passion and almost an extremism that was not apparent at the time of the general election somewhat surprises me. He is also now accepting the embrace of the National Union of Students and the Scottish Trades Union Congress. That is fine. I leave him on his road to Damascus and simply stand back and admire.
In this case there would be considerable difficulty in selecting one interest, however important and valuable and however much the words,
"Of the four members appointed under subsection (2)(c) one shall be appointed on the advice of the First Minister of the Scottish Executive",
should appear on the face of the Bill. I am not clear what the phrase "on the advice" means. Perhaps the noble Lord, Lord Mackay, can enlighten us. To me it means that one must take the advice once it has been offered. I assume that is what it means. In effect therefore it is a weasel word for nomination from the Scottish executive.
When talking of the Monetary Policy Committee, we must remember that this country has only one currency. I acknowledge to the noble Lord, Lord Boardman, that we have a somewhat separate banking system in Scotland. But monetary policy is concerned with one currency and the average of prices throughout the whole of the United Kingdom. The Monetary Policy Committee must consider developments in all regions of the United Kingdom. That is why we have a requirement in Clause 16 that the committee should collect and consider,
"the regional, sectoral and other information necessary for the purposes of formulating monetary policy".
There is a network of regional agents to ensure that the committee is fully aware of development in the regions.
I understand the reason for picking out Scotland in order to avoid the arguments which I put against these amendments at Committee. But the noble Lord, Lord Newby, has the message. Once we start on that road, will we continue with Wales, with Yorkshire and then go back to the needs of manufacturing industry?
1006
All those are important, and Scotland no less and almost, in some ways, more important because of devolution. However, a requirement of this kind cannot be put on the face of the Bill, otherwise the fundamental objective of forming the Monetary Policy Committee from the best and most highly qualified people for the job would be frustrated. I therefore invite the noble Lord to withdraw his amendment.
Lord Mackay of Ardbrecknish: My Lords, I am grateful to the Minister for his response and to other noble Lords for taking part in this short debate. On the method of appointment, I am grateful to the Minister for his clarification. I felt in Committee, perhaps wrongly, that the Government were saying that appointments to the Bank of England Monetary Policy Committee should be conducted in the same way as with other bodies. However, I now hear better what he is saying: the Government have not actually made up their mind. I appreciate that the Monetary Policy Committee is important and is different. That is the point I was making when I prayed in aid that it should be appointed in the clearest and most open way. I am grateful to the noble Lord for that.
In relation to Amendment No. 14, which I clearly flagged up as being in my view the more important of the two, the Minister said that the Chancellor cannot be unmindful of the Scottish position. I fully agree that the current Chancellor cannot be unmindful of the Scottish position. However, I do not believe it is written into the constitution of our country that the Chancellor must always come from a Scottish constituency. In the future, therefore, we may well have Chancellors who are not so mindful of the needs of the Scottish position.
As the noble Lord, Lord Peston, said, it should not be difficult to find an economist from Scotland. I presume the noble Lord was referring to Adam Smith when he said that the greatest economist who ever lived was a Scotsman. There is therefore good precedent for that. We could easily find an economist and, as my noble friend Lord Boardman mentioned, Scotland has a significant banking and financial sector—the biggest outside London. It has its own aims and objectives which are extremely important.
Lord Peston: My Lords, perhaps the noble Lord will allow me to intervene, though I am slightly breaking the rules. I did not choose my words carefully when I spoke. I did not mean to imply that it should be an economist. It seems to me that it would be desirable for a Scottish businessman or even a Scottish trade unionist to be on the committee one day.
Lord Mackay of Ardbrecknish: My Lords, I was not implying that. I was simply discussing the economist's position. But the noble Lord, Lord Peston, is right.
In the normal run of things, I would be treating this as a probing amendment in order to get the kind of assurances I have had from the Government that, yes, they will take these points into account when

1007
they come to appoint and so on. However, this time next year my fellow Scots, including myself, thanks to the courtesy of the Government in allowing me a vote, will be electing a parliament for the first time in 300 years and they will have their own government. By the millennium Scotland will be operating on many major issues of policy very much on its own and quite separate from the Houses of Parliament here.
It is a very significant shift in the balance of power in this country. In many ways it is a far bigger shift than the one proposed for Wales, because all legislation regarding Wales will still start here at Westminster. In Scotland, the whole legislative programme, Scottish law, and so on, will be dealt with in Scotland. I see the Lord Advocate in his place. I am sure he can confirm that, except in some narrow reserved fields, most legislation about Scotland will no longer pass through your Lordships' House but will be taken in Scotland. As I said, that will not be the case for Wales and I suspect it will not be the case for Northern Ireland, although we do not know that yet. That is my reason for saying that Scotland—dare I say it to the noble Lord, Lord Newby?—is not the same as Wales and it certainly is not the same as Yorkshire. I do not think that his party north of the Border would thank him for that comparison.
The Government are making a huge change. Perhaps I may quote from an explanation of the change:
"Scotland is a proud, historic nation in the United Kingdom and the plans we put forward in this White Paper will give it an exciting new role within the United Kingdom".
Those are the words of a certain Mr. Tony Blair in his preface to the White Paper. Clearly, this exciting new role does not include a member on the Monetary Policy Committee; and it is on the decisions of that monetary policy committee that a good deal of the economy of Scotland will rest.
Two or three weeks ago I moved against the Government and got into the good company of the National Union of Students. The temptation to say that I am not happy with the noble Lord's answer and get into the company of the Scottish Trades Union Congress is too great for me to resist. Therefore, I wish to seek the opinion of the House.
The Deputy Speaker (Lord Strabolgi): My Lords, the amendment before the House is Amendment No. 13.I had an idea that the noble Lord wanted to withdraw it.
Lord Mackay of Ardbrecknish: My Lords, I beg leave to withdraw Amendment No. 13.
Amendment, by leave, withdrawn.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 14:
Page 6, line 8, at end insert—
("() Of the four members appointed under subsection (2)(c) one shall be appointed on the advice of the First Minister of the Scottish Executive.").
The noble Lord said: My Lords, I got carried away with myself and my new tartan guise. I beg to move.
6.14 p.m.
On Question, Whether the said amendment (No. 14) shall be agreed to?
Their Lordships divided: Contents, 93; Not-Contents, 90.

Division No. 2

CONTENTS

Addison, V.

HolmPatrick, L.

Ailsa, M.

Home, E.

Alexander of Tunis, E.

Hooper, B.

Anelay of St. Johns, B.

Howe, E.

Ashbourne, L.

Jenkin of Roding, L.

Astor of Hever, L.

Jopling, L.

Baker of Dorking, L.

Keyes, L.

Belhaven and Stenton, L.

Kimball, L.

Belstead, L.

Kinnoull, E.

Blatch, B.

Lauderdale, E.

Boardman, L.

Leigh, L.

Brabazon of Tara, L.

Liverpool, E.

Bridgeman, V.

Long, V.

Brougham and Vaux, L.

Lucas of Chilworth, L.

Butterworth, L.

Luke, L.

Byford, B.

Lyell, L.

Cadman, L.

Mackay of Ardbrecknish, L.

Carlisle of Bucklow, L.

Mackay of Drumadoon, L.

Carnock, L.

Masham of Ilton, B.

Chalker of Wallasey, B.

Massereene and Ferrard, V.

Chesham, L.

Miller of Hendon, B.

Colwyn, L.

Molyneaux of Killead, L.

Cope of Berkeley, L.

Murton of Lindisfame, L.

Courtown, E. [Teller.]

Napier and Ettrick, L

Cranborne, V.

Newall, L

Crickhowell, L.

Northesk, E.

Cumberlege, B.

Oxfuird, V.

Denham, L.

Palmer, L.

Denton of Wakefield, B.

Park of Monmouth, B.

Dixon-Smith, L.

Pender, L.

Dunrossil, V.

Rawlings, B.

Eccles of Moulton, B.

Rees, L.

Elliott of Morpeth, L.

Rennell, L.

Fookes, B.

Renwick, L.

Fraser of Carmyllie, L.

Rotherwick, L.

Garel-Jones, L.

Seccombe, B.

Geddes, L.

Sharples, B.

Granard, E.

Stewartby, L.

Greenway, L.

Strathclyde, L. [Teller.]

Halsbury, E.

Strathcona and Mount Royal, L

Harding of Petherton, L.

Sudeley, L.

Harrowby, E.

Trefgarne, L.

Hayhoe, L.

Vivian, L.

Henley, L.

Waddington, L.

Higgins, L.

Wakeham, L.

Holderness, L.

Weatherill, L.

Wise, L.

NOT-CONTENTS

Acton, L.

Clinton-Davis, L.

Addington, L.

Cocks of Hartcliffe, L.

Amos, B.

David, B.

Archer of Sandwell, L.

Davies of Coity, L.

Bassam of Brighton, L.

Davies of Oldham, L.

Beaumont of Whitley, L.

Dixon, L.

Berkeley, L.

Donoughue, L.

Blease, L.

Dormand of Easington, L.

Borrie, L.

Evans of Parkside, L.

Brooke of Alverthorpe, L.

Falconer of Thoroton, L.

Burlison, L.

Falkland, V.

Carmichael of Kelvingrove, L.

Farrington of Ribbleton, B.

Carter, L. [Teller.]

Fitt, L.

Chandos, V.

Gallacher, L.

1009

Geraint, L.

Milner of Leeds, L.

Gladwin of Clee, L.

Monkswell, L.

Glenamara, L.

Montague of Oxford, L.

Gordon of Strathblane, L.

Murray of Epping Forest, L.

Gould of Potternewton, B.

Newby, L.

Graham of Edmonton, L.

Nicol, B.

Greene of Harrow Weald, L.

Orme, L.

Grey, E.

Peston, L.

Hardie, L.

Pitkeathley, B.

Hardy of Wath, L.

Prys-Davies, L.

Haskel, L.

Puttnam, L

Hogg of Cumbernauld, L.

Ramsay of Cartvale, B.

Howie of Troon, L.

Randall of St. Budeaux, L.

Hoyle, L.

Razzall, L.

Hughes, L.

Rendell of Babergh, B.

Hunt of Kings Heath, L.

Renwick of Clifton, L.

Irvine of Lairg, L. [Lord

Richard, L. [Lord Privy Seal.]

Chancellor.]

Rodgers of Quarry Bank, L.

Jeffreys, L.

Shepherd, L.

Jeger, B.

Simon, V.

Jenkins of Putney, L.

Smith of Gilmorehill, B.

Kilbracken, L.

Stoddart of Swindon, L.

Lockwood, B.

Stone of Blackheath, L.

Lofthouse of Pontefract, L.

Strabolgi, L.

McCarthy, L.

Symons of Vemham Dean, B.

McIntosh of Haringey, L.

Taylor of Blackburn, L.

[Teller.]

Thomas of Macclesfield, L.

McNally, L.

Tordoff, L.

Maddock, B.

Turner of Camden, B.

Mallalieu, B.

Wedderburn of Charlton, L.

Mason of Barnsley, L

Whitty, L.

Merlyn-Rees, L.

Williams of Crosby, B.

Resolved in the affirmative, and amendment agreed to accordingly.
6.21 p.m.
Clause 25 [Liability]:
The Earl of Home The Earl of Home moved Amendment No. 15:
Page 10, line 37, at end insert ("or negligent"").
The noble Earl said: My Lords, this is a very short, but a quite important amendment. When we spoke about this in Committee the Minister rejected it on the basis that the regulator would not be able to operate effectively if he was,
"constantly constrained by the fear of speculative or constructive litigation".—[Official Report, 4/3/98; col. CWH 127.]
The purpose of this amendment was not to restrict the FSA in any way from carrying out its functions, as set out in the Bill or in the memorandum of understanding between the Treasury, the Bank and the FSA, nor is it the intention to expose it to speculative litigation. Of course, we accept that the FSA must be able to request and receive information without fear of retribution.
However, if a member of the FSA, through negligence or carelessness, loses a document, the contents of which are subsequently made public, that is a different and a very serious matter. The institution which gave the FSA the information in the first place could itself be liable to be sued by the third party which gave it the information. If that institution has no redress against the FSA for the carelessness of an individual or of itself, the banks and the institutions will only give the scantiest information that they can get away with. As the whole object is to build up confidence between the
1010
institutions and the FSA, it seems reasonable to ask that the institutions should have some redress purely for carelessness.
We do not ask for anything more than the same sanctions that might apply to any person who does not take reasonable steps to ensure that confidential documents do not get lost or carelessly left behind in a public place. When we had finished our discussion the Minister was kind enough to say that he would reflect on the amendment and possibly come back to me on it. We shall be grateful to know the result of his reflections. I beg to move.
Lord McIntosh of Haringey: My Lords, I did reflect on the amendment and I have looked back at the record of our debate on this subject. But I came to the same conclusion that this is an amendment which would reduce the scope of immunity conferred on the FSA as regards its new functions. Clause 25 is not about putting immunity for banking supervision on a statutory basis. That is already achieved by Section 1(4) of the Banking Act. This clause extends statutory immunity to supervision of the listed wholesale money markets.
As I said in Committee, if the regulator is to operate effectively he cannot be constrained by the fear of speculative or obstructive litigation. It is right that people can seek damages if the regulator can be shown to have acted in bad faith, and that is provided for on the face of the Bill. We want a regulator who is free to act as necessary and not to be too frightened of litigation to act effectively. I remind the House of the enormous importance of these issues and of the failures of banks because of bad management. There is a need, therefore, for a regulatory regime which is going to protect effectively the needs of investors in the wholesale as well as the retail money markets.
Narrowing the immunity could result in the FSA being held back from urgent action for fear of litigation. At the same time we do not want to have too much regulation. We do not want the regulator to be afraid of a suit for negligence which would encourage the FSA to collect more information than it would otherwise need; or to set tougher minimum standards or to take longer to take decisions than would otherwise be the case.
Inevitably there is a trade-off between the complexity of the regulation; the tendency for regulators to protect themselves and also the degree to which they can be challenged. I do not believe that it is true to say that the exclusion of negligence from these provisions is a serious problem for regulation.
Of course, the FSA must be answerable and its officials must be responsible for their actions. If we change the immunity in this way it could fundamentally change the nature of regulation. The example was given in Committee of documents being left on a train or unauthorised disclosure. That would be a breach of Part V of the Banking Act and of Part VIII of the Financial Services Act. The FSA and the officer concerned would be potentially liable for criminal prosecution. So there is plenty of incentive in existing legislation for the FSA to act responsibly.

1011
The board of the FSA will be accountable to Ministers and Parliament for any pattern of negligence or serious failures. Ultimately, Ministers will have the ability to change the board. The FSA is generally subject to judicial review like any other public authority. It is a matter of balance. We have to balance the rights of the organisations being regulated against the wider public need for effective regulation. We believe that the balance is right as it stands in the Bill. I hope that the noble Earl will not press his amendment.
The Earl of Home: My Lords, I thank the Minister for that response. I do accept that there have to be trade-offs from time to time in some of these matters. Today the Minister has given us a very much fuller answer, particularly to the point about leaving documents in public places. I shall certainly look up Part V of the Banking Act to ensure that that point is covered. If not, we shall have to return to it at Third Reading. I thank the noble Lord for a much fuller explanation. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 41 [General interpretation]:
[Amendment No. 16 not moved.]
Clause 44 [Extent]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 17:
Page 16, line 30, at end insert—
("(1A) Section 33 extends to the Channel Islands and the Isle of Man.").
The noble Lord said: My Lords, this is a technical amendment to ensure that the transfer of the gilts-registration function of the National Savings stock register to the Bank of England's register also has legal effect in the Channel Islands and the Isle of Man. I apologise for bringing this amendment to the House so late in the passage of the Bill, but the Jersey, Guernsey and Manx authorities have all agreed to it.
On Question, amendment agreed to.
Clause 46 [Short title]:
[Amendment No. 18 not moved.]
Schedule 2 [Cash ratio deposits]:
[Amendment No. 19 not moved.]
6.30 p.m.
Schedule 3 [Monetary Policy Committee]:
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 20:
Page 21, line 32, leave out ("3") and insert ("5").
The noble Lord said: My Lords, in moving Amendment No. 20, I should like to speak also to Amendments Nos. 21 to 23. These amendments all deal with appointments to the monetary policy committee, not the important issue of who those members should be and where they should come from, which we discussed earlier but amendments none the less of some significance because they deal with the length of time that they may serve and, in the case of Amendment No. 23, with the question of who may or may not be
1012
considered for appointment. However, Amendment No. 23 is a little different and I leave it to one side for the moment.
Amendments Nos. 20 to 22 deal with the question of the length of appointment. In a way I am offering the Minister two alternative answers which perhaps he can discuss with us to see whether one or the other is attractive to him. Some of us still feel that a tenure of three years is too short. After all, the Government are appointed for five years. Three years is a pretty short time span. It is well within one Parliament and even within the chancellorship of one Chancellor. All four members could come up for reappointment, not just within the same Parliament, but within the same chancellorship, if I can put it in that way. If the Chancellor is displeased at the voting record or if theories on such matters have changed, in almost no time at all and certainly well within one economic cycle the whole composition of that important committee could be changed. We must add to that the fact that a Treasury official will also be on the committee. He can report back what is happening. If he signals one policy on behalf of the Treasury and the Chancellor and the members decide on another, will the members feel that their membership of the committee is, in farming terms, on a shoogly nail? I do not know, but I suspect that they will.
My first effort, Amendment No. 20, suggests that we change three years to five years. I believe that a member should be appointed for one term only, with the exception of those serving at the beginning who will be appointed for shorter periods in order to stagger the four appointments. The Minister and I entirely agree that that is fair and correct. If the Minister were to agree to the change from three to five, it is clear that if anyone who had been appointed for five years was then reappointed, that person would serve for 10 years. I know that the noble Lord does not like appointments of that length. He told me so. I pointed out that tenure at the Fed was for 14 years; at the Bank of France it was nine years; and at the Bundesbank, eight years. None of those figures seemed to find favour with the Minister. He thought that all those periods of tenure were far too long. That is why I appreciate that the noble Lord does not want long appointments and that is why my first suggestion is to change the tenure from three years to five years with no reappointments.
Just in case the noble Lord does not like that, I then thought, "Let's give him his three years because he is so keen on that", but if there is reappointment, three years could become six years and then even nine years. That began to worry me because it could be thought, "Be a good, reliable boy or girl; take careful heed of what the Treasury official says; read all the Chancellor's speeches; make sure your economic theories accord with his (even if they change) and reappointment will follow reappointment." Some noble Lords may well have experienced papers coming up from departments stating, "Professor Bloggs is a safe pair of hands, Minister, I think you should reappoint him." That is why I have tabled a limitation on three years. If the Minister is determined not to have a tenure of five years and wants to stick to three years, I suggest that a member may be

1013
reappointed only once, making a total of six years. I hope that the Minister will not have too much fun over the fact that I have approached this matter from two points of view. I have done so because I want to explore how we can specify a reasonable length of membership and how, if there are to be reappointments, we can determine the number. I hope that that is clear.
Amendment No. 23 is somewhat different. It is grouped with Amendment No. 20 for the convenience of the House and in order to make progress. Noble Lords will recall that I divided the monetary policy committee into the home team and the away team. I pointed out that five members will be the home team and four members will be the away team. We are now looking at the composition of the away team. I have already pointed out—your Lordships agreed with me—that it was not correct that all members of the away team should be drawn from the economic triangle of Oxford, Cambridge and London.
However, there is more to it once one has read the CVs of the very eminent people who have been appointed members of the away team, because one discovers that at one time they played for the home team in various roles. When I moved a similar amendment in Committee, the noble Lord, Lord Newby, rightly pointed out that if I excluded everyone who had ever worked in the Treasury or at the Bank of England, I would be excluding those who may have worked there for only a short time, perhaps at a low level. I took that point on board. The Minister knows what I am trying to prevent by this amendment.
Perhaps I may explain that of the four members of the committee, one of them, Professor Goodhart, worked at the Bank of England for 17 years as a monetary adviser and became the chief adviser in 1980. That is not an example of someone serving only a year or two on his way up the banking promotion tree. I repeat that he became the chief adviser in 1980. Furthermore, Sir Alan Budd has been the chief economic adviser at the Treasury since 1991. Indeed, the Treasury announced last year that his initial five-year contract has been extended until his retirement. Now, in retirement, he has been put on to the monetary policy committee. That led me to wonder whether an ex-governor could be put on the monetary policy committee or even an ex-deputy governor. If so, the whole meaning of the home and away teams would take on an entirely different complexion.
I know that the Minister will tell me that,
"a senior employee of the Bank or the Treasury",
is not defined nearly closely enough. However, I hope that he will accept my concern and that he will not tell me that I can rely on the current Chancellor not to appoint those who have been senior at the Bank or at the Treasury because, first, he has already done so and, secondly, the right honourable gentleman will not be Chancellor forever. I am thinking about future Chancellors as well as this one.
If we are genuinely looking at four away players—four people who are there for their independence and expertise—we really should be considering those who
1014
have not held senior positions at the Bank or Treasury. When the Minister replies, perhaps he can clarify whether I am right in thinking that a former governor or former deputy-governor could be appointed as one of those four. I see no reason why they could not be appointed if a former chief adviser to the Bank and a former chief economic adviser to the Treasury can be.
I did not write it down, but I believe that the noble Lord, Lord McIntosh, said earlier that there were many expert people out there who could easily be appointed to carry out those tasks. I do not disagree. I am sure that there are. That is why I think that it would be right and proper for the Government to table an amendment for consideration next Monday because I fully appreciate that my phrase "a senior employee" is perhaps not adequately tight and I should like the Government at least to convince me that the away team could not be constructed in such a way that it was really the home team in another guise. I beg to move.
Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord for explaining his amendments, Amendments Nos. 20, 21 and 22. If I go into Woolworth's and see all the pick-and-mix sweeties, I never know quite where to start—and I did not know quite where to start with these amendments because, as the noble Lord rightly explained, they are alternatives rather than an expression of a coherent point of view. Therefore, I must ask the noble Lord what he would prefer. He is giving me all these alternatives, but what would he like me to do? But perhaps I should not ask the noble Lord that because I am not going to accept any of the amendments and I do not want to delay the House.
However, it is an interesting approach to the tabling of amendments. It may prove helpful in terms of debate. The difficulty is that there is no right answer to terms of appointment for renewal; it is a matter of judgment. As we made clear in Committee, a balance must be struck between a term that is long enough for members to gain experience and learn on the job while making it relatively easy not to renew the contracts of those who are not pulling their weight. I do not know whether there will ever be a perfect answer. Our solution is that the initial term of appointment should be relatively short in order to ensure that those who do not work out and who do not contribute can be removed by rather less violent means than those proposed by the noble Lord in Committee; namely, that their salaries should be docked. However, there should be a recognition that those who contribute to sensible debate, in terms of the monetary policy committee's own estimate of sensible debate, can have their appointments renewed. I have no fixed idea in my mind that 14 years or 10 years is too long or that three years is too short. I believe that it varies from one individual to another. We believe that the combination of three years and reappointment is the most flexible of the alternatives open to us.
In response to the noble Lord's last point, there is no Treasury appointment to the monetary policy committee. A Treasury official attends the committee as

1015
an observer. The noble Lord can build any suspicions he likes into that, but it is not quite the same as an appointment.
Amendment No. 23 is slightly different. It does not deny the appointment of an ex-senior employee of the Bank or Treasury but relates to the possibility of his removal; in other words, it is specifically an anti-Budd and anti-Goodhart amendment. It enables the Chancellor of the Exchequer to remove professors Budd and Goodhart simply on the grounds that they have been senior employees of the Bank or the Treasury. I cannot imagine that they would view it in any other way. I make no textual point about the phrase "senior employee of the Bank or Treasury". I simply believe that it is a mistake to insert a proposal for the removal of two highly respected people who are presently serving on the monetary policy committee by means of an amendment of this kind. I invite the noble Lord to withdraw the amendments.
6.45 p.m.
Lord Mackay of Ardbrecknish: My Lords, I was reasonably satisfied with the noble Lord's reply until he came to the last amendment. To deal with the first amendment, I take the noble Lord's point. There is no right answer to the question of how long an individual should serve on the monetary policy committee. Certainly, I believe that three years is too short. I believe that even three years with reappointment is too short, for the reasons I gave in Committee; namely, for too much of that period perhaps the person concerned is looking to his or her reappointment. I do not believe that that would be wise. There is much merit in having one appointment for a reasonable length of time and no reappointment. But I knew that the noble Lord was keen on three years—I was aware of the arguments that he put forward—hence my suggestion that someone with three years should be reappointed only once, making six years. However, I see that I shall not make much progress.
I do not believe that it is a very good argument to allege that this is an anti-Goodhart and anti-Budd amendment. It is not. It so happens that they bring to my attention the fact that they are both ex-senior members of the Treasury and the Bank. I wondered whether we really wanted that situation to be replicated all the way down the line. I was making no attack on those two gentlemen.
Lord McIntosh of Haringey: My Lords, I would not dream of accusing the noble Lord of making a personal attack on those two gentlemen. However, if he wanted to ensure that it did not happen again surely he should have drawn the amendment so as to disqualify those gentlemen rather than add this as a ground for removal.
Lord Mackay of Ardbrecknish: My Lords, if it is a ground for removal that is not my intention. I apologise. I meant that when the Chancellor came to appoint people he should not appoint a senior employee of the Bank or the Treasury. I shall look at this matter carefully. I may have to revisit it if it does not mean what I intended it to mean.
1016
The noble Lord has not answered my point about the possible appointment of a former governor or deputy governor. Would the noble Lord care to respond to that point before I decide what to do with this amendment?
Lord McIntosh of Haringey: My Lords, with the leave of the House, there is no formal exclusion for a former governor or deputy governor. I insist that the noble Lord's amendment as drafted refers to removal rather than disqualification.
Lord Mackay of Ardbrecknish: My Lords, I shall check to ensure that it means what I intended it to mean. I believe that all noble Lords in the House are aware of my meaning. The noble Lord's last response gives me greater concern which perhaps is shared by other noble Lords. My noble friend Lord Henley has said that the description could easily be not so much "home and away" as "the school versus the old boys". I believe that that is a fairly accurate description. I suggest that the noble Lord, Lord McIntosh, asks his Treasury colleagues whether they want a position in which the four members of the away team can be a former governor, a former deputy governor and the two who are already there. Does he really believe that that will give the outside world a great deal of confidence in the monetary policy committee and its spread of membership? I know that with only four members it is difficult to get a spread of membership. However, I do not believe that any of the four members should have been in their time members of the home team, certainly not an ex-governor and ex-deputy governor.
I shall take to heart the noble Lord's strictures about what the amendment means and check the matter. I may return to it next week when I hope that he will be able to table an amendment to ensure that a future Chancellor of the Exchequer cannot make the four away appointments from four people who were once involved in the home team in the Bank. A seamless move from being a member of the home team to being a member of the away team is a lot worse than I envisaged in my original amendment. I hope that the Government will give that consideration. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 21 to 23 not moved.]
In the Title:
[Amendment No. 24 not moved.]

Police Disciplinary and Complaints Procedures
6.48 p.m.
Lord Hoyle: My Lords, with the leave of the House, I should now like to repeat a Statement made in another place. The Statement is as follows:
"With permission, Madam Speaker, I wish to make a statement about the Government's response to the Home Affairs Committee Report into police

1017
disciplinary and complaints procedures. I am placing in the Library a copy of the response to each of the committee's conclusions and recommendations.
"I should like to start by praising the honesty and integrity of the vast majority of police officers in this country. Their job is a difficult and dangerous one. As a society, we make huge demands of them. We have a police service which is one of the finest in the world.
"The reputation of the service is put at risk, however, by a very small minority of officers whose behaviour falls below the standards which the public expect. Their actions undermine the work of honest officers, and shake public confidence in the service as a whole.
"I am therefore determined to give the police service the powers which they need to deal effectively with this corrosive minority of bad officers. The Home Affairs Committee's report made a compelling case for change. I am announcing today the steps which I am taking to implement most of its recommendations.
"A debate on reform of those procedures has been going on for five years, since the previous government launched a consultation paper in 1993. At the heart of that debate has been the issue of whether arrangements in the service should be brought more in line with normal employment practice in other fields. The basis of the Home Affairs Committee's report is that it should.
"The time has now come for the Government to take decisions and act upon them. I have been helped in this by the constructive and professional approach adopted by the Police Federation, the Superintendents' Association and the Association of Chief Police Officers.
"One illustration of that approach is the widespread agreement already achieved with the staff associations that the police need new procedures for tackling poor performance by individual officers and ones which are separate and different from those needed to deal with disciplinary matters. I accept the committee's recommendation that the new procedures should be introduced without delay.
"Let me now turn to procedures for discipline. I have decided that the standard of proof in disciplinary cases should be changed from the criminal to the civil standard. I am alive to the argument that some officers might be less likely to tackle criminal behaviour through anxiety that that change could leave them vulnerable to unfounded and malicious complaints. However, the civil standard of proof has operated fairly in the police service in Scotland, and there is no evidence that that has undermined officers' effectiveness. Moreover, I have every confidence that with this change police officers as a group will continue to act in the public interest. Nevertheless, I am discussing with the police associations the possibility of conducting attitudinal research to monitor the effect of the change among officers.
1018
"There are circumstances in which conduct may constitute a breach of discipline, although it has not been proved to be a criminal offence. At present, an officer acquitted of a criminal offence may not be charged with an equivalent disciplinary offence, principally because the standard of proof is the same in criminal and in disciplinary proceedings. In future it will be possible for officers to face both disciplinary and criminal action on the same facts. That brings the police into line with the position of most others in the public and private sectors.
"I am also accepting the committee's recommendation to end the 'right of silence' of officers in disciplinary hearings and to apply the same modified caution as laid down in the Criminal Justice and Public Order Act 1994.
"At present officers who face the loss of their job or rank as a result of disciplinary proceedings are entitled to legal representation at all stages of formal disciplinary action. The committee recommended that their right should be maintained only for those officers who are at risk of losing their jobs. However, I have decided to retain the status quo so that officers facing reduction in rank also retain their right to legal representation. I am also rejecting the committee's recommendation that discipline hearings should be held in public. While the public has a right to know the outcome of proceedings, it would in my view be manifestly unfair to officers facing discipline to have to present their cases at a public hearing.
"The committee recommended that chief officers should have available to them a system of 'fast track' dismissal for the most serious cases. I have decided to accept that recommendation. That system will need careful and detailed work before it can be ready for implementation. There will be discussions with the police staff associations about the appropriate procedure. The fast track procedure will be within the framework of a fixed timetable of no more than six weeks from beginning to end. The procedure would include the right to legal representation and there would be a right of appeal. Officers will be able to be suspended from duty immediately, as is the case now.
"There is one serious defect in the present practice which causes great public concern. That is where a police officer's retirement on ill-health grounds is agreed before disciplinary proceedings can be completed, thus ending all prospect of disciplinary action against an officer. As the House knows, the inability to complete disciplinary hearings after the Hillsborough disaster was quite rightly a cause of anger and frustration to the families of victims.
"The procedures will therefore be strengthened so that where accused officers claim that they are unable, through ill-health, to appear at disciplinary hearings, matters can be decided in their absence, with appropriate safeguards. I will also secure a rigorous application of the existing regulations so that any outstanding disciplinary matters have to be completed before any application for early retirement can be considered.

1019
"I also intend to take firm action against officers convicted of criminal offences connected with their work. At present police authorities can apply to me for a certificate to forfeit the pension of such an officer. In future police authorities will be asked to refer all such cases to me automatically. It is abhorrent that public money should be paid out to those very few officers who are convicted of criminal offences and who abuse their position of trust.
"It is my aim to introduce all those changes in England and Wales with effect from 1st April 1999. I have consulted my right honourable friend the Secretary of State for Northern Ireland on my response, as the Northern Ireland discipline regime mirrors the one for England and Wales. My right honourable friend agrees with my proposals and will be implementing them in Northern Ireland.
"I turn now to the committee's recommendations on complaints which must be considered separately. Independence and openness are the key to greater public confidence in the police complaints system. The committee's proposals point the way forward. However, some of its proposals require legislation and many have significant resource implications. Against that background, I intend to make progress on those changes which do not require primary legislation.
"I accept the committee's recommendation that the Home Office should conduct a detailed feasibility study of different arrangements for an independent complaints investigation process. I also accept the committee's view that, in the absence of a totally new investigative body, fundamental changes to the complaints process would be premature, but that in the meantime the Police Complaints Authority should make robust use of its powers.
"I accept in principle the committee's recommendation that the PCA be given the powers and the funds to commission independent investigations in cases where there is reason to believe that the existing process is inadequate. However, that has significant extra costs which make early change here unlikely.
"The committee also recommends that either the PCA or any independent review body should be able to undertake investigations whether or not the matter has been the subject of a complaint. In the light of that, I am minded to propose that, as Home Secretary, I should be given a power to request or require the PCA to initiate and oversee such investigations.
"Many people make a complaint about the police which for one reason or another is not recorded. The committee proposes a relatively straightforward change to the recording of complaints which will make the current system more responsive to public concerns. It suggests that all representations which could constitute a complaint should be registered by the police, with a right of appeal to an independent body for the complainant where there is a disagreement: and that it should be possible for a complaint to be registered directly with the PCA in certain circumstances. I accept these recommendations.
1020
"I have considerable sympathy with the criticism that existing arrangements are not sufficiently open to public scrutiny. The committee has recommended that investigating officers' reports should be subject to disclosure on the same basis as other documents relating to a complaint and that investigation files relating to deaths in custody should generally be made available to the deceased's family before inquests. These recommendations raise difficult issues.
"The reports of investigating officers form a class which the courts have ruled are entitled to public interest immunity, although the police can be directed to disclose a report where a court is satisfied that the public interest of disclosure outweighs the public interest of preserving confidentiality. On inquests, the High Court has held that a person is not entitled in advance of the inquest to see copies of statements provided by the police to coroners. The release of such documents is at the discretion of the police. I am giving further consideration to the scope for change in this area.
"My detailed response to the committee deals with the other confidence-building changes which it has recommended. Some of the recommendations on the complaints system which I have accepted will require primary legislation. The Government will look for suitable opportunities to introduce the changes. Much detailed work and consultation is required with ACPO, the police staff associations, the Association of Police Authorities and other interested parties. This further work and consultation will begin straightaway.
"In considering the committee's recommendations, I have paid full regard to the implications for all police officers who every day fight crime and disorder and protect the public. I have no intention of making them more vulnerable to malicious complaints about the way they do their jobs.
"Equally we must deal robustly with wrong doing by a very small minority of police officers if public trust is to be preserved. Uppermost in my mind has been protecting the deservedly high reputation and standing of the police service as a whole. In this country, we police by public consent and that consent depends on public confidence and trust. The measures I have announced today will strengthen the people's trust and confidence in their police service".
My Lords, that concludes the Statement.
7.2 p.m.
Lord Henley: My Lords, I thank the noble Lord, Lord Hoyle, for repeating the Statement made earlier today by the Home Secretary on the police discipline and complaints procedure. I also thank the noble Lord and the usual channels for agreeing to deal with the Statement at an hour later than is usual. It was extremely convenient to me, particularly bearing in mind the reliability of the West Coast Railway, of which the noble Lord will be aware.
Like the noble Lord and the Home Secretary, I pay tribute to the police. Their work is difficult and is often undertaken in almost impossible circumstances. As was recently made clear by the Metropolitan Police

1021
Commissioner, Sir Paul Condon, we must stress that the vast majority of policemen are honest and deserving of public trust. However, as the Home Secretary made clear, some fall below the high standards that we expect of our police officers. It is right that appropriate procedures are in place to ensure, first, that proper discipline can be maintained; secondly, that the "bad apples" can be removed speedily; and, thirdly, that the public retain confidence in the police and in policing.
In ensuring that we have an adequate system, can the Minister assure us that whatever emerges will deal with three classes? I refer to those officers who are out-and-out criminals; those officers who on occasions bend the rules in order to achieve convictions; and those officers who are inadequate and incompetent. In any organisation there are always those who are inadequate and incompetent, and procedures dealing with discipline and the removal of police officers should be designed to deal with them, too.
The Home Secretary has given a detailed response to the report of the Home Affairs Select Committee. I confess that, perhaps like others, I have not yet had time to read it. However, I imagine that the response will be debated and will merit detailed consideration. Some parts will indicate that primary or secondary legislation will be required. When that comes before this House we will have an opportunity to debate the issues in detail. However, I hope that the usual channels will consider finding time to debate the generality of the Home Secretary's response so that everyone who has an interest can offer their thoughts on that and on the Select Committee's suggestions. Can the Minister indicate in greater detail which of the proposed changes require primary legislation, which can be dealt with by secondary legislation, and which matters will require no legislation?
Tonight is not the right time to make off-the-cuff suggestions, or to shoot from the hip, about the Home Secretary's response to the Select Committee. However, the Statement raises a number of issues which we ought to address. The first issue relates to how much primary legislation will be required and how much can be brought into effect by 1st April 1999, barely a year away, as mentioned in the Statement. If primary legislation is required, will consideration be given to publishing a draft Bill before the beginning of the next Session? We would then have slightly more time for consideration than the November to April period usually allowed in the timetable.
Paragraph 21 of the Statement refers to consultations with colleagues in the Northern Ireland Office. As the English and Welsh systems are broadly similar to that in Northern Ireland, will the Minister elaborate on Scotland? Are issues there much the same? I appreciate that some are different and that Scotland already has a lower standard of proof, as referred to in the Statement, and seems to work happily with that. Will such matters need to be addressed in Scotland or will they be left to the devolved Scottish parliament?
1022
The rights of individual officers are being weakened and the Police Federation has expressed considerable anxieties, particularly as police officers need extra protection against unfounded complaints from principals. I expect that most noble Lords will understand those fears, which may or may not be groundless. Can the Minister say what consultations have already been held with the Police Federation? I appreciate that the Statement refers to consultations which will take place in the future, but it would be useful to know whether the Home Secretary has already had meetings with members of the federation and others. I am sure that more consultation will be offered in the future.
I turn now to a couple of specific questions. One is slightly detailed and it may be that the noble Lord would wish to write to me in response to it. Paragraph 19 refers quite rightly to the abhorrence that public money in the form of pensions should be paid out to those very few officers who have committed crimes and who abused their position of trust. My understanding of most pensions is that part is contributed by the employer and part by the individual concerned. Is the noble Lord saying that the part of the pension which has been contributed personally will also be confiscated or is it only that part of the pension which has been contributed from public funds?
Secondly, in paragraph 15, the Home Secretary makes it clear that he accepts the status quo with regard to legal representations and does not agree with the recommendations of the committee on that subject. Will the noble Lord confirm that it was the Conservative minority view on the committee that the status quo should be retained and that the Home Secretary, quite sensibly, has followed the recommendations of that Conservative minority on the committee?
I move on now to the second half of this Statement, which deals with complaints procedures. I have relatively little to say on that. I believe that that section might be described as fairly tepid. It adds very little to the current procedures. Might there be something to be said for requiring the police for example, to issue a receipt when a member of the public makes a complaint? The noble Lord will find reference to that in paragraph 28. That receipt would detail where, when and to whom the complaint was made and would give information as to how the complainant could find out what had happened to his complaint.
Further, might it not be possible to require police officers to make themselves available for interview with legal representatives of relatives of the deceased before any inquests have taken place? Indeed, the police should be encouraged to provide as much information as possible if they know what is to come out at an inquest or during civil proceedings. To keep all of that information secret increases suspicion of a cover-up and discourages full co-operation between the public and the police.
Finally, as regards the consultation referred to in paragraph 22, can the noble Lord tell us whether that consultation will be a public discussion? Will a

1023
consultation be published and will the responses to that he made public and available to Members of this House and another place should they so wish?
7.12 p.m.
Lord McNally: My Lords, the Minister will be aware that my noble friend Lord Harris of Greenwich raised many of the issues covered in this Statement in a debate in this House on 12th November. Many of the actions which the Minister outlined today were suggested directly during that debate by my noble friend. Therefore, from these Benches, it would be churlish not to give a very warm welcome to the initiatives taken by the Home Secretary and, indeed, a warm welcome to the work of the Select Committee in another place on those issues.
We should record also, as did the noble Lord, Lord Henley, that as long ago as last October, Sir Paul Condon raised those matters as issues for urgent response. It is fair to say that a Statement in March matches that criterion. The Government have shown a real sense of urgency about this.
There were and are three genuine concerns among the public. There is the concern expressed by many senior police officers that they lack the necessary powers to be able to manage their forces efficiently and I hope that some of these changes will help them in that respect. There is a lack of faith among the general public in the current system and, of course, there is genuine public abhorrence of criminality and corruption in the police force. The measures announced should be welcomed and the Home Secretary should be applauded for introducing them.
The closure of the retirement/health loophole will be welcomed generally. Will that apply right to the very top because, quite often, it is when the very senior police officers get into trouble that health is used as a convenient back door?
Also, in the case of corruption, there are a number of measures which can he taken but I believe that the general public would like to be reassured that criminal prosecution is among those options; that if policemen behave criminally, they come within the criminal law and not just under police discipline.
Apart from that, the only other small point that I make to the Minister that leaves me a little bit twitchy is that the term "resource implications" is used rather too often in the Statement for my peace of mind. I hope that that is not a get-out for the Government as regards not implementing very welcome intentions because I am sure the Minister would agree that there are resource implications in not doing things. Expensive civil litigation has resource implications. Therefore, in both complaints procedures and disciplinary procedures we need a proper machinery to be in place as quickly as possible. I hope that there will not be too much delay because of resource implications.
Together with that, we need a commitment to transparency, as far as that is possible, in the carrying out of these matters because nothing can give greater confidence in the police than public transparency in relation to how complaints are dealt with and how
1024
disciplinary procedures are undertaken. I understand some of the limitations on that but both the police authorities and the Home Office should test the limits of transparency as a way of winning back confidence. Likewise, the pressure for more powers of independent investigation needs to be pushed forward with all due diligence.
But balanced against that, I ask the Minister to consider one matter. As I prepared for the Statement and as I listened to it, a story my father used to tell me ran through my mind. My father was brought up in one of the toughest parts of Liverpool. He always used to tell stories of the local policeman who was known universally as "Clear off". That was because if ever he saw young people gathering or doing anything he did not like, he would simply say, "Clear off", and they did. Modern policemen and women have to operate against a society which is much less tolerant of discipline and among people who are much more likely to complain than those whom "Clear off" encountered. The modern policeman comes under pressures, with the drug regimes and other pressures in our society, which are far more difficult than any which his predecessors had to face.
It worries me that, in response to this Statement, the Police Federation said that there could be implications for morale. I am not sure that that impact on morale will necessarily be met simply by attitudinal research. There is a need for Ministers, in bringing forward these very welcome reforms, to couple them with real reassurances to policemen and women of our confidence in them and the respect that we have for the difficult job that they do.
7.20 p.m.
Lord Hoyle: My Lords, perhaps I may, first, express my sympathy for the noble Lord, Lord Henley, who has to use the West Coast line; indeed, I know the frailties of it. All I can say is that I am pleased to see him here this evening.
I should like to join with both noble Lords in paying tribute to the vast majority of the police who undertake the very difficult job of protecting all of us. What we are concerned with is a very tiny minority. In dealing with that tiny minority, we must not undermine the confidence of the vast majority in the new procedures which are being put in place. I believe that the vast majority do not like to be associated with the small minority involved in such matters. I believe that the present measures could well strengthen that relationship.
The noble Lord, Lord Henley, raised several matters. He asked, first, about the three classes of police officer—namely, those who are criminal, those who sometimes bend the rules and those who are inadequate officers. I should tell the noble Lord that the new procedures will cover all of them. The first two categories, the criminals and those who bend the rules, will be dealt with by disciplinary procedures. The case of inadequate officers is being looked at by management and new procedures will be put in place to deal with them. It is only right that they also should be considered.
Some of the new disciplinary procedures will be carried out by regulations and, indeed, some complaints are matters for primary legislation. As regards

1025
secondary legislation, I can confirm that the disciplinary matters which fall to be dealt with by secondary legislation are the standard of proof, the fast track dismissal and the completion of disciplinary procedures when an officer goes off sick. We have given a date for all of them, and the noble Lord is quite right to say that it is 12 months from now. We aim to introduce these changes with effect from 1st April 1999. Although it may be a short time from now, we shall, so far as possible, try to ensure that that date is met.
As regards primary legislation, that will cover any significant change in the complaints system, in the independent investigators' power to call an investigation and in the supervision of the PCA, even where there is no formal complaint required. The noble Lord also asked whether a consultation paper would be published on complaints matters. I can tell the noble Lord that no decision has yet been taken in that respect. At present, the Home Secretary will consult with the PCA, the police staff associations and the Association of Police Authorities. Indeed, he will consult with all of them before he decides the way forward.
The noble Lord, Lord Henley, also asked what other consultations had taken place prior to these changes being introduced. I can confirm that the Home Secretary has had extensive consultation with all the police associations and with all those connected; indeed, that has been taking place alongside this process. I should tell the noble Lord, Lord McNally, that I appreciated what he said about the Statement and about the speed with which the Government have acted in relation to it. We are intent on getting matters right because we must carry the public with us. However, as I said when repeating the Statement, we can only proceed by agreement with the public. In order to do so, the public must have confidence and trust in the police.
The noble Lord, Lord McNally, also mentioned "resource implications". While we cannot give any date as to when other matters which require resources will be carried forward, I am sure that the noble Lord will agree with me that we have acted fairly speedily up until now. Indeed, the Home Secretary has said that he will look into matters that have resource implications.
Finally, I welcome the comments of both noble Lords who have spoken, especially as regards their praise for the police. I repeat: in bringing in the new regulations, we shall not do anything to undermine honest policemen.
7.24 p.m.
Lord Randall of St Budeaux: My Lords, perhaps I may, first, make a few brief comments on the Statement. I should like to congratulate the Select Committee on producing what I believe to be a very focused and practical report. Indeed, great credit should be given to the committee in that respect. I should also like to endorse the comments by my noble friend the Minister about the way in which the Government have taken forward the recommendations in the report so expeditiously. There is a need for such action and I believe that that shows good and firm decision-making by the Home Secretary, on which I compliment him.
1026
On the question of complaints, I should tell the House that I have for some time believed in the idea of an independent complaints organisation. The reason for that is twofold. First, I feel that this would ensure that we always had the confidence of the public in our police service. It is a good service; but, from experience over the years, I believe that there have been times when the public have not been as confident in them as I would have liked. Secondly, many of the very senior police officers to whom I have spoken over the years have actually agreed that an independent complaints organisation would be laudable.
I hope that I got this right, but I believe that the Statement referred to the fact that the Government have rejected—if that is the right way to put it—the idea of an independent complaints organisation, which I presume was recommended by the Select Committee, on the grounds that it would be too expensive. For me, therefore, that creates some sort of dilemma. Yes, of course, we must always be careful about expenditure, but how much are we prepared to avoid paying? The saving of money in that respect might possibly damage the confidence of the public. Can my noble friend the Minister tell us exactly how much such a process would cost? Further, does he agree with me that such a rejection would in fact prevent us ensuring that we do maintain in the maximum possible way the confidence of the public in our police service?
Lord Hoyle: My Lords, I thank my noble friend for his kind remarks in relation to the Home Secretary and to the Select Committee's report; and, indeed, in relation to the speed with which the Government have acted. My noble friend asked me about an independent body. As I said, this is something into which my right honourable friend the Home Secretary has promised to look. As regards the cost, I am afraid that I am not in the position to be able to give my noble friend any idea of the amount involved.
I should point out that the Home Secretary has said, both in the Statement and generally, that it is the perception of the public which demands an independent body. Indeed, the police officers conducting the present investigation are themselves very independent and robust in the way in which they conduct their investigations. However, he agreed that there is a perception in the mind of the public that such a process is not always independent. I should say that there was a request from the Select Committee that, wherever possible, an independent force should examine such matters as indeed is the practice in many cases at present. The Home Secretary has also promised to look into that aspect.

National Minimum Wage Bill
7.29 p.m.
The Minister of State, Department of Trade and Industry (Lord Clinton-Davis): My Lords, I beg to move that the Bill be now read a second time.
It is a great privilege for me to launch today what I hope and expect will be an interesting and constructive debate on one of the Government's flagship policies: to

1027
introduce for the first time in this country a statutory national minimum wage. I add, not exactly in parenthesis, that I am extremely pleased to welcome to the Opposition Front Bench on this occasion two much admired, well liked Members of this House, the noble Baronesses, Lady Miller of Hendon and Lady Seccombe. I enter no caveats about their appearance on the Opposition Front Bench except that I expect them to support the Bill to the hilt! I shall proceed by giving a brief summary of the Bill. Broadly speaking it sets up a legislative framework—
Lord Strathclyde: My Lords, before the noble Lord explains the Bill I hope he will not mind if I introduce a hint of dissent. It is now half-past seven and the noble Lord is introducing one of the most important Bills that the Government are introducing during the course of this legislative Session. We were told that this Bill would start at around six o'clock this evening. There are 18 speakers. That means this debate will probably not finish until between 10.30 p.m. and eleven o'clock. Apart from those who are to speak in the debate, the House is relatively empty. Does not the noble Lord think that he owes the House an explanation, and indeed perhaps even an apology for not having organised the business in such a way that we could start the debate earlier?
Is it not a reflection on the Government that they have so organised their business as not to be able to discuss this Bill at prime time after Questions on a normal day? It will not have escaped the notice of the Minister that half-past seven is normally the time that we adjourn for dinner. What arrangements have been made to feed noble Lords who will take part and listen to the debate? The noble Lord, Lord Clinton-Davis, will know how much we, the official Opposition, have sought to co-operate with the Government ever since they came into office last May. We have done so not just to the letter of the law but also to the spirit of the law. I hope the noble Lord will convey to the business managers that although we have sought to co-operate in the past, after this evening's performance it will be considerably more difficult to do so.
Lord Clinton-Davis: My Lords, first of all, as to the dinner arrangements I have had mine, and so has the noble Baroness, Lady Seccombe, who ate with me. We have a crowded Back-Bench here.
As to the substance of the point that the noble Lord makes, of course he knows that I am not in charge of the usual channels. If he has a complaint to make, I am sure that he will make it in the appropriate manner. We had a Statement which did not involve all the Members of the House who are present now. I do not think I can usefully comment further. I think the noble Lord will be aware that those on my Front Bench read Hansard and they will read what he says. I have no doubt that he will communicate directly to the Government Whips his concerns about the matter. I hope that we are not to construe what he said about future business as a threat; he is too benign for that.
1028
I was about to embark upon a brief summary of the Bill when I was so inappropriately interrupted. I see that the Chief Whip is leaving the Chamber; obviously he intends to eat his dinner now.
The Bill sets up a legislative framework for a national minimum wage expressed as an hourly rate and applying to all workers in this country. It provides a power to establish a statutory low pay commission, and to treat the report of the existing Low Pay Commission as if it were the report of the statutory commission. The commission will recommend a rate for the national minimum wage, as well as how to calculate a worker's hourly pay for minimum wage purposes, and what reference period should be used in making this calculation. In addition, it will consider whether there should be any different rates or exemptions for young people below the age of 26, and for those such as trainees above the age of 26.
The Secretary of State will set the rate and any different rates or exemptions through regulations once the commission has reported. If she departs from the recommendations in any way, she must lay a report before Parliament giving her reasons for so doing.
The Bill also sets out various enforcement measures including the power to appoint enforcement officers and the creation of criminal offences, and imposes a duty on the Secretary of State to publicise the minimum wage. It also ensures that the minimum wage legislation interacts with existing legislation on minimum agricultural wages, so that all agricultural workers will be covered by the national minimum wage in addition to their existing regime.
I shall now briefly explain how the Bill works by running through the various parts of the Bill in rather more detail. We have of course provided detailed Notes on Clauses for those noble Lords who wish to become even more expert in the subject. We welcome the contributions that they may make not only in this debate but at later stages.
Clauses 1 and 2 are key clauses. They establish a worker's right to the national minimum wage and give the Secretary of State the power to make regulations which set and adjust the national minimum wage, determine any pay reference periods and determine how properly to calculate a worker's hourly rate.
Clauses 3 and 4 give the Secretary of State the power to make regulations which exclude or provide a different rate for those under 26, and to add others to this group who are over 26, such as trainees which I have already mentioned.
Clauses 5 to 8 provide a statutory framework for the low pay commission. The Secretary of State must refer particular matters to the low pay commission before first setting the national minimum wage. She has to at any future time refer matters to the low pay commission. The low pay commission must have regard to the economy of the United Kingdom and competitiveness in preparing its reports. The existing, non-statutory Low Pay Commission is—as I have already indicated—to be treated as if it were the statutory low pay commission.

1029
Clauses 9 to 12 deal with record-keeping. The Secretary of State may make regulations requiring employers to keep records which workers will have the right to inspect, and giving workers a right to a written national minimum wage statement when they are paid. Clauses 13 to 22 deal with enforcement. The Secretary of State may appoint officers or use the officers of another department or Crown body, to enforce the national minimum wage. The powers of such officers are set out. The clauses provide for information exchange between enforcement bodies for national minimum wage purposes, including arrangements with agricultural wage enforcement officers.
Enforcement will be achieved through two routes. First, any worker paid less than the minimum wage will have a contractual right to recover the difference between what he has been paid and the national minimum wage by going to an employment tribunal or any other appropriate civil court. This reflects the existing right to recover underpayments. Secondly, enforcement officers can issue an enforcement notice requiring an employer to pay the national minimum wage. Officers will be able to follow this up with a financial penalty if an employer fails to comply.
Clauses 23 to 27 make it unfair to dismiss a worker or take detrimental action against him on the grounds that he qualifies or will qualify in the future for the national minimum wage. A worker is also protected from any action against him for asserting his rights under the Bill.
Clauses 27 to 30 deal with proceedings for civil cases. This includes a reversal of the burden of proof in all civil proceedings, so that the onus is on the employer to show that an individual making a claim is not entitled to the minimum wage, or has in fact been paid it. ACAS has a conciliation role in tribunal cases involving the minimum wage.
Clauses 31 to 33 deal with offences. There are to be six criminal offences, the main one being the refusal or wilful neglect to pay the national minimum wage. The others relate to obstructing an investigation and failure to keep records. A person guilty of one of these offences will be liable to a fine of up to £5,000.
Clauses 34 to 45 clarify the position regarding particular classes of people. Agency workers and homeworkers who may not otherwise be "workers" as defined in the Bill are given the right to the minimum wage. This is in line with the Bill's inclusive approach. The Bill also covers Crown employees, staff of the House of Lords and House of Commons—they are to be treated on exactly the same basis—and mariners in UK-registered ships provided they normally reside in the UK. The Bill can be extended to others, including offshore workers. The Bill does not apply to members of the armed forces; share fishermen; genuine volunteers; or prisoners.
Clauses 46 and 47 ensure that agricultural workers receive at least the national minimum wage as part of any agricultural minimum rate and make various
1030
adjustments to ensure a smooth interaction between the national minimum wage and the agricultural minimum wage regimes.
Finally, Clauses 48 to 56 are miscellaneous and supplementary. The most significant is the clause which has the effect of preventing a worker and employer from agreeing to a level of pay below the national minimum wage. These clauses also cover publicity for the national minimum wage, deal with the regulation and order-making powers—most of which I think the House will be pleased to know, are subject to affirmative resolution—and define the terms used in the Bill.
I hope that this outline is sufficient to give noble Lords an overall picture of the Bill. Its purpose is straightforward. It is to mount a direct attack on the scandal of low pay and in-work poverty which exists all too often today. The minimum wage which it will introduce is to be established on principles of universality, clarity and simplicity. As my right honourable friend the Chancellor of the Exchequer said during the debate in another place on the Queen's speech:
"Only a minimum wage will provide the sure foundation for the tax and benefit reforms that we shall introduce to make work pay. Far from being a job-destroying measure, a minimum wage is an essential component of a constructive strategy to make work worth while and to create jobs."—[Official Report, Commons, 20/5/97; col. 544.]
The priority of that policy is underlined in much that the Government have already done, and in what the Chancellor has already taken forward in his Budget. It is a priority policy. We are very proud of the policy which we put clearly before the electors and on which we fought and won the election beyond any doubt whatsoever. I submit that the policy is right; it is fair; it is just and it is sensible.
The time is overdue for a minimum wage to be introduced. Our reasons for doing so are based both on social and on business grounds and I submit that the rationale may be considered from the workers' and the employers' points of view alike. For workers, together with tax and benefit reform, it can promote work incentives and form part of a strategy to "make work pay". By removing the worst cases of exploitation, it can ensure greater decency and fairness in the workplace. Too many people are paid too little. We need to raise their earnings and their earning power. We have made the introduction of a national minimum wage a top priority and it will set a floor of decent pay for everybody.
What we shall achieve through the Bill will contrast strongly with what went on in the previous 18 years before we took office, during which there was a constant erosion of the rights and security of workers, most notably, so far as concerns pay protection, involving the abolition of the wages councils which had protected the wages of large numbers of people in some of our lower paying industries.
Statistics tell us that the minimum wage will be of particular benefit to women and ethnic minorities. For a number of reasons, those groups are much more likely to be occupying jobs at the lower end of the pay spectrum. Many women have so far been unable to use

1031
the provisions of the equal pay legislation to raise their pay relative to that of men. Those groups will benefit, therefore, from the introduction of a fair and just minimum wage.
The goal that we set before the House is to make our country fit for the 21st century. The labour market our measures will usher in will accommodate the need for change and adaptability, aided by better training and retraining. But the workers in that market will have greater security and greater protection against abuse than they have ever enjoyed; and that is needed.
As well as the overwhelming social justification for a minimum wage, there is an equally powerful business case for having a pay floor legally set. More people will be attracted into work. Firms will be encouraged to invest in developing their staff. Workers will have a greater sense of attachment to and involvement and interest in their firms.
A minimum wage will prevent undercutting on price based on low pay. It should encourage firms to compete on the basis of quality, not just on the basis of price. It will bring an end to the situation, all too familiar, where a responsible employer finds he is being undercut by unscrupulous competitors paying rock-bottom wages.
A minimum wage should reduce staff turnover and encourage training. Rapid turnover of staff in low pay sectors is a key reason why employers are reluctant to invest in training. Research by the Centre for Economic Performance has shown that recruitment costs in sectors with a disproportionate number of low paid workers—the hotel and fast food business—can range from £352 to £686 per vacancy. This is in industries where recruits stay in a job on average eight to 10 months. There is little incentive to train employees if the skills acquired are likely to be lost to the firm.
We shall have a well trained and better motivated workforce—the kind of workforce in which good employers will want to invest. By helping to promote employee commitment, reduce staff turnover and encourage investment in training, the minimum wage will provide a boost to productivity. And that is seriously required in this country. This all adds up to a more competitive workforce and more competitive businesses. That represents one of my department's key priorities. It will make this country not only fairer, but also a more prosperous place in which to live. As both workers and businesses will benefit, so will the economy as a whole.
I anticipate—I hope that I am wrong—that we shall hear in the debate many of the traditional arguments against the Bill. The issue of job losses will no doubt arise even though the large number of studies into minimum wage fixing have revealed no evidence to prove that a sensibly set minimum wage will adversely affect employment prospects.
It is for all those reasons that, although we await the report of the Low Pay Commission, I hope that I have been able to rebut the claim that this Bill is nothing but an empty framework. And, hard on the heels of the job losses argument, I fully expect that we shall encounter the ogre of the "restoration of pay differentials", inviting us to believe that if the pay of a car worker in Daventry
1032
is raised to meet the requirements of the minimum wage, the pay of a car worker in Dagenham will go up in proportion.
It is interesting to note in that connection a recent study by Income Data Services [IDS]. This found that many of the arguments about the potentially damaging effect of minimum wages and the restoration of differentials had been highly partial and prone to exaggeration. It found that many companies were already putting up the pay of their lower paid employees—in advance of the arrival of the national minimum wage—and have not appeared unduly concerned at the costs involved. Even more interestingly, the study found no evidence of pressure from higher-paid workers to restore pay differentials. That provides, I submit, considerable food for thought for those who predicted that firms would lay people off rather than pay them a decent wage.
Of course, we recognise that companies which face competition from low paying competitors overseas face special problems. However, the fact is that the vast majority of workers who will benefit from the national minimum wage are not going to be under the immediate influence of the so-called "global market". Contract cleaners at Manchester airport, for example, where a company is offering rates of £1.30 per hour, are not up against competition from companies operating in Bangladesh or Sri Lanka. In the main it is all about local companies competing in a local labour market in a local economy.
There are those—and this may be articulated in today's debate—who favour a variable rate for the minimum wage, with different levels of minimum pay for different regions, sectors or size of company. Such a variable rate would fly in the face of our goal of keeping the minimum wage as simple as possible; but beyond that there are practical reasons for staying with a single national rate. Our view is that to attempt to aim tailor-made minimum pay rates at particular regions or sub-regions cannot be economically justified. Pockets of relatively low (and high) pay occur in all regions. Regional and sectoral rates would lead to endless special pleading from different groups and difficulties of the "where to draw the line" sort. Finally, we believe that workers for small businesses are entitled to the same degree of protection as are workers in larger undertakings. For all these reasons we reject the idea of a variable minimum wage.
As I touched on before, the Bill provides a power with the potential flexibility to make exemptions for specific narrowly defined groups and young people. We have asked the commission to make recommendations on possible lower rates or exemptions for young people. It makes sense, therefore, for the Bill to include provision for the commission's recommendations to be taken on board—there has to be that measure of flexibility—if that is what the Government ultimately decide. I wish to emphasise that, in the first place, it is entirely up to the low pay commission to recommend whether, and in what circumstances, there should or should not be exemptions. No decision has yet been made.

1033
Of course, it is right to look in depth at the problems of young people. The Government do not wish to see the national minimum wage discourage young people from remaining in education and training, or restrict employment opportunities for those looking for jobs. To fail to consider the options in this area would be foolish indeed. That is why we have asked the commission to pay particular attention to young people and make recommendations accordingly.
Perhaps I may remind your Lordships before moving on that the Government have a number of other initiatives which will benefit this age group. The New Deal for the young unemployed will give young people a number of options to help them escape from the travails of long-term unemployment. These initiatives have a common aim—to help young people get into the workplace, to end their exploitation, and to ensure that they are trained for the challenges of the 21st century.
Clearly, there would be little point bringing in legislation without providing the means to enforce it. Naturally, the priority will be to encourage compliance by companies and awareness by workers who are not being paid the statutory minimum. The fact that there is to be a single national rate, which should be given wide publicity and with which everybody will quickly become familiar, will greatly assist this process. Ensuring that proper records are kept is another important contribution to openness. For the reasons I gave earlier, it will be in employers' own interests to pay the minimum wage for business reasons, quite apart from the penalties that may apply for not doing so.
The Bill builds upon existing civil enforcement mechanisms for individuals to pursue recovery through the tribunals or courts. There will be cases, I hope very few, where wilful and deliberate efforts are made to avoid paying the legal minimum. There will be some wily employers who might attempt to wrest some perceived commercial advantage by exploiting vulnerable workers. That would be short sighted. But these people need to be stopped, and they will be stopped. That is what the business community as a whole will want to see. They will want to rest assured that, while they are observing the requirements of the minimum wage, their competitors are doing likewise.
That is why the Bill provides for criminal offences, including wilful failure to pay the national minimum wage. It is also why the Bill provides—as indeed it has to—for the possibility of enforcement by enforcement officers who will have the ability to enforce compliance, if necessary, through the imposition of a financial penalty.
The Government have been criticised over the manner in which we have pushed the legislation forward in parallel with the work of the low pay commission. Some of our opponents have referred to it as putting the cart before the horse. I would submit we have been shown to be right in taking this twin-track approach. We have been in office for a mere 10 months. A great deal has been accomplished in that time, and, with a fair wind from your Lordships' House, we now stand very near to seeing a national minimum wage become the law of the land.
1034
We wished to consult as widely as possible before setting a rate for the minimum wage. But to have waited until that had been achieved before starting to make progress with the legislation would have considerable lengthened the timetable, and entirely without purpose.
As it is, there are those who say we have not gone fast enough. They would like us to have declared a rate for the minimum wage right after winning the election. But that would have been wrong. It would have resulted in an arbitrary rate, based on some sort of formula, and would have carried little conviction in the world of business and commerce and even within the trade union movement. We have made no secret of the fact that we have considered, and discarded, such an approach.
It was vital to speak to, and, more importantly, listen to, those who would have to live with the effects of this measure and to take their views into proper account. During the years before the election we engaged in discussions with hundreds of individuals and groups about our proposals. The need to take action was clear, and that need was reflected unequivocally in our election manifesto. It was vital that we built on that foundation and cemented support for a partnership-based approach to the problem of low pay. For that purpose, we set up an independent body, the low pay commission which will present its recommendations by the end of May.
We hope that this method of proceeding, which, through the consultation process adopted by the commission, has involved as broad a range of people and organisations as possible, should result in the minimum wage commanding the widest respect and receiving the broadest observance—much more so than if a rate had been produced without any proper consultation and foisted on a suspicious business community.
The Government have themselves submitted evidence to the commission setting out the key issues which we thought it would find helpful to consider, but giving only factual background. It was presented in a balanced manner and did not attempt to steer the commission in any particular direction. I believe that that was the right approach.
Once the low pay commission has produced its report, full consultation on draft regulations to introduce the minimum wage will take place. The Government will themselves set the rate for the minimum wage, based on the recommendations we receive, and we will see to it that it is implemented as soon as practicable thereafter.
Many business people have long seen the sense of a legal floor to wages, provided it was sensibly set. We have succeeded in winning over more and more people to that view. I believe that when the minimum wage policy gets under way, as it will with the benefit of a number of supportive statements from businesses with household names, that will demonstrate its relevance to the needs of this country. More and more people are now seeing the sense of our minimum wage policies. Surveys have been undertaken by large numbers of organisations. There are employers now in every sector who support the principle.

1035
I believe that the setting up of a national minimum wage is a difficult task. We have tried to keep things as simple as possible; we have gone for a single national rate and not allowed variations by region, sector or size of firm. It is, of course, not a measure which should be seen in isolation. It is one of a range of policies which come under our broader "flexibility plus" agenda which has the overall aim of achieving high and stable levels of growth and employment. It takes its place alongside the tax and benefit reforms which will contribute towards reduction of poverty and welfare dependency and the promotion of work incentives.
The Bill is something to which the Government are totally committed. That is something I know the House will understand, even the noble Baronesses opposite. I believe that the intense consideration which we have given it illustrates our belief in the principles of justice and fairness. I look forward to hearing your Lordships' contributions to the debate. It is essential that we get it right. We shall certainly listen carefully to the contributions made. I commend the Bill to the House. I beg to move.
Moved, That the Bill be now read a second time.— (Lord Clinton-Davis.)
8 p.m.
Baroness Miller of Hendon: My Lords, I should like to thank the Minister for the warm welcome he gave to my noble friend and myself. I do not think he will be surprised and I hope he will not be disappointed to know that I do not agree with many of the things he said.
I wish to begin by disposing of two myths. The first is the myth perpetrated by every government of whatever political complexion: the myth of the mandate. It is as if every single voter reads and agrees with every single word in the fine print of the party manifestos. A party manifesto is not an à la carte menu. So those voters who read it have to take the whole package or nothing. Nor are the policies set in concrete. The policies set out in party manifestos themselves tend to change with the passage of time, due to what Harold Macmillan called "events". But apart from that, whatever we as politicians may think—and I speak from 25 years of door-to-door canvassing and teaching canvassing techniques to candidates and agents—the fact is that the majority of voters do not vote for anything. They simply vote against.
In 1979 they voted against the winter of discontent. In 1983 they voted against the longest suicide note in history. In 1997 they voted against the divisions in the Conservative Party, as well as against other things, some real and some imagined, that they felt the party was guilty of. However, according to the rules of the game which we on this side of the House fully respect and honour by virtue of the Salisbury convention, the Government have a mandate for introducing the concept of a minimum wage, however misconceived we believe the idea to be. We are, however, entitled to invite the Government to think again on some of the details, in addition to the changes which the Government have conceded in the other place.
1036
The second myth is the myth of the United States of America. This claims: "They have had a minimum wage since 1938, and look how prosperous they are". This myth has been repeated many times in the other place during the passage of the Bill and will doubtless be repeated here during this present debate.
The minimum wage in the United States of America has always contained exemptions in favour, for example, of small businesses which the Government refuse to concede. Secondly, it has always been set at a figure comparatively low to the average wage. During the 1950s and 1960s it was about 50 per cent. of the average wage. In the 1970s and the inflationary 1980s, it declined to around one-third of the average wage in manufacturing. It held steady at 3.35 dollars during the 1980s and so by 1989 its real value had fallen by a further 25 per cent. It was therefore so low that it had little, if any, effect in terms of its impact on jobs.
Since 1996, it has been only 5.15 dollars, which is about £3.09. That is trivial compared with United States wage levels. Even that is not the whole story, for if that 5.15 dollars were to be pro-rated to the United Kingdom level of wages, it would come out at just under £2.70.
A majority of American minimum wage earners are either young persons living in non-poor families or are a second or third earner in the household and not the primary breadwinner and in any case are subject to wide exemptions. In 1992, only 4.25 per cent. of minimum wage earners were adult householders.
In the Second Reading debate in the other place, the President of the Board of Trade alleged that:
"the Conservative party has argued that Britain can only and should only seek to compete by aiming to he the cheapest at all costs; aiming to be the bottom of the heap; aiming for the lowest wages and the worst working conditions to be found among our competitors".—[Official Report, Commons, 16/12/97; col. 162.]
That statement is not only a monstrous distortion but is manifest nonsense. It is just a refurbishment of Old Labour's caricature of the wicked bloated Tory capitalists grinding the faces of the poor. Unlike the Government and their paymasters in the trade unions, we on this side of the House understand that no one owes us a living.
Of course, to attract business we must be, as the Government say, a centre of excellence. Indeed, we have become ever increasingly so since the last government cured the British disease of constant industrial strife. We have acquired in this country more inward investment than any country in the world except the United States of America for three simple reasons: first, because of our low tax rates—
Lord McCarthy: My Lords, the noble Baroness is talking about America and nowhere else. Would she make the same remarks about the minimum wage legislation in Germany, Belgium, Switzerland or Austria? Has that been as low as in America?
Baroness Miller of Hendon: My Lords, the noble Lord should wait until I have finished my speech. However, in view of what he said, perhaps I should remind him—I am sure he would agree—that 20 per cent. of American workers work at below the minimum wage

1037
in Germany. In America, they have produced 30 million new jobs over the past 20 years at a time when there was a zero increase in jobs all over Europe. So if that is the kind of system the noble Lord would like to bring here, it may very well happen.
As I was saying, one of the reasons is because of our low tax rates, as Chancellor Kohl himself admitted when he met the Prime Minister last Friday. The second reason is because of our flexible labour market. The last one is—and some noble Lords opposite may choose to laugh at it—that it is because of our lower labour costs. But it is not because we are "the sweat shop of Europe", as the Labour Party and the unions contend. Our basic wage levels compare favourably with other industrialised parts of the EC. The difference is our smaller social on-costs, the price of the social chapter.
If the United Kingdom's unit labour costs are taken as 100, then Germany's are nearly double at 199, Switzerland's are 188, France's are 131 and Italy's are 123. The evidence from the OECD supports the view that the more flexible labour markets of the United Kingdom, the United States and New Zealand show lower unemployment rates than the highly regulated labour markets of France, Italy and Spain.
Germany, which until recently had low unemployment rates due to its undoubted superiority in education and training skills, is now also sliding down the unemployment slope. The Institute of Directors complains that the EU is over-regulated and increasingly uncompetitive with the rest of the world. The Far East continues to develop dynamically, and while no one suggests that we should reduce our labour costs to those of the third world, what we do not have to do is to hand them any sort of competitive advantages.
Ross Perot warned during the 1992 American election of American jobs slipping across the border to Mexico, and with the establishment of the North American Free Trade Area, that is exactly what has happened in parts of the American car industry.
We have all the former east European satellite states just waiting to take our jobs. Because, let us make no mistake about it, every authoritative study on the subject confirms that the minimum wage will cost jobs. In a sudden outburst of candour which he must be tired of having quoted against him, the Deputy Prime Minister admitted that "any silly fool" knew that a minimum wage would result in job losses.
Professor George Bain, the principal of the London Business School, is the chairman of the Low Pay Commission. He said in The Times of 3rd June 1997:
"I would be surprised if there were not some job losses, but the question is whether those jobs would be better lost anyway".
Perhaps he should ask those who lose their jobs what they think. They probably do not regard it as a price worth paying.
Lord Evans of Parkside: My Lords, perhaps the noble Baroness will allow me to intervene. Will she offer the House a forecast of the jobs she expects to be
1038
lost by this piece of legislation? Will her forecast come anywhere near the 2 million job loss forecast that was made by her party before the 1992 election?
Baroness Miller of Hendon: My Lords, I hope the noble Lord will wait until I come to job forecasts in a later part of my speech.
As I said, a minimum wage not only causes job losses, but it prevents job creation in the first place. Let me give an example from one of the professions where the sums are much higher than the sort of figures that even the TUC is talking about. I refer to the Minister's profession. There are hundreds of law graduates seeking what are now called "training contracts". They used to be called "articles" or "articles of clerkship". There are also a large number of small firms of high street solicitors in general practice who used to provide such places but cannot afford to do so because of the minimum wage set by the Law Society. A graduate cannot work for less, even though his or her parents who have supported them through university are prepared to continue to do so through what amounts to postgraduate studies.
Many people—my husband was one and so, I imagine, was the Minister—are prepared to accept jobs that are not well paid at the beginning of their working lives partly because they live at home and do not have high expenses but, more importantly, because they realise that one way to obtain a good job is to accept one that is not so good and work their way up.
The CBI, in its evidence, pointed out that even a modest minimum could lead to job losses unless wage differentials are squeezed. And there we come to the next point. I note that the Minister mentioned differentials when he started his speech, but the fact remains that it is meat and drink; the very stuff of life for the trade unions. "If an unskilled newcomer trainee gets £X, then my members must get £X times Y", and there we will be off in another round of inflationary wage increases, with wages going up without any increase in productivity. Another turn of the screw of uncompetitiveness.
The noble Lord, Lord Healey, said in 1994,
"Don't kid yourselves. The minimum wage is something on which the unions will build differentials. Therefore the minimum wage becomes the floor on which you erect a new tower".— [Official Report, Commons, 16/12/97: col. 193.]
The Engineering Employers Federation says it does not support the introduction of a national minimum wage because of its effect on differentials and the increased cost of subcontracted services.
The CBI says that,
"a national minimum wage would undermine flexibility and is a poor way to tackle poverty".
Indeed, it forecast that,
"it could result in rising prices, business closures and unemployment".
There are still many unanswered questions about the Government's proposals for a national minimum wage. My honourable friend the Member for Daventry asked them for a final time on the Third Reading in the other place. I will not take up your Lordships' time by

1039
repeating them here. The Minister will find them in col. 269, volume 308 of Commons Hansard. I do not expect him to answer them today, but perhaps he will write to me.
The most important of all the unanswered questions is at what level the minimum wage is going to be set. The Secretary of State tells us that we must wait until the Low Pay Commission reports. The Minister told us the same. In other words, we have to sign another of Labour's blank cheques to approve the principle and procedures for a national minimum wage without knowing how much it will be and without being able to assess its effect on jobs, on industry and on competitiveness generally. Perhaps the Minister can tell your Lordships' House when the commission's report will be published. If he cannot do so today, will he please write to me?
Lord Clinton-Davis: My Lords, I said that.
Baroness Miller of Hendon: My Lords, I believe the noble Lord said the end of May.
Lord Clinton-Davis: My Lords, I told the House that it would be by the end of May.
Baroness Miller of Hendon: My Lords, I thought the noble said towards the end of the month, but perhaps I did not hear him correctly.
The Bill gives the president somewhat convoluted powers to create exemptions, but those are far from clear. The Government refused in the other place to exempt directors who, for all sorts of reasons, in their own family businesses might not want to draw wages. What about family members like wives or children helping out in the family business for nothing or pocket money or pin money? Are they going to result in the owner being prosecuted?
Why will the Minister not take clear and unambiguous powers to create exceptions by statutory instrument when, in what is after all an experimental regime, there are bound to be anomalies and inconsistencies? Is it the case that she wishes to have the option if she chooses to hide behind the commission, by insisting that Parliament accepts whatever they recommend.—"It is not my fault, Guy!". Parliament should be supreme and not the rubber stamp for this newest quango.
Let us look at the composition of the Low Pay Commission. Three of the nine members are university economists who are indirectly on the government payroll and who have a strong Labour background; three of the nine are trade union officials or senior union executives; and three of the members represent trade and industry. One comes from the CBI, which represents large companies, one from the Grenada Group and the other from the Scottish Grocers Federation. Presumably this last gentleman can be described as representing small businesses, but as these will be the ones hardest hit by and probably driven out of business by a national minimum wage, the commission can hardly be described as a well-balanced organisation.
1040
The Minister of State in the other place proudly announced the support of Tesco for a national minimum wage. I am sure the fact that that would knock another nail in the coffin of the small corner grocer did not even enter into their considerations.
Then there is the vacillation of the Government over precisely who should or should not be affected by the national minimum wage. Their manifesto allowed for no exemptions. In the President of the Board of Trade's second sentence in the Second Reading in the other place she said,
"The Bill will introduce for the first time in the United Kingdom, minimum wage protection for all workers".—[Col. 162.]
Sections 3 and 4 of the Bill give power to exempt persons under the age of 26. At the Amsterdam summit, the Prime Minister endorsed the presidency's conclusion that wage agreements across Europe should take more account of differences in qualifications and regions to facilitate job creation. The Minister of State said on 20th November that there should be no regional, sectorial or company derogations. Exactly one week later, when the Bill was first published, there were special arrangements for share fishermen and agricultural workers in addition to those for 16–25 year olds. The Government also realised that they had to give themselves an exemption from the Act as the employer of the Armed Forces!
As presented to your Lordships, the Bill also contains exemptions for unpaid voluntary workers, which I am sorry to say includes Members of your Lordships' House. It also exempts prisoners.
Although we still have to await the result of the deliberations of the Low Pay Commission before we know what a minimum wage is, the Government have been conducting their own internal Dutch auction with kites being flown at figures from £4·61 down to £3·50. All higher than the USA. My right honourable friend the Member for Wokingham twice asked in the other place whether a waitress on £3 per hour with free accommodation and meals is better or worse off than a factory worker living in Central London on £4·50 per hour or a barman living in Liverpool on £4 an hour with free food.
The President of the Board of Trade has expressly forbidden the so-called independent low wages commission to take regionality into account. Why not? Perhaps the Minister in his reply will tell us the justification. My honourable friend Mr. David Maclean pointed out that a national minimum wage will harm employment in Cumbria, where the cost of living and other expenses are lower. Why should anyone start a business in that beautiful but remote part of the country with limited transport facilities when, for the same money, they could do so somewhere else?
It was suggested that low wages were being subsidised by the taxpayer in the form of family credit, now being abolished by the Budget. But in fact only 12 per cent. of people receive family credit for more than a year, and the completely independent Institute of Employment Studies reported that,
"employers did not have adequate knowledge of family credit or sufficient information about potential recruits to adopt such practices".

1041
I am not sure what effect the new working family tax credit will have on the national minimum wage. I suspect it may make it irrelevant. But perhaps the Minister will be able to enlighten us in his speech.
Where the taxpayer will be affected—because of the adverse effect the minimum wage will have on employment—will be through more unemployment, more jobseekers' allowances to be paid and less tax revenue coming in. How do the Government reconcile their attack on what they call low wage-paying employers with their welfare-to-work policy, where there will be a combination of wages and public subsidy?
It is impossible to assess the effect of a minimum wage on a growing, prosperous economy, but the effect on one that is slowing down will clearly be adverse to jobs. Employers will seek to replace human workers with machinery that does not need wages, pensions or holidays. Every one of your Lordships who has filled his car at a self-service petrol station has helped to destroy the unskilled jobs that used to be available. Every one of your Lordships who has ever used a cash machine at a bank has helped to deprive someone of a clerical job in that bank. The dangerous social effects of unemployed and unemployable youth cannot be overstressed.
I said earlier that because of the myth of the mandate the Government will get their Bill. Nevertheless, the Opposition still oppose the principles of the Bill. We believe that it will be damaging to jobs. A study by the Department of Trade in 1996 suggested that, at £4·15 an hour, which the unions were then demanding, assuming a half restoration of differentials, the job loss will be almost 1 million. A minimum wage is recognised by the Institute of Directors and the CBI as damaging to our buoyant economy. It will add to inflation. It will damage our competitiveness. It will not help the lowest paid in society. On the contrary, countries that have a minimum wage find themselves with a list of derogations growing year by year, as different groups have asked their legislators for exemptions because of the harm being done to their particular trade or industry.
I repeat what I said earlier because it needs to be stressed. A major defect in the Bill is that it does not give the President of the Board of Trade clear power to provide further exemptions if they are found to be necessary. If, as we fear it will, the minimum wage results in rising unemployment, the Government will bear the sole responsibility. It will give us no satisfaction whatever to say that we told you so.
8.22 p.m.
Lord Razzall: My Lords, I do not know whether it will be any comfort to the Minister if, speaking on behalf of the Liberal Democrat Benches, I indicate that I entirely disagree with the tone and virtually all of the content of the speech we have just heard from the noble Baroness, Lady Miller of Hendon. Furthermore, I do not know whether it will give him any assurance to know that in saying that, contrary to the assumption the noble Baroness makes, I never have been, never will be or ever could be described as Old Labour.
1042
We believe that for far too long the previous government tolerated the practice of cowboy employers exploiting their workforce with the taxpayer, whom the noble Baroness's party always professes to defend, having to pick up the bill. We all have our anecdotal evidence of that and we could all produce our stories about outrageous exploitation of workers on low pay. The best example I have relates to the enormous recent profits made by various of the owners and entrepreneurs who invested in the train operating companies compared with the wages that are currently paid to the men and women who walk up and down the trains providing us with the drinks and food that we have from the buffet cars. Their average hourly wage is infinitely less than any rate the minimum wage will be set at by the Low Pay Commission. If one juxtaposes those wages with the enormous wages that are being paid to those who are operating those companies, one sees that this is a significant problem which the Tory Opposition ignore at their peril.
I find it very strange as well that the Conservative Opposition have consistently opposed the introduction of a minimum wage, although, to be fair to them, they opposed it during their period in government. But we are the only serious industrial country in the western world that does not have some form of minimum wage legislation. The noble Baroness made much of the experience of the United States. Of course it is the case that if the minimum wage were to be set too high there would inevitably be some effect on jobs. However, six out of the seven recent studies that have been conducted in the United States, in regions as diverse as New Jersey, Texas and California, indicate that employment in the low wages sector and areas where the minimum wage has been monitored has increased recently by as much as 20 per cent. There is certainly no significant opposition among American economists to the minimum wage. So I think the American experience certainly does not prove the point which the noble Baroness made.
We on this side of the House by and large support the introduction of the Bill. We have welcomed the establishment of the Low Pay Commission. We advocated for some years that we should establish the Low Pay Commission and so we welcome that. We welcome the exclusion of volunteers from the provisions of the Bill. There was a good deal of debate in another place with regard to volunteers. Significant issues were raised by our side and we are pleased that, as a result of the amendments that were accepted by the Government in another place, the position of volunteers has been clarified.
We are also particularly pleased about the significant development that took place regarding agency workers, part-time workers and home workers. It has for long been a scandal in this country that those groups of workers, who are often paid £1 an hour or less, have been significantly exploited by employers. We all know of examples of that. We are pleased that the Government have taken on board that point and, in framing the legislation, are looking to deal with it.

1043
Having said that, noble Lords would not expect me to indicate that we would not wish to improve the Bill as it passes through this House. The major substance of the amendments which we shall bring forward will concern the point on which the Minister touched in his speech. I listened carefully to what he said but we still remain convinced that there needs to be a further provision to permit a regional variation of the minimum wage.
The case can be put very simply. I shall not detain the House, because the arguments have been made extensively and we shall seek to make those arguments again as the Bill proceeds. However, let us assume for the sake of argument—those who have read the press may know as little as or more than the Minister—that the minimum wage is set at around £3·50 an hour. The figures from the Office for National Statistics demonstrate that there is significant variation on a regional basis between the average income of people in relation to £3·50 an hour. For example, in the north east region 8·4 per cent. of the working population earn less than £3·50 an hour. In the south west the figure is 6·8 per cent. while in London it is 2·1 per cent. Thus it is clear that more than three times as many people as a proportion are earning less than £3·50 in the north east than in London.
Let us look at the figures for government departments, which are, after all, under the control of the Government. Answers obtained to questions in another place to tease out exactly what are government wage rates at the bottom end show that the lowest payer is the Department of the Environment, Transport and the Regions, which on average pays about £3·25 an hour. However, the average lowest rate in a government department in London is £4·30 an hour. So already within government departments there is a significant variation on a regional basis as to the minimum rate that is being paid.
Our case is that we believe that the Government are making a mistake in not authorising the Low Pay Commission, in making its recommendation as to a minimum wage, to introduce a regional variation. We understand the arguments that have been put forward. Broadly speaking, the Minister in the other place was quite clear about the first one. He said in terms that it was in their manifesto that they were not going to have a regional variation and therefore there will not be one. I accept that the Salisbury Convention applies so far, but I am not sure whether in this House it applies in requiring me not to argue the intellectual case for a regional variation.
The second argument which the Minister put forward is that it is very difficult to implement a regional variation. Our answer would be that that is something which the Low Pay Commission should be empowered to look at. It may well say that, for all the reasons we have looked at, there should be one national minimum rate. However, in this Bill the Low Pay Commission should be given the opportunity to look at that rate and the regional variation.
We support the argument of the Equal Opportunities Commission that the issue of gender imbalance is not properly dealt with in the Bill. I accept the point made
1044
by the Minister that the Bill will enable significant progress to be made in bridging the gap between the low pay of men and that of women. However, we would support an amendment to the Bill requiring the Low Pay Commission to consider the effect of the legislation on equality between women and men and assessing the rate level.
We believe, and have argued quite strongly in the other place, that the issue which the noble Baroness touched on—namely, that of young people and training and whether 26 is the right age to provide the cut-off for the minimum wage—should be looked at again. There are some very difficult issues. We would like to bring forward some suggestions in Committee as to how they should be dealt with. We are not sure that 26 is the correct cut-off age, nor are we sure that the Bill is going to make appropriate provision to ensure that the kind of training example which the noble Baroness described is properly taken into account in the Bill.
Although significant progress was made in another place as regards the status of the Low Pay Commission, we argue that we should go further at this stage. The Government are indicating that they would wish the Bill to contain powers for the commission to become a statutory body with permanent effect. We believe that there are so many issues thrown up by the minimum wage legislation and its imposition that it is clear that the Low Pay Commission should now have permanent effect. We would like the Bill to make provision to have various items referred specifically to the commission, including a regular review of the economic impact of the minimum wage. That should also include, in the light of the Minister's remarks, the impact of gender differentiation and the minimum wage. We are concerned that unless the Low Pay Commission has permanent status, the issue of equality between men and women's pay will become lost as we attempt to monitor the effects of the minimum wage. For that and many other reasons, we shall seek to bring in amendments to ensure the confirmation of the Low Pay Commission as a fully effective statutory body.
We are concerned about the status of the secondary legislation that is clearly going to be brought forward to give this Bill teeth. As the noble Baroness has indicated, to some extent we are debating the Bill in a vacuum. The issues which many noble Lords would wish to raise would be entirely different were the minimum wage to be set at £3 compared with £4·50 or £5. Many of the arguments about unemployment, regional variation and the gender gap—somebody's pager has gone off. I am sorry my Lords, it is mine!
Lord Harris of High Cross: My Lords, it's Mandelson!
Lord Razzall: My Lords, I apologise to the House. Many of the arguments on all those issues need to be continued over the course of the next few years. Therefore, we would like to see statutory effect given to the permanent status of that statutory body. In the other place the Government indicated some movement in that area. We propose to press the Minister somewhat further on that issue.

1045
The noble Baroness raised the critical issue behind this Bill. In another place many nights were taken by the Opposition in attempting to slow down the progress of the Bill. In the course of the debate I believe that Madam Speaker had to remonstrate with the government Minister for suggesting that a filibuster was taking place. Whether that was the case of not, I do not know: I was not there. I do know, however, that many nights and mornings were taken up in Committee and at other stages of the Bill. I urge the Opposition to accept the fact that we are going to have this legislation and that we should use the opportunity here to try to improve it in the way I have suggested and not indulge in the kind of behaviour that went on in another place. I believe that this is good legislation which is right for the country. We can improve it if we all work together here.
8.36 p.m.
Lord Harris of High Cross: My Lords, I am not sure whether I should apologise for taking part in this debate as a former practitioner of the dismal science of economics. Next to the offer of a free drink, the mere mention of a minimum wage is best calculated to get most economists to their feet with their mouths open. It is a subject that disproves the old quip that if you ask half-a-dozen economists a question, you get six different answers—or seven if Lord Keynes was among them. In contrast, it requires no homework, no new research, no statistical models, no consulting—not even a fee—for most independent economists to agree nem, con. that a minimum wage is likely to be damaging and could be disastrous.
Of all the anti-market wheezes that I have come across, the idea of enforcing by statute a single, national minimum wage seems to me the most damaging in prospect. That is for several reasons. First, it seems superficially a painless way, as we have heard, to prevent the "exploitation" of the weakest members of industrial society. Secondly, it can therefore be wrapped up in the rhetoric of fairness and so harness the moral passion of laymen, as the noble Lord, Lord Clinton-Davis, attempted. Thirdly, for politicians, less concerned with morality and guided by the vote motive, it serves wonderfully to promote short-term party popularity. At the outset it is an absolute winner. It is unstoppable. Apart from the Conservative Party, its only opponents are stony-hearted economists who, we all know, are lackeys of high capitalism.
Even if I could forthwith proceed to demonstrate the disastrous effects of a minimum wage on production costs and employment, I fear that the moral and political bandwagon could not now be halted. But, alas, I admit that I cannot demonstrate any such thing. I cannot prove the case against this massive, mammoth, monstrous Bill for the simple reason that I do not know what I am talking about. None of us knows what we are talking about. The Minister does not know what he is talking about. Not even the normally omniscient professor the noble Lord, Lord Peston, if he were here, would know what he was talking about. That is because we do not yet know the level at which the minimum wage will be set. I shall return to that challenge in a moment.
1046
Any of us can conceive of a minimum wage low enough to do no harm, but then it would also do little good. We also understand that if the minimum is set above what economists call the "market clearing wage", it will certainly hurt those it was meant to benefit. Thanks partly to the Institute of Economic Affairs, with which I have had some forty years' association, there is today a more general acceptance of what the late Lord Robbins used to call the "invincible platitudes" of liberal market economics. It is a central precept of textbook analysis that a rise in price will reduce demand. Of course, in the lecture room, that missionary truth is hedged around with cautious qualification. Thus, the rise in price will only "tend" to reduce demand and therefore to create unemployment, and it will do so only if "all other things remain equal". If I had the time I could tell the House of circumstances in which a minimum wage could possibly improve employment, but that is a textbook or examination exception such as one sets to catch out undergraduates.
The trouble is that there is not just one labour market. There are distinct labour markets in different regions, different industries and different skills. Although a single uniform minimum wage will have no ill effects for skilled workers in flourishing firms in the South East, it could do much damage at a number of other margins. It will bear most harshly on the least effective worker, in the least productive firms and in the less favoured regions.
A consistent lesson I recall from almost all of the empirical studies in the United States is that when the minimum was increased—usually around election time—the main victims of the resulting unemployment were the most vulnerable workers. They were typified by being unskilled, inexperienced, young, black and invariably women. It may not sound quite nice, but it follows that the one advantage which the least attractive, least employable people have in a competitive market is the freedom to offer their relatively unwanted services at a lower wage. At least they get their foot on the ladder. I wish that Milton Friedman were present to give his performance of thanking the almighty for the sweatshops on the east coast of America in the last century which enabled his immigrant parents to get a toe-hold on that great continent.
If we turn to the Bill, we find 50 pages of, for me, impenetrable legal mumbo-jumbo, with seven clauses giving wide powers of further regulation. There is no fear of unemployment, at least for lawyers. The prospect opens up of a new era of litigation by disaffected employees that will dwarf unfair dismissal cases. It should prove what I believe is called "a nice little earner" in retirement for the noble Lord, Lord Wedderburn, and the noble Lord, Lord McCarthy, who do not appear at the moment to be present among us.
The concept of a minimum wage sounds simple enough, but we must bear in mind that the rewards of a job include what economists call the "net advantages of employment". Let us consider the impossibility of evaluating payment by commission, discounts, and benefits in kind, including convenience, regularity and flexibility of work. Mention has been made of McDonald's. It may once have paid lowish wages but,

1047
in my view, it has done more than many government schemes to initiate and train generations of young people for regular work and so improve their future employability. For my money, it merits the accolade "McJobs" and it may now easily be in a position to cope with the minimum wage, but the same minimum will handicap smaller businesses in labour-intensive industries and prevent them growing into the McDonald's of the future.
I now come to the real heart of all this—I wish that there were time to go into it all. Let us turn to the Explanatory and Financial Memorandum and to the section headed "Financial effects of the Bill". We read:
"the net effect is likely to be relatively small",
but we should note the preceding proviso, which states:
"assuming the National Minimum Wage is set at a sensible level, with employment and the productive potential of the economy unchanged".
I need hardly say that if it is not set at a sensible level—that is, at a low level—the knock-on effects in the name of preserving differentials—whatever the noble Lord, Lord Clinton-Davis said—and the resulting unemployment will cost the Treasury many billions of pounds in wages and benefits.
Will the Minister take a moment at the end of the debate to confide in us his present judgement of a "sensible" minimum wage? He must have given this a great deal of thought. Indeed, he is paid to do just that. It would be helpful if he could tell us so that at later stages we can have some idea of whether it is to be £3·50 or £4-something. It would be useful to have that knowledge.
Noble Lords will be pleased to hear that I shall trouble them no further by participating at later stages—because this is a totally misconceived Bill which, by massive amendment, could be made only slightly less bad. The whole gamble was, of course, intended as a flower arrangement, a bouquet, to appease Old Labour. I fear that it may prove to be a wreath of nettles.
8.46 p.m.
Baroness Turner of Camden: My Lords, perhaps I may say first how much I welcome this Bill. We have had to wait a long time for it. That is no fault of this Government who have kept their pledge to introduce legislation to provide for minimum wages as soon as possible. There is no doubt that the move is highly popular—and that it is badly needed. For too long, many people in this country have had to work too hard for too little. As my noble friend the Minister explained, this Bill is part of the Government's overall strategy, which I applaud, to reform the tax and benefit system to aid poorer people, particularly those with children, and to assist with job creation, as the Chancellor did last week, by giving assistance to smaller firms in particular.
Why is the Bill so necessary in today's Britain? Today, we have over 1 million employees earning less than £2·50 an hour, of whom about 60 per cent. are women. According to the OECD, we have a higher proportion of people in low paid work than the majority
1048
of western European countries. There is apparently, according to the TUC, little variation of low pay by region and for that reason I understand that the TUC does not support the case for a regionally varied minimum wage, despite what the noble Lord. Lord Razzall, said.
I have here a dossier, compiled by the TUC and the Low Pay Unit, of simply appalling cases of what really amounts to sweated labour. Perhaps the noble Baroness, Lady Miller, will take note because she apparently does not think that we have sweated labour in this country. The examples include a hairdresser paid £1·95 per hour with no extra pay for overtime, which she is often required to work; a manager at a sports centre who is paid £200 for a six-day working week of 16 hours a day, which amounts to £2·08 an hour; an assistant MoT tester offered £1·50 an hour to work from 9 a.m. to 6 p.m. Monday to Friday; a care assistant paid £1·78 an hour for a 48-hour week; a woman working in a tailoring factory paid £2 an hour for a 35-hour week; a clothing factory worker earning £2·75 an hour; and a construction worker employed by an agency working for less than £3 per hour. These are examples of sweated labour by any standard. They are some of the cases culled from a large dossier covering various areas of the country. The situation in Scotland is no better. There are cases of employees in shops and restaurants working for less than £3 per hour. In particular care workers are badly paid at about £2·25 to £3 an hour. The security industry is particularly exploitative. Some cases have been recorded of men who earn as little as £1·50 an hour.
Some of the worst cases occur in industries where there were once wages councils. It will be recalled—as mentioned by my noble friend the Minister—that those councils were weakened and finally abolished by the previous government. When in opposition we put up spirited resistance to the move but unfortunately failed to stop the Conservative government from going ahead with it. As soon as wages councils disappeared a number of employers seized the opportunity to pay as little as they could get away with. In conditions of high unemployment that led to the grossest exploitation of very vulnerable people. It is noticeable that in low-paying industries, often the workforce is mainly female or from ethnic minorities. Far from there being a jobs explosion in the former wages councils sectors as the Conservative government promised, the rate of job growth slowed in those industries at a time when employment growth across the whole economy was accelerating. In the year before abolition around 17,800 full time equivalent jobs were created in the wages councils sector, but in the year following abolition only 5,000 full time equivalent jobs were created; and, of course, there were falls in pay. I commend those figures to those who claim that if we introduce minimum wages there will be job losses. The experience of wages councils proves exactly the opposite.
The sector hardest hit was hotels where the average earnings of all workers—men, women, manual and non-manual—fell in real terms after 1993. Even in those

1049
industries where there have been increases, such as clothing manufacture and food retailing, they have been significantly below those for service and manufacturing generally. A survey conducted in 1995 to examine vacancies that would previously have been covered by wages councils found that nearly half offered lower wages than would have been payable had wages councils remained in existence. Since 1979 the advent of Conservative administrations committed to the unfettered operation of the market has meant that the rich have become richer and the poor have become poorer.
We have witnessed the advent of so-called flexible employment. This may have suited some employers, but it was certainly disastrous for many employees. Most people like some degree of stability about their employment; it helps them to plan their lives. The Conservatives have attributed their heavy defeat at the polls last year to a variety of causes but they still fail to understand the enormous part played by job insecurity, affecting as it does large sections of the population including those who were once their natural supporters. Flexible employment has all too often meant short-term contracts, part-time working when full-time jobs would be preferred, contract and agency working, seasonal working and—perhaps the most exploitative work of all—zero working where an employee is expected to be on call, sometimes even at the work place, and is paid only when called upon to work, usually at a miserable hourly rate.
I am delighted that the Bill seeks to define "employee" to include the contract or agency worker quite specifically and also home working which exploits so many women. I am not sure about zero working but I believe that that is also covered by the provisions of the Bill. I am glad that detailed arrangements for enforcement via employment tribunals are set out in the Bill. It is also envisaged that there will be some form of inspectorate as there was for wages councils. Employees are offered protection against discrimination of any kind, including dismissal, for seeking to enforce their rights to a minimum wage. That is a very necessary provision.
This evening we have heard cries of, "What about the rate?" I am content to leave that to the low pay commission which I understand is to remain in being and will probably be given a statutory base. The rate may change from time to time, and it is therefore not appropriate to include it in primary legislation. The commission will have the job of consulting those with a particular interest, and I am sure it will do it well.
I am particularly happy that the Equal Opportunities Commission, of which I was once a member, has sought national minimum wage legislation and has already made submissions to the low pay commission. There are still substantial differences between male and female earnings despite more than 20 years of equal pay legislation, although the latter has made an enormous difference to job opportunities and pay for many women. A national minimum wage will help to improve matters for women at the lower end of the earnings scale.
1050
Good employers have nothing to fear from a national minimum wage. An increasing number express support for it. Most of them will have no difficulty paying it since they realise that a well-motivated work force depends on fair treatment and adequate rewards to employees. Why should the taxpayer continue to subsidise employers who believe that they can make a profit and stay in business only at the expense of paying employees too little for them to live on? The total cost of the subsidy to the in-work poor is of the order of £3 billion pounds a year, which is equivalent to £120 a year for each taxpayer. This is a very good Bill. I am delighted that we have it, and I congratulate my noble friend the Minister and his colleagues on its introduction.
8.56 p.m.
Baroness Eccles of Moulton: My Lords, I am very pleased to take part in this debate on such an important Bill. In spite of the Minister's comforting words, it has the potential for making unpredictable and perhaps damaging changes to our economy. I shall pursue a theme that has already been emphasised by my noble friend Lady Miller and the noble Lord, Lord Harris. I begin by reminding the House of the words of the Labour party in its election manifesto. It promised to introduce,
"a statutory level beneath which pay should not fall with a minimum wage decided…according to the economic circumstances of the time and with the advice of an independent low pay commission".
One difficulty that arises in debating the Bill is that we do not know what discussions have taken place between the Government and the Low Pay Commission regarding the latter's terms of reference. We do not know what advice the commission will give; nor do we know how the Government will react to that advice, which, as we understand it at present, they are not bound to accept. It is not unknown for governments to seek advice on pay and then not take it.
A second and more serious difficulty is the enabling nature of the Bill. It will give the Secretary of State wide powers to decide not only what the minimum wage should be but how pay will be defined. For example, does it include benefits in kind? Nor has the pay reference period been decided. Will calculations be based on total pay received over one week, four weeks or some other period? I disagree with the Minister when he says that nothing is lost by pushing ahead with legislation before the Low Pay Commission has reported.
The resulting vagueness on the face of the Bill makes it impossible to evaluate the probable effects, and the unintended consequences, of this proposed interference with interactions within the employment market. All there is to go on is a rather unsatisfactory clue or two. The Chancellor of the Exchequer has said many times that his objective is to make work pay. He has shown in the recent Budget that, within public expenditure constraints, his aim is to improve the position of the low paid from 1999 onwards. How does this policy initiative tie in with a minimum wage? Has the Chancellor's Budget speech engendered a fresh discussion between the Secretary of State and the Low Pay Commission in

1051
the light of the terms of reference added last year, which ask the commission to "consider and report on any matters referred to it by Ministers"?
Further, it is hard to engage in constructive debate without some knowledge of where the central thrust of the Government's policy towards minimum pay lies. Is it to provide a safety net for those who, for whatever reason, fall foul of imperfections in the market?
An example of gross pay which would presumably be above the safety net is £5 an hour for a 36-hour week, bringing in £180. But another example would be a security guard guarding an empty building and working long hours on a basic rate of £2·50 an hour. A 72-hour week would thus bring in the same gross pay as the first example. We might pause and ask ourselves why anyone would want to take such a job. Perhaps they are doing a distant learning course or even writing a novel in the silent watches of the night with only an alsatian to distract them. Be that as it may, are the Government concerned primarily to provide a safety net for the unwary who tend to be employed in the service sector, both public and private? Alternatively, are the Government minded to accept the Old Labour view of a basic minimum wage at, say, half average male earnings, as the foundation upon which the structure of all pay is to be set? That would result in all incentive payments being up for renegotiation and all differentials being fiercely defended. It seems highly unlikely that that is the intention of the present Government. The trouble is we do not know, because the Government have not told us.
In conclusion, one thing is clear. The decisions that will be made, if and when this unsatisfactory Bill becomes law, will be vital to the continued good economic performance of the United Kingdom. In that respect, in my view, a national minimum wage will not be a help. However, if it is to be introduced, perhaps I may emphasise again how important it is to follow the example of Canada or New Zealand and set it at a safety net level and not at a level which would result in increasing the pay of the majority. That would be a certain recipe for job losses. The safety net approach would be more consistent with the Chancellor's declared aims.
Nevertheless, it is frustrating, not in the spirit of openness, and—dare I say it?—bordering on the undemocratic for your Lordships to be left so much in the dark about the Government's intentions. If the chief executive of Barclays Bank can deliver his considered advice on national insurance to the Government in so short a time, why is it taking so long for the Low Pay Commission to publish its advice?
9.2 p.m.
Lord Wedderburn of Charlton: My Lords, I congratulate the Government, through my noble friend the Minister, on bringing forward this Bill and the low pay commission that goes with it. I was pleased to hear that my noble friend had fortified himself before our debate, so that he will be vigorous in carrying those thanks down to the other end of the building.
1052
Minimum wage laws have been a long time in their gestation. Bills were presented to Parliament in 1800 and 1808, albeit they were thrown out. In writing about them Beatrice Webb said:
"minimum conditions of service form an indispensable basis of any decent social order".
That is an argument that I have not heard addressed from the other side of the Chamber except, in one respect, by the noble Lord, Lord Razzall.
In view of the hour, I shall content myself by speaking mainly of the Bill's legal structure. In part that is because of the importance of some of its features. It is particularly important at a time when employees' organisations face transnational employers in the global economy, to which they have little defence, except occasionally by legislation. That in no way cuts down the importance of their organisation in trade unions.
Secondly, no one has yet mentioned the fact that we have some international obligations in this matter, or we did until the Thatcher government destroyed them; that is to say, the ILO Conventions 26 and 131 and Recommendation 135 which argue that it is an international moral obligation to have some kind of minimum wage arrangements.
I agree with my noble friend the Minister that the first problem is to reach all the workers to whom the protection is to be offered. My noble friend said that we must have universality. That is right, but on this matter the Bill is a legal landmark. The old categories of employee and self-employed, and, to some extent, worker, have gradually disintegrated in the market as it has developed. Waiters are hired as self-employed workers to serve at tables that are leased out to them. One driver of a lorry which was let to him on hire purchase by the employer was held by the court to be self-employed, even though he wore the employer's uniform and obeyed his orders.
In a recent case a security man's—how often security men have been mentioned; they form a group which is exploited atrociously—rights and duties were owed to so many different companies, and in such diverse manners, that the Court of Appeal held that he was not protected as an employee against unjust dismissal because his contract was one that was sui generis. The very special thing about the Bill is that it protects all such workers, even those whose contract is sui generis, as the Court of Appeal put it in that case.
The Bill makes also a valiant effort to protect two groups which again have been atrociously exploited: home workers—I am speaking of the old form of home workers (over 1 million of them) although there is a group of tele-workers whose conditions have not been explored properly by research—and agency temporary workers, or agency temps. They are protected by the various definitions of the word "worker" in the Bill, which means that any person under a contract, doing work for another, except the professional client or customer, will be protected.
The Government might consider extending the other power in the Bill—namely, the Secretary of State's power to extend the provisions to persons who are not otherwise workers within its provisions—to trainees and

1053
bring them into the fold of the protection of a minimum wage. It is also questionable whether the definition of worker, which is admirably wide, requires the word "contract"; that is to say, there will be some who will try to evade the Bill, and they might, as it stands, make arrangements which were not technically contractual, to get them beyond its frontiers.
Home workers and agency temporaries have been in the forefront of recent discussions and surveys. Last year, the Court of Appeal in the McMeechan] case decided that one must look at the facts to decide whose employee the agency temporary worker was. Was he the agency's employee or the client's employee? Indeed, if there was no contract of employment where did the contract lie? The Government may wish to look again at their admirable attempt to defend temporary workers against such analysis. They may wish to consider a formula used in some European directives based on the approach of French law whereby the worker is
prima facie presumed to be the employee of the agency and not of the client. That might be an addition which would make the position even more secure.
Your Lordships will be aware of the myriad forms of employment which workers, young workers in particular, are forced to take. I refer, for instance, to beck-and-call contracts, on-line contracts and zero hours contracts. Last year, I discovered, astonishingly, that a student in my graduate seminar, who was already laden with massive loans, had taken a job to help him through the year. He attended when the employers telephoned him to do so, including at weekends. However, once he arrived—and this is the esoteric form of zero hours contracts—he had to sit out the shift and if they wanted him to work they would call on him. But he was paid only for the time that he worked and not for the time waiting in the wings, hoping that the intolerable rate of £2 an hour might be paid to him for a little movement rather than remaining in a sedentary position.
That outrageous Taylorist abuse is one which perhaps demands more general legislation. I say to the noble Lord, Lord Razzall, hoping that he would be in his place, that the Bill cannot do everything. It is not the job of the Bill to deal with the problem of the gender gap. Indeed, I wonder whether it is within the Long Title. That is not to say that I do not believe that steps should not be taken; the gender gap in wages is much too great. Perhaps the Bill concentrates on what it does well.
There is a maxim which is applicable to the Bill. It is that no rights are stronger than their sanction. This Bill faces that problem by using, rather in the manner of the modern legislation on safety at work passed by the Labour government of 1974, not one but a whole series of interlocking legal remedies. It does not make the mistake that so much employment legislation has undergone of leaving everyone with only an action in the industrial tribunals (we must now call them employment tribunals) and a remedy which is scarcely enforceable. The Bill puts forward, both in the employments tribunals and in the courts, civil actions, criminal prosecutions and penalties and the intervention of enforcement officers with wide powers. In that
1054
respect, too, the Bill deserves congratulations on not being mealy-mouthed about the enforcement of its provisions.
The work of the enforcement officers is likely to be a critical component. The question must be asked: is the intention to give some of the tasks to an existing inspectorate, such as the VAT inspectors, or to create a new one? No doubt the Government will tell us their plans and we can consider them when they are announced.
Finally, it is for consideration whether the mechanism of enforcement might have one aspect added to it. It is to give to a representative trade union the status to appear in court on behalf of workers to defend a range of rights under the Bill. In France, since the law of 1920, unions have been regular parties to actions in various courts which were in defence either of particular workers' interests or of the so-called collective interest, l'intérêt collectif, which is a well-known concept in the civil law. It is my understanding that the working group on representative litigation set up by the noble and learned Lord the Lord Chancellor does not have that matter within its remit, or indeed the jurisdiction of the employment tribunals. However, if I am wrong the matter should surely be put on its agenda.
We have in this Bill a basis for a social advance which is of particular importance despite any adjustments or amendments that I have suggested. In my view, nothing that I have said can detract from the nature of the Bill or its general thrust which will be a powerful contribution to the cause of social justice for working people.
9.14 p.m.
The Viscount of Oxfuird: My Lords, for much of my life I have been overseas and have observed this country from a distance—in my youth at school in New Zealand and after that, working overseas, exporting and being involved with industry in this country from both the manufacturing and marketing points of view. I have seen the effect of government decisions, decisions made by companies, their managing directors and their workforces, on how they are perceived by the customer. Quite frankly, the only person who matters to any organisation's future and ability to pay anybody anything is a person called the customer.
I sometimes wonder whether the Government have two agendas: one for public consumption, as in the Budget; and the other conceived in the mist rising from Europe. Surely the Government must realise that the current unemployment problems facing our friends across the Channel are of their own making. Why do we have to put the blinkers on and follow them down that path and produce legislation like this when our competitors in the Far East have just been awarded a 30 per cent. price advantage due to currency devaluation against the strengthening value of sterling?
I go to Korea most years on business. The people of that country will be rubbing their hands with glee if this Bill is passed. When their nation suffered a recent economic downturn, the men and women defied their unions and went into the street with what might be

1055
called "mattress" money—fistfuls of American dollars which they offered to their government in support of their sad economic situation. This will be their turning point as ours was in 1979. The luxury of even being able to consider this Bill has been won by every working man and woman in this country over the past 18 years.
Why are we throwing away that hard-won position? The Government have been seduced by the emotion attached to wants as opposed to the reality attached to needs. In that there lies a big question: how long will it he before the electorate discovers that this Government's agenda has nothing to do with good governance but is totally devoted to the promotion of a political party—popular opinion versus public interest?
In opposition, the Government took every opportunity in your Lordships' House, when given the chance, to decry the Conservative government for their so-called lack of support for manufacturing industry. Claims that business is warming to the minimum wage are disingenuous. A statutory minimum wage is opposed by the CBI, the Institute of Directors, the British Chambers of Commerce, the Federation of Small Businesses, the Forum of Private Business and the small business bureau. That is a long list.
Why do they object? No one objects to people earning money but they do object to legislation. Sometimes I wonder whether we spend enough time stopping to truly consider the result of our actions. Strangely enough, the job-destroying characteristics of the minimum wage have not been lost on the Government. Despite earlier attempts by the President of the Board of Trade to fend off advice from the Minister without Portfolio, and her indications that there will be no variations to the national minimum wage, Clause 3 includes a provision allowing the holder of her office to decree by regulation a lower rate for younger workers and trainees.
The fact that the Government have not come forward with a rate for the minimum wage is no accident. Obviously they know that announcing the figure would prompt many estimates of the cost of the minimum wage, as we have already heard this evening, and its impact on jobs. Not a word has been heard since the general election; indeed, the DTI's estimate in 1996 was an additional million on the jobless total. How will the Government explain to the country the cost of 2·3 million unemployed?
Finally, regional variations have already been mentioned. Perhaps the Minister can tell the House whether any real consideration has been given to this area. Surely, the national minimum wage will have a greater effect on those employing in the north east than those employing in London. I do hope that your Lordships will think very, very carefully before passing this dreadful legislation.
9.20 p.m.
Lord Evans of Parkside: My Lords, unlike the noble Viscount who has just sat down, I left school at 15 years of age and went to work in the shipyards on Tyneside. I worked there for the next 28 years and I worked in some of the hardest, toughest and most dangerous industries in this country. I saw the impact on the lives
1056
of so many people who worked in those industries. Indeed, I saw people killed in the shipyards. I also had responsibility for helping the widows and wives of men who had been killed or seriously injured, and I saw men dying because their lungs had been destroyed by asbestos and other industrial substances. While I agree with the noble Viscount that the customer is of paramount importance, I should like to remind him that the worker also has some rights and is entitled to some justice in our society.
That is why I unreservedly welcome the Bill, which, in my view, honours one of the most significant general election pledges that the Labour Party made. The Labour Party's manifesto promised to introduce a "sensibly set minimum wage". I was also pleased that the Bill was introduced so quickly into the other place on 16th December last and that it was finally concluded, after a marathon all-night sitting, on 9th March. If any noble Lord takes the trouble to read the record of the proceedings, he will see that the committee in the other place sat for many hours, including a marathon sitting which was the longest since the war, as the Tory Party and Tory MPs fought tooth and nail to try to derail, prevent and stop this legislation.
From the speech that we heard tonight from the noble Baroness on the Front Bench opposite, it is quite obvious that the Tory Party has not changed at all; indeed, it is obviously determined also to fight the Bill in this House. However, I should remind Members opposite that the Bill received considerable consideration in the other place. I trust, therefore, that their opposition to the Bill will be tempered by the fact that it is necessary to have this legislation on the statute book at a reasonable time without a lengthy filibuster.
For the first time, this Bill will create in Great Britain a national minimum wage and it will bring our country into line with almost every other developed country, all of which have some form of national minimum wage. This legislation, taken together with the strategy that the Chancellor of the Exchequer announced in his Budget last week, will lay down the framework for a more just and a much more decent society than we have had over the past 18 years. I appeal to noble Lords opposite: surely employees, workers, are all entitled to reasonable pay and conditions. They should certainly be free from some of the gross exploitation which many of them have suffered over the past few years.
I spent 23 years in the other place. Sadly, for 18 of those years, I sat in opposition and watched Tory governments successfully abolish workers' rights with Bill after Bill through all those years. First they hamstrung the trade unions, the workers' main defence mechanism, and then they abolished the wages councils in 1993.
I remind the House of the words of Winston Churchill when in 1909 he introduced the wages boards which were the forerunners of the wages councils. He said,
"Where you have what we call sweated trades, you have no organisation, no parity of bargaining; the good employer is undercut by the bad employer, and the had employer is undercut by the worst".

1057
Those words were uttered 89 years ago. The wages councils in this country existed right up until 1993 and provided a modicum of cover for those in the most sweated trades in this country. Those words proved to be extremely wise, as was realised when the wages councils were abolished. The Tories claimed that abolition of the wages councils would create jobs, albeit at lower wages. There is scarcely a shred of evidence that a single job was created by the abolition of the wages councils. However, there is plenty of evidence of wages in certain sectors declining badly because of the loss of the wages councils.
Over the past few years every Member of Parliament could have regaled this House with details of some of the most appalling wages that were paid to workers in pretty awful situations, as revealed to those MPs at constituency surgeries. The words of my honourable friend Chris Pond, the Member of Parliament for Gravesham—who for 17 years worked for the Low Pay Unit and probably has more knowledge and experience of these matters than any other person in the United Kingdom—are probably the most telling. In another place he gave details of the Low Pay Unit's Christmas "Scrooge of the Year" award. Noble Lords can read his speech at col. 201 of Hansard of another place of 16th December. He stated that one of the previous,
"nominees for the award included the employer of a woman who worked in a residential nursing home. In a letter to her, the employer stated 'I would like you to work 5 pm to 9 am Monday to Sunday inclusive'. That is 112 hours of night work. The letter goes on: 'Salary will he paid in arrears at a rate of £150 a week', which is about £1·34 an hour".
Another "Scrooge" award winner was a clothing workshop employer who paid his staff the princely sum of 59p per hour. A Birmingham chip shop employee took home 80p an hour. The recently established TUC hotline uncovered cases such as that of a waiter paid £12 for an eight-hour shift. His tips were taken from him at the end of each day.
That Tory government policy which they ushered through both Houses of Parliament created a massive burden for the taxpayer as well as a degree of poverty for millions of workers in this country. In 1996 more than £2 billion was paid in family credit alone to subsidise employers who paid these scandalous wages. The incredible Tory claim that abolishing wages councils would create jobs must be put alongside the even more incredible Tory claim made before the 1992 general election that a national minimum wage would result in 2 million lost jobs. Unless my hearing went astray I believe that the noble Viscount who spoke before me reckoned that 2·3 million jobs would be lost as a result of this legislation. I notice that the noble Baroness did not offer any figure in her speech.
The Viscount of Oxfuird: My Lords, I thank the noble Lord for giving way. The addition to the current 1·3 million unemployed would be 1 million. I believe that makes a total of 2·3 million.
Lord Evans of Parkside: My Lords, I apologise to the noble Viscount. I accept the figures that he gives.
1058
I would say only that the figure of 1·3 million relates to those claiming jobseekers' allowance and does not represent the true number of people who are without work in this country. On the Bill's Second Reading in another place, Mr. John Redwood led for the Tory Party. While still claiming that jobs would be lost, he again offered no figures, unlike previous Tory claims about alleged job losses.
Clauses 2, 3 and 4 of the Bill provide no distinction in the minimum wage on the grounds of different areas, different sectors of employment, undertakings of different sizes, or different occupations for those aged over 26. I accept the broad principle. However, while I understand the reasons and thinking behind the propositions in Clauses 3 and 4, I wish to offer two caveats. First, I am puzzled by the reference to the age of 26. I am not sure why that age has been plucked out. In all the industries in which I have worked, the general ruling was that once that person had reached 21—in other words he or she was recognised as an adult—he or she then received the full rate for the job. Those below the age of 21 received a lesser amount. Secondly, if there were a differential at age 26, is there not a danger that some employers would be more inclined to employ those aged under 26 because they were cheaper than those just over 26 because they were more expensive? Can my noble friend give an undertaking that, if regulations are brought in under Clauses 3 and 4, they will be brought before Parliament for debate and a vote on whatever proposition the Secretary of State brings forward?
I congratulate my right honourable friend the President of the Board of Trade upon establishing the Low Pay Commission within a short period of taking office. It has been vitally important for the commission to be able to take evidence, and to start to do the necessary groundwork at this early stage. The commission will consider all the necessary factors, including the concerns of small businesses, and will produce a fair and justifiable minimum wage. While I understand employers' anxiety that the minimum wage should not be too high, I hope that they will understand our concerns that the minimum wage should not be too low. We shall be looking for a fair and adequate balance.
I strongly support the minimum wage enforcement clauses. As we have seen in so many other fields, it would be pointless to have minimum wage legislation if we have no means of enforcing it against the, it is to be hoped, very few cowboy employers who will undoubtedly do their utmost to get round the legislation. I believe that it is a fair, just and long overdue Bill. It will bring material benefits to millions of British people. There are almost 1 million people in full-time employment in Great Britain today, most of them with families, who earn less than £2·50 per hour. Many are mothers with children. Many are from ethnic minorities. All would benefit greatly from this legislation. I am proud that a Labour Government should at an early stage have introduced this Bill to combat poverty. I strongly support it.
9.33 p.m.
Lord Dixon-Smith: My Lords, I declare an interestas a practising farmer. As such, those parts of the Bill dealing with the agricultural wages aspect of the question might conceivably directly affect me. From what I have heard so far, I hope that my employees will be well clear of any provision introduced by the Bill.
However, declaring that interest gives me the opportunity to make two pertinent points. First, agriculture, like many other industries today, is an area of rapidly declining employment. There are a number of reasons for that, most of which do not have to do with either the beastliness of employers or indeed the dreadful environment in which most agricultural workers live. By and large, they are extremely fortunate in that regard.
However, there is one basic temptation, or pressure, depending on how one looks at it, which every employer, not just in agriculture, goes through; namely, the higher wages go, the easier it becomes to employ a machine to do the work. If we examine the consistent trend over the years in my industry, we see bigger, better and quicker machines, and more sophisticated systems, with fewer and fewer people required to do the work. The higher wages climb, the more intense that pressure is.
The other point, for what it is worth—and I shall slightly turn it round—is that agriculture is a basic industry, working with basic commodities. At the present time, because of the strength of the economy, as everybody in this Chamber will undoubtedly be aware, it is rather a depressed industry. In many parts of the country—in Wales, up in the hills, in Scotland, in the north west and parts of the West Country, there will be farmers who are already achieving what might be called negative income. It is not a very happy situation to be in. Anyone who is in that situation for long will find himself in considerable difficulties if he happens to have employees.
The thought occurs to me, slightly wickedly, that if we set the national minimum wage at something like £5 an hour and there is an immediate battle for a restoration of differentials and we let inflation rip, then the pound might be rapidly devalued and those farmers would probably find themselves once again with a positive income. However, I am sure that the rest of the country would suffer so much in bringing that about that we had perhaps better put that wishful thought aside.
In considering my remarks about the Bill, I had a passing fancy that perhaps we should cast Sessions of Parliament as Shakespearian plays. I could not help but think that perhaps "The Tempest" was appropriate for this current Session, with the new Government determined on immense activity and sweeping all before them. With that in mind, it becomes quite easy to "cast" the Budget debate and the Finance Bill that is to follow in the part of Prospero, with wonderful spells being cast which we all hope will be of general benefit to the country at large.
But this Bill then becomes a problem, because we do not yet have the information that enables us to define its character. Once again we have before the House an
1060
enabling Bill. Like the various referendum Bills before us earlier which did not at the time contain the information as to what was to be created, so now we do not know what the minimum wage might be. We know the "how", but not the "what"—and in this case it is the "what" that matters. Do we have Trinculo, a rather irrelevant but somewhat amusing character; or might it be Caliban, descendant of a former occupant of the island with rather unfortunate and self-destructive characteristics?
In the whirlpool of taxes and benefits surrounding people at the bottom of the wages pool, it is not always easy to determine precisely what is going on. I have tried to measure the intentions of the Bill against some of the points outlined by the Chancellor of the Exchequer in another place last week, and also in the context of views expressed in various places as to what the appropriate level of a minimum wage might be.
In the other place last week, in talking about restructuring national insurance as recommended by the tax and benefit task force, the Chancellor said:
"From next year, the Government will abolish the distorting entry fee for employers' national insurance. We will also abolish the multiplicity of separate national insurance rates. We will therefore cut the cost of hiring lower-paid employees. Employers will pay no national insurance on any employee earning less than the starting point of the personal tax allowance—£81 a week" .—[Official Report, Commons, 17/3/98; col. 1104.]
Assuming a 40-hour week, that is just over £2 an hour; noble Lords do not need me to tell them that. Of course, one has to consider that there may be part-time workers, but anyone who can earn £81 per week, say, in one day, is not likely to be considered to be low paid or at the bottom of the wages pool. Since I cannot accept that the Chancellor would waste his breath on the matter without some reason—still less do I believe that he might spin some irrelevant spell—I hope that the Minister in his reply will assure me that the Chancellor's remarks are pertinent in the light of the implications of the Bill. I assume, therefore—and I hope to be assured that it is so—that where the Secretary of State has power, under Clause 3, to create exemptions for those under 26 years, those exemptions will be made.
At col. 1105 of Hansard for 16th March in the other place, in discussing the change from family benefit to tax credit, a guarantee was given that work would pay and that for a family with a child and someone working full-time, income would be at least £180 per week. I assume that that sum is arrived at for some people by adding a tax credit to the wages paid. That is an interesting concept and I wish it well and hope that it works. But once again it suggests real wages at a level that may be well below some of the figures that have been suggested as appropriate for the minimum wage.
The reality is this. The Bill, with its flowing legal prose, creates a procedural mechanism to do a specific job. In itself, apart from the estimated cost of over £0·5 million, it is innocuous. The conclusion of the job, however, is highly significant. In other countries where minimum wages apply, the effects seem to vary depending on the conclusion that is reached as to what is appropriate. There appears to be a correlation between the level of the minimum wage and the level of unemployment.

1061
In the United States where the level of the minimum wage is relatively low, unemployment is also low. On mainland Europe, however, where various national minimum wages are relatively higher, unemployment is correspondingly much higher, certainly at levels which we would not wish to see here ever again; in many places at levels we have never seen here—thank heavens! It is on that decision that I shall finally have to decide how I cast the Bill. I think we must all hope that I do not have to cast it as Caliban.
9.43 p.m.
Lord Thomas of Macclesfield: My Lords, the question before us today is one of principle, a principle already accepted by many industrial countries of the world and by most European countries. So it was a particular disappointment to me today to hear the opening speech of the noble Baroness, Lady Miller of Hendon. We could have spared the toilers in Hansard because it was exactly the speech, the sentiments and facts brought out in the first Factories Act at the beginning of the last century, the second Factories Act and the third Factories Act. These were not the end of the world as was forecast at that time.
I was a proud member, with Lady Howe, of Opportunity 2000. I heard from women who had succeeded in industry that in their view often the biggest enemies of women prospering, going up the ladder and getting to the top, were other women. I find it ironic, therefore, since I always dismissed that as folklore, that the noble Baroness, Lady Miller, should speak against a national minimum wage when by far the greater beneficiaries will be women.
Baroness Miller of Hendon: My Lords, I am grateful to the noble Lord for giving way. I believe that my record in working for women is very good. However, does the noble Lord agree that in America there was an exemption in the Equal Pay Act 1963 which provided that men and women should receive the same salary because it was proved that, when there was a minimum wage structure, the women did much worse out of it than the men?
Lord Thomas of Macclesfield: My Lords, I do not accept that logic. In my experience, by treating women with respect an employer will earn much more loyalty and the business will benefit as a result. I see no reason to follow the example given by the noble Baroness.
If the principle is carried to extremes in terms of cash per hour worked, either extreme would be disastrous. Too much would result in redundancy, as the Benches opposite claim; in bankruptcy, unemployment and a reduction in gross domestic product and tax revenues. Clearly, therefore, too much would be wrong, though I wish that could be applied to some executive directors. That is why a commission needs to be set up which can be independent of the political debate and argument. It can judge what is an appropriate amount in terms of the economy at that time.
1062
The noble Baroness also confuses flexibility with minimum wages. Flexibility involves multiple skills; it concerns the hours of the day which one works. It is not about paying people a bag of rice a week. That is not flexibility; it is unethical. In terms of our New Zealand friend—obviously a refugee from New Zealand which has a national minimum wage—customers respect employers who respect employees. An employee is an employer's biggest ambassador and salesperson. If employees are exploited, they will not send a good message to the customers. It is therefore self-defeating to exploit people with very low wages.
Too little or no minimum wage, as has been suggested, results not only in low hourly rates, but also in increases in social payments—I have heard the figure of £2 billion suggested; that is a subsidy paid to some employers. However, it is interesting that the Benches opposite should be arguing that case. It puts the good employers at a disadvantage. And good employers, whether large or small, would regard it as unethical. They occasionally lose business because of the cowboys in the economy and the sooner we get rid of those, the better.
My experience of 44 years as a banker was that there was a tight correlation between what people were paid and what was invested in them in terms of skills and training. The more they are paid, the more advantageous it is to invest in them by helping them to develop skills. The opposite is also true. If the labour comes very cheap, it is rare to find those employers investing in and developing those employees.
If we carry on without a minimum wage, we will continue the exploitation, particularly of women and particularly of certain ethnic groups. Both extremes, therefore, could be a disaster to the individuals, to the companies, to the country's gross domestic product and to tax revenues. Worse still, a society with a value system that has no respect for individuals would result. That is part of the culture change which this legislation and the Budget of last week seek to address; that is, the culture change of valuing people.
It was Robert Owen, a textile manufacturer, who taught his fellow textile manufacturers 100 years ago that the more you invest in people and the more you respect people, the more profits you make and the more profits you are entitled to make. He had a track record that no one can besmirch after all this time.
I am delighted to support the principle of the Bill. The actual rate per hour should be decided by the commission and revised according to RPI every year. As a cautious banker, my inclination would be to start at the lower end of the scale and build on that rate every year. I certainly hope that the Bill will pass very quickly.
9.50 p.m.
Lord McCarthy: My Lords, I want to do two things at this late hour. First, I want to join those on this side of the House who have congratulated the Government on the drafting of the Bill. It is the next best thing to a masterpiece. It makes one appreciate what the parliamentary draftsmen can still do if they are properly encouraged. Secondly, I want to answer those who have

1063
opposed the purposes and functions of the Bill. The noble Lord, Lord Dixon-Smith, said that the arguments reminded him of Prospero in The Tempest. I could not quite get the connection, but they remind me of Touchstone in As You Like It, in particular what is called Touchstone's defence, a series of mutually contradictory arguments in declining order of plausibility.
There are four arguments really, four of what Touchstone would have called ripostes, replies, objections. The first riposte, reply or objection, which strangely enough has not been advanced very much in this House tonight although it was very much heard from the right honourable Member for Wokingham in another place—he made it the central arm of his defence—is that what the Opposition believe in is not a minimum wage but a minimum income. By that I think he meant the combination of social benefits—family credits, housing benefits and so on—that is likely to alleviate the worst forms of wage poverty. He said that if one got right the minimum income one would not need a minimum wage. I may or may not be seeing the noble Baroness, Lady Miller, nodding, but at least that is what the right honourable Member for Wokingham said.
There are three objections to that. In the first place the previous government were, I suppose, introducing the minimum income over 17 years, but there is no sign that they had achieved the minimum income. Secondly, what they achieved were inequalities of income and pay which were the second worst in the OECD. That is what they achieved in 17 years of trying to do without a minimum wage. Seven times the number of workers were below 40 per cent. of average income than was the case in 1979. That is what the previous government achieved with their minimum income guarantee. We do not think that is the answer, because we have had a long period of experience and it has not solved the problem.
The third riposte I would give to that refutation of our position is that to create a minimum wage involves part of a general policy of dealing with poverty. This is a multi-focused approach. The minimum wage is part of a whole series of measures, some of which might in the end produce a minimum income. I refer to job creation, social benefits, housing subsidies and tax remissions. If we go on long enough, we shall do something essential, important and permanent about wage poverty. But we certainly shall not do it without the assistance of a national minimum wage.
When one makes arguments of that kind, those who want to defend their position move on to the second riposte, saying, "That's all very well and fair, but it's unobtainable and impossible because the inevitable consequences of seeking to introduce a national minimum wage are higher costs, lower sales and rising unemployment". That argument has been put forward widely in this debate tonight. As I understand it, it is what the noble Baroness, Lady Miller, said. I did not hear him, but I understand it is what the noble Lord, Lord Harris of High Cross, said. It was also what the noble Baroness, Lady Eccles, and the noble Viscount, Lord Oxfuird, said. They said that if we try to solve the problem in that way all that we shall get will be unemployment, higher costs and lower productivity.
1064
There are three objections to this. The first is that the evidence for it is not evidence at all, but a series of simulations. One only gets this kind of catastrophic consequence if one uses computers and puts rubbish in and then gets rubbish out. One never gets that from empirical studies in the field. One can put in anything one likes. Various figures were tossed about. I can remember the expert on this, Michael Howard of another place, when he was Secretary of State for Employment. One Thursday afternoon at Question Time he got the figure to 1·7 million jobs. It was not very clear what was the minimum wage and how much the knock-on effects would be. He satisfied himself and he got the figure up to 1·7 million lost jobs. I believe that that is the record.
The most recent—and it has been tossed about in the debate tonight—was the 1996 figure of the DTI, which the previous government used in the course of the election. If there was a minimum wage of £4·15 an hour and a 50 per cent. knock-on effect in terms of differentials, one would lose 1 million jobs. That is a case of rubbish in, rubbish out. The CBI is a little more reasonable and serious. It told the Low Pay Commission that, going up to a figure of £4·40, with a replacement ratio of about 35 per cent., there would be a loss of 250.000 jobs. That is not quite so much rubbish in, and not quite so much rubbish out. Then there are the studies of Ferney and Metcalfe. They summarised the work of the academics who had done studies of this kind. They produced figures of between 9,000 and 120.000 jobs and an average of 80,000. So one can always obtain such figures if one makes assumptions about the level of the minimum wage. They are on the high side. If assumptions are made about the extent to which differentials are replaced, which are very much on the high side—especially if you are Michael Howard—one gets death-defying, terrifying figures.
Secondly, one never gets anything like that if one looks at the actual studies of the people who have been working minimum wage systems and who have increased that minimum wage by between 10 to 20 per cent. at any particular time. They can say what that has meant for employment. In those circumstances one has a wide variety of results, all about 2 per cent. plus or minus. But one never gets anything significant when one looks at computer-type simulations rather than what one gets from what really happens. That is my second argument against the misery of hypothesis.
My third argument is that the essential part of this Government's policy in this Bill is that they propose a softly, softly, catchee monkey approach to see what happens to unemployment, costs and wages whenever they change the minimum rate. That is the only sensible way. No intelligent person knows what a particular minimum wage is going to do to a particular industry or occupation at a particular point in time. Nobody knows, but anyone who tells you that he does has been mucking about with simulations.
The only thing to do is to start in a relatively modest way by keeping the Low Pay Commission in existence, giving it adequate research. It should then say exactly what is meant in terms of productivity or increased

1065
efficiency or in terms of employment levels in different parts of the labour market. That is the unique thing about this Bill. It proposes to do exactly that.
So I come to the third riposte or counter-claim: that all this may be true. That has been said by quite a number of speakers on the other side of the House. Their great objection is that the way in which we propose to establish a national minimum wage is inequitable and unfair because it is simple, understandable and will have a simple rate spread across the whole of industry. Those people who do not think that we need anything like a national minimum wage say that we need something much more complicated. They cite variations by industry, by region, and by size of firm.
There are three arguments against that. First, variations in levels of pay per hour for full-time workers by industry and by region are relatively small, with the possible exception of central London. The differences are relatively insignificant. At £3·50 per hour, 14 per cent. of the full-time labour force is affected—18 per cent. of the labour force in the north of England and 10 per cent. of the labour force in London. In other words, in terms of full-time workers, the variations are relatively insignificant.
Secondly, the main cause of variations between workers—and therefore the main beneficiaries of the minimum wage—is the number of part-time workers whom a particular industry, area or firm employs. It is part-time workers who are relatively low paid, and especially part-time working women. Indeed, part-time working women will be the major beneficiaries of any decent minimum wage, wherever they live in the country. That is because, even in central London. women part-time workers are universally badly paid.
The third argument against the "complications" of our simple, across-the-board minimum wage is that it is the only way we can imagine of having an enforceable system. Those who do not like it should come forward with an alternative. If everybody knows what the minimum wage is, if it can be printed on the back of payslips, everybody will know what they are entitled to and the system will be self-enforcing. That is the point about having a single minimum wage.
Indeed, that point was appreciated by the Conservatives when they were in office. I can remember—noble Lords who were there at the time will also remember—the noble Lord, Lord Young, standing at the Dispatch Box in 1986, when the then Conservative Government introduced the Wages Bill. The noble Lord told us that what was wrong with the wages councils was that they were so complicated, with enormous schedules of rates, differentials and regional changes. The noble Lord said that he would produce a single rate for every wages council. He said that it was sensible to have a rate across the board. He was right. The trouble was that several years later, the Conservatives abolished the whole lot!
Those are the arguments against, so I come finally to what I would call "the objection disingenuous", which is the last objection when all other objections have been destroyed. Frankly, this one is a bit of a cheek. It has
1066
been put forward tonight by the noble Baronesses, Lady Miller and Lady Eccles, by the noble Viscount, Lord Oxfuird, and by the noble Lord, Lord Dixon-Smith, and, I am sure, by several others. They say that the Government have a sauce not to put all this in the Bill. They say, "If the Government are so certain and want a straight rate across the board, and if they do not want exceptions, why not include it all in the Bill? Why do they leave us to wait and see what they are going to do?"
There are three answers to that. First, I remind those noble Lords who were here in 1992—I think that pretty well all noble Lords who are present were, and if they were not, they were in the country and they will remember the election—of what the Conservative Government said then when the Labour Party proposed a system such as this. In 1992, God save us, we proposed a simple rate which would be read off and automatically indexed every year from the new earnings survey. It was to be based on average male manual earnings. It was to be automatic, with no investigation. It was to be put on the face of the Bill—and the Conservatives went mad. They said that we should wait and see what could be afforded and study the matter in greater detail. They asked why we wanted to put a single figure in our manifesto. Perhaps we were listening and took the point and therefore arrived at a much more sensible system.
Those who say that the rate should be identified before legislation appears are asking for a delay of two-and-a-half years. They are suggesting that the low pay commission be set up to investigate the matter, do all the work, prepare a consultation document and argue about it, and a little time after the millennium legislation can be produced. That is not a serious argument; it is a disingenuous attempt to put us off.
The final point is that, far from rushing this issue, we have waited 86 years for it. Eighty-six years have gone by since a spokesman for the Labour Party in another place moved for the first time that there be a minimum wage. It has not been rushed or pushed. It is well overdue, and the sooner we do it the better.
10.6 p.m.
Viscount Bridgeman: My Lords, the sub-plot running through this debate tonight has been the question of jobs. I hesitate to follow the noble Lord, Lord McCarthy, with his dissertation on minimum wage and minimum income. The basic reason for our objection to a minimum wage is that it does not address the real roots of poverty. Most of those who will benefit from the minimum wage are young persons and part-time, usually female, earners in two-earner households. In other words, it will leave the bulk of poverty untouched. My noble friend Lady Miller referred to the calculation made by the Department of Trade in 1996 that a minimum wage—admittedly it assumed £4·15 per hour with a 50 per cent. restoration of wage differentials—would result in the loss of one million jobs in the United Kingdom. That is a frightening figure. In the absence of any revision of that estimate we must assume that that is still the department's view.

1067
It is the view of this party that there should be a targeting of cash subsidies via the tax and benefit system. That would be far less damaging to the labour market than a minimum wage. It has the advantage of helping individuals to remain in work in contrast to a minimum wage which, regrettably, may result in an individual losing his job. Sadly, the longer an individual remains unemployed the more difficult it is for that person to find work.
This Bill contains contradictions. Under pressure from my colleagues in another place, the Government have conceded exemption for the Armed Forces. Other exemptions include voluntary workers and share fishermen whose income is derived solely from the profits of a catch. This makes sense. But it is indicative of the Government's piecemeal approach to the anomalies thrown up. Countless small businesses whose profits and ability to pay their workforce can vary widely from year to year will he disadvantaged by this legislation. Small pharmacists who are already under threat from the Competition Bill could go out of business or have to cut staff. The hotel and catering trade in particular view this Bill with the greatest misgivings.
It is significant that the minimum wage legislation in the United States, about which the Government make much play, specifically excludes small businesses. There are other contradictory policy statements, most obviously the welfare-to-work initiative. On the one hand, employers are offered subsidies to take on the young or long-term unemployed to reduce the cost of employment. On the other hand, an increase in employment costs resulting from the minimum wage will lead to job losses.
My noble friend Lady Miller has said that most European countries have minimum wage rates. In practically every case these are accompanied by higher unemployment. My noble friend Lord Dixon-Smith referred to the correlation between unemployment and a minimum wage. Belgium, with a minimum wage of £4·05, has an unemployment rate of 12·9 per cent., and France, with a minimum wage of £3·60, has an unemployment rate of 12·1 per cent. France is indeed an interesting case.
A recent study in the Wall Street Journal Europe in November 1997 gave a stark contrast. From 1987 the real earnings of the lowest paid 10 per cent. of the British workforce rose by 13·8 per cent. without government intervention, compared to 4 per cent. in France where the minimum wage is being raised repeatedly. My noble friend referred also to the correlation of social security payments. In a recent study it was found that the average employee in the UK receives the equivalent of £6·80 an hour compared with £6·50 in Germany, £6·30 in France, and £5·70 in Sweden, after adjustments for national differences in pricing and purchasing power. We may be the only major country without a minimum wage, but the average worker here does not do too badly.
We are committed not to oppose the principle of the Bill. So my remarks are directed in the earnest hope that the rate will be set at a realistic and not an unacceptable level.
10.11 p.m.
Lord Davies of Coity: My Lords, like others, I consider the Bill to be one of the most important that the Government, in their short period of life so far, have put before the House. Like others, I welcome it; there will be no one who welcomes it more. The Bill, and the campaign for it, have played a special and significant part in my life. I shall come to that later.
Noble Lords may recall that in the economic debate on 3rd December last year I referred to Wilberforce and Shaftesbury—two great parliamentarians who campaigned for legislation to abolish slavery and child labour respectively. I did that to demonstrate clearly that when they were campaigning for those two worthy causes they were confronted by economic argument—much of the economic argument that we have heard this evening—whereas those of us who, by our support for a national wage, are trying to help the most vulnerable, the most exploited and the most deprived, meet economic arguments relating to bankruptcies, lost jobs and other areas of difficulty.
I concluded my speech in December of last year with the words:
"I may again feel obliged to remind the House of the things that I have said today".
I shall do that, but to this extent only:
"Earlier this year, in Scotland alone, it was assessed that £265 million per year is paid from the state to top up low pay. In the north west, where I now come from, 30 per cent. of the working population earn less than £4 an hour. Advertisements in Jobcentres cite a banner maker at £2·36 an hour, which is £92 a week; a care assistant at £2·80 per hour for working a night shift; a hairdresser is cited at £1·31 per hour, which is £55 a week. An employee in a travel agent is quoted at £60 for a 39 hour week. I could go on with further examples".—[Official Report, 3/12/97; col. 1386.]
The country cannot go on subsidising bad employers with welfare payments. We cannot go on allowing people to languish in the poverty trap between low wages and benefits, our people to have no training, no skills, no hope of jobs, or, indeed, even better jobs. That is a recipe for spiralling down further into the pit where we compete with the world's worst and not the best.
I wish to give two quotations. The first is:
"Low pay is a cruel injustice which should not be tolerated in a society like ours and yet we all know of employment exploited women having to fight through equal opportunity courts to achieve what is their right … We all know that the vast majority of low paid workers, mostly women employed in shops, in hospitals, in canteens, in hotels and many other areas of industry, make a contribution to the way of life of this nation no less equal than other workers and yet they are still low paid. These workers have been traditionally low paid. They have been historically disadvantaged, but despite our awareness of this injustice the situation grows worse, not better … the low paid are the ones who also suffer most from the attack made upon the social wage. Again, it is the low paid who are caught in the cruel poverty trap when State provision is applied as a subsidy to bad employers. If low paid workers tolerate low pay, they qualify for a subsidy which raises them marginally to a different level of low pay. On the other hand, if they accept a modest increase in wages, their entitlement to the taxpayers' subsidy is threatened. This is the classic low paid workers 'Catch-22'. Low paid workers do not want dignity and self-respect destroying handouts, they want decent wages.
"Low paid workers also suffer from not being able to borrow in the same way as better paid workers can. If you are well paid, credit worthy, you have established security, you can get the most economical and beneficial credit facilities, but if you are low paid

1069
and, doubtless, have little or no security, you have to resort to the most expensive and sometimes illegal and extortionate loan provisions. That completes the vicious circle of pressure on low paid trying to survive on poverty wages. There is no doubt that the urgency of our issue places a duty, a responsibility and a commitment on all of us to demand the introduction of a statutory minimum wage … Why? Because nothing short of a statutory minimum wage will solve the problem of low pay … Low pay represents an exploitation we can no longer tolerate. It saps hope and confidence. It destroys dignity and self respect. It cruelly deepens poverty and deprivation".
The second quotation is as follows:
"Low pay is no accident in this country. The injustice of low pay exists because we have not done enough about it … The low paid are workers in shops, in hotels, in laundries, in hospitals, in garment factories. They are workers in sweat shop industries in which unscrupulous employers operate. The majority are women workers, young workers, home workers, workers from ethnic minorities and part time workers. They are now a third of the nation's work force. They are the workers for whom … some legal protection has been provided for nearly 80 years. They are the workers for whom Wage Councils were established … Let us not forget why Wages Councils came into being. It was in 1909 that they were introduced, not by a Socialist, not by a trade unionist, but by a Liberal minister named Winston Churchill and he said that unless there were legal wage regulations good employers would he undercut by bad employers and bad employers would be undercut by even worse employers … Low pay is now so widespread that we need drastic action. We cannot tinker with the problem. Only by the introduction of a statutory minimum wage can we hope to remove the suffering, the hardship, the inequality and the injustice that low pay creates".
I draw those two references to the attention of the House for particular reasons. Your Lordships may say that much of what those extracts contain has been heard from the Minister on the Front Bench this evening. Your Lordships may have thought they were from Hansard when the Bill was going through the other place recently. They were neither. The first was from the speech I made to the British Trades Union Congress in 1986 when I seconded a composite motion on the introduction of a national minimum wage. For the first time in nearly 120 years the TUC Congress determined that year that we should have a national minimum wage campaign.
The second extract was from my speech to the Labour Party conference, also in 1986, when the Labour Party formally, for the first time in 80 years, determined that it would be campaigning for a national minimum wage. That was all very important to me. It was the year in which my trade union, USDAW, threw its weight behind a national minimum wage campaign. Twelve years later, it now looks as though it will reach the statute book.
Another big plus for my union in 1986 was the fact that we were one of the groups campaigning against the Sunday trading legislation. It was the first time that the Conservative government had been defeated since they came to power in 1979. In that year also I became general secretary of my trade union.
I do not wish to exaggerate the significance of my union's contribution to this campaign. But it can take some credit in being one of the prime movers. I have been somewhat disappointed to hear once again today the old arguments—sometimes described as the old bogeys—in opposition to this very worthy piece of
1070
legislation, namely, bankruptcies, lost jobs and high prices. Those are the essential areas of opposition to what is proposed.
As regards bankruptcies, let us bear in mind that the vast majority of employers have nothing to fear from a national minimum wage. But if there are some who are fearful because they survive by paying low wages or because their employees are receiving state benefits, paid by the taxpayer, because they are not receiving sufficient from their employment to survive, we must ask whether those employers deserve to be operating in those circumstances. Indeed, the question can go further. How long can they survive if that is what they are doing? But I do not believe that that is what is happening. In many circumstances, companies are maximising their profits as a result of paying low wages and ensuring that their employees receive state subsidies to compensate for those low wages.
I turn now to lost jobs. Nobody knows whether or not jobs will be lost. But it will not depend on the introduction of a national minimum wage. It will depend upon the level of that national minimum wage. Both the low pay commission and the Labour Government know precisely that difficulty. This Government are campaigning for and have policies in relation to full employment. They will not introduce a national minimum wage which will cost jobs.
Next, I deal with the issue of prices. In the early 1980s, I negotiated with hotel employers through the wages councils. I can remember arguing for a weekly rate of wage for hotel staff which was less than what many hotels in London were charging their guests for one night's accommodation and very often, not even providing breakfast. That was the disparity between prices paid by guests and wages paid to the employees. But in that regard we must recognise that if prices are being kept down because workers are subsidising those prices by low wages, that cannot be right and should be stopped in any event.
There are three areas in the Bill that I should like to address and to which I should like to draw the attention of the Minister, the Government and the low pay commission. The first is the question of the level of the national minimum wage; the second is the question of the wages and benefits syndrome or access, which is sometimes described as the "Catch 22"; and, finally, the 26 year-old threshold. I understand that we do not want a level for the national minimum wage that will be an attack on jobs. However, I recognise that we should have a national minimum wage that will be an attack on poverty and wages. I trust that the low pay commission and my noble friend the Minister will take those factors into account and address them as they should be addressed.
As regards the question of the national minimum wage and benefits access, perhaps I should explain that that arises where people have such low wages that they are entitled to benefit. However, when the minimum wage comes in, everyone on low wages should benefit. I trust, therefore, that the benefits system will be adjusted so that workers on low pay, who receive an increase by way of the national minimum wage, will not

1071
lose their benefit thus rendering them worse off as a result of the introduction of the national minimum wage. With regard to the 26 year-old threshold, this is obviously a changed qualification. If that qualification is to apply—which, to some extent, is contrary to the age at which the adult rate is normally applied—I trust that a full explanation will be given and that it will be a justified introduction.
10.26 p.m.
Lord Monkswell: My Lords, I thank my noble friend the Minister for introducing this debate in a most extensive and adequate manner. In my contribution tonight, I will touch upon history, economics, enforcement and the international situation. As several previous speakers have mentioned points that I wished to make, I hope that I shall he able to keep my remarks reasonably brief.
I believe that my noble friend Lord Davies pointed out to the House that it was only in 1986 that the labour and trade union movement actually adopted a policy for a national minimum wage. One might ask why they did so. We need to explain that they did so as a result of Conservative policies—indeed, because of the way that Conservative policies had affected the labour market in the United Kingdom.
Other speakers have mentioned the fact that we have had wage legislation since 1909, originally with the wages boards and then later with the wages councils. One of the factors that we should recognise is that, after the war, we had full employment for 30 years. Therefore, if a worker was in a badly paid job, he had the ability to walk away from it and get another one. Of course, some workers were not necessarily in that position, but most of them were. So the idea that they could, by their own efforts, get out of badly paid jobs was there simply because of the very fact of full employment. Indeed, the wages councils operated as a safety net for particular categories of employment.
We can see that, since 1979, we have had virtually permanent mass unemployment with levels of at least one million—sometimes two million or three million—above those recorded even for the late 1970s. That had a significant effect on the ability of low paid workers to improve their pay. The abolition of the wages councils effectively created an impossible situation to which the Labour and trade union movement responded by adopting their policy for a national minimum wage. I am glad to see that is now coming to fruition.
One of the aspects of this debate has concerned me. However, one should bear in mind that just under half the speakers in it sit on the Conservative Benches. Therefore, one can understand that one of the threads running through the debate has been the risk of increasing unemployment if the national minimum wage is set too high. I wish to offer a contrary argument to that supposition. I refer to an academic study that was carried out in a number of states in the United States eastern seaboard, all of which had a state minimum wage. One of them decided to increase its minimum wage above that of its neighbours. Extensive academic research was carried out to determine the effect of that
1072
on the economy. The study revealed that the state which increased its minimum wage above that of its neighbours had an increase in employment.
If one pays poor people at the bottom end of the labour market more money, they do not buy a big foreign car, or go on foreign holidays two or three times a year, or buy a second house. They purchase local goods and services with the extra money that they have in their pockets. That stimulates economic demand which generates more employment and that creates a virtuous circle. We need to understand and recognise that factor when we discuss the level of the minimum wage. I argue that it should be set as high as possible.
The figures that the noble Baroness, Lady Miller of Hendon, gave at the beginning of the debate help my case. She pointed out that in the 1950s and the 1960s the minimum wage across the United States was set at half average earnings. That was probably the period of the highest levels of employment and the most beneficial levels of industrial activity that the United States has ever experienced. I am glad that the figures of the noble Baroness help my case.
I quite understand that my noble friend who is to reply to the debate may not be able to answer my question off-the-cuff. His response may be more suitable for a Written Answer. As other noble Lords have mentioned, the other factor is that the Government subsidise had employers who pay low wages. At what level would the minimum wage have to be set to eradicate government subsidy for employers who pay low wages?
I was interested to hear the remarks of the noble Lord—he is not a noble Lord, not yet anyway—John Edmonds, the general-secretary of the general, municipal, boilermakers union, when he said last year that one of the difficulties with minimum wages is that in a situation of mass unemployment unscrupulous employers will inevitably prey on desperate people and arrange matters so that poor employees are paid less than the minimum wage on the basis that no one tells anyone what is going on but at least they have a job. I hope that this legislation, along with the Government's commitment to full employment, will be effective in the medium to longer term.
On enforcement, my noble friend Lord Clinton-Davis pointed out that employers could be taken to court to enforce payment of the minimum wage; and that they could be subjected to criminal proceedings with a fine of, I think, up to £5,000. The problem with that is as regards the really bad, unscrupulous employers. The idea that they might suffer a financial penalty at that level will not be a great deterrent. Will the Government consider amending the Bill so that the worst employers would face a term of imprisonment? One argument is that if a bad employer pays less than the minimum wage, he is in effect stealing money due to his employee. If the situation were reversed, and an employee stole money from an employer, I think that most employers would argue that their dishonest employee should face the penalty of gaol. What is sauce for the goose should be sauce for the gander.

1073
Perhaps I may turn to the international situation. A number of noble Lords have touched on the concept of regional variations of the minimum wage across the United Kingdom—a concept comprehensively demolished by my noble friend Lord McCarthy. But as a party which is internationalist, and a Government with an ethical foreign policy, surely we should argue that what is good for us—a minimum wage set at a decent level—should also apply to our partners on the international scene. We have heard that most continental countries have minimum wages set in their own circumstances. Surely we should put the concept of a European minimum wage on the agenda of the European Union. Bearing in mind the references by my noble friend Lord Wedderburn of Charlton to the effect of transnationals, we should also think in terms of a world-wide minimum wage to ensure that transnational corporations do not exploit one group of workers against another, pitting each against the other by threatening to take their jobs away from them because the companies can obtain cheaper labour elsewhere.
I have posed a couple of questions to my noble friend on the Front Bench. I am sure he will not be able to respond precipitately today since I am tail-end Charlie, and I did not have the chance to give him notice of them. I shall welcome a note in response to my questions. I welcome the Bill and hope that we can dispatch it fairly quickly through your Lordships' House.
10.37 p.m.
Lord Newby: My Lord, as my noble friend Lord Razzall said, we support the Bill in principle. In deciding on our line, we have asked ourselves these questions. Should we be prepared as a society to see people continue to be paid derisory and demeaning wages? Should we be prepared to see gross exploitation, in particular of women and members of the ethnic society?
Earlier in the debate, the noble Lord, Lord Harris of High Cross, described this Bill as a flower arrangement to appease old Labour. The noble Viscount, Lord Oxfuird, described it as a triumph of popular opinion over public interest. We fundamentally disagree with both sentiments. The Bill deals with the question of decency. As the noble Lord, Lord McCarthy, said, it will form part of a strategy to tackle poverty, which is surely a noble cause, and not an issue on which to make party political jibes.
The key argument of those who oppose the Bill, and indeed the only substantial argument which can be urged against it, is that low pay equals no pay, and that the minimum wage will put out of work many existing low paid workers. The argument that regulating the terms and conditions of employment should be opposed because it will lead to job losses is as old as the hills. As the noble Lords, Lord Thomas and Lord Davies, mentioned earlier, it was used in the previous century in opposition to the Factory Acts. It was used against proposals to keep women and children from going down the mines. It was used against the ending of the
1074
employment of children as chimney sweeps. In all those cases, in the short term legislation undoubtedly led to job losses. But it could be justified on decency and fairness grounds—and it did not lead to a permanent higher level of unemployment.
Will the minimum wage now under discussion lead to significant job losses? That obviously depends on the rate, and on the exemptions. But at the levels that have been discussed, I suspect that the net effect will be relatively small. I certainly share the view of the noble Lord, Lord McCarthy, against adopting the misery hypothesis—although, given that the noble Lord was my tutor in industrial relations and employment policy some 25 years ago, I could hardly do otherwise.
I cannot agree with the noble Lords, Lord Bridgeman and Lord Dixon-Smith, who argued that there was some kind of mechanistic correlation between unemployment and a minimum wage. If that were the case, how can they explain the fact that, during the period their party was in office, the rate of unemployment in this country fluctuated like a yo-yo, with no minimum wage at the beginning, no minimum wage in the middle, and no minimum wage at the end. As an argument, it simply does not stand up.
We have heard a number of arguments and discussions as to whether there should be a single minimum wage for everybody, or whether there should be variations. In a number of respects we strongly disagree with the concept of variation. There has been some discussion about whether small businesses should in their early stages be able to pay below the minimum wage. When I and a colleague set up a small business about six years ago, we accepted that, as we were taking a risk in setting up the business, the matter of what wage we might get in the short term was extremely questionable. We accepted that if the business did not prosper in its early months we might not take a wage at all. But the argument that, when employing secretaries or other employees, we should say to them, "We are terribly sorry, but we don't want to pay you a decent wage until we've proved that our risk has adequately paid off', frankly, does not stand up to scrutiny.
Secondly, we do not accept the argument that the minimum wage should vary between sectors. In our view, the key test relates to the extent to which those in receipt of the minimum are in receipt of a wage that enables them to live at a decent level. Whichever place people live in, that does not vary between sectors.
There has been much discussion about the position of the under-26s, and whether they should be exempt and to what extent. Not straying very far from this building, if a minimum wage were presently to be introduced at the same level for those aged under 26 as for those aged over 26, there would be a significant number of researchers in another place who would need to look for another job. That demonstrates that there needs to be a certain degree of special treatment, particularly for those who have just left university and who might be spending a small amount of time, not formally as a student, but as an intern. However, we do not accept the argument that there should be no minimum wage at all for those up to the mature age of 26. Indeed, the evidence from

1075
the National Association of Citizens Advice Bureaux gives a string of examples of people aged under 26 who were earning unacceptably low wages. A young woman working as a receptionist for a Devon solicitor was earning £50 for a 34-hour week. A young man working for a local radio station in Lancashire was earning £60 for a 45-hour week. Those levels of wages are just as unacceptable as they would be for someone aged 36 or 46 doing an equivalent job. When the low pay commission reports, we look forward to seeing that there will be a combination of a limited exemption for those at the bottom end of the post-teenage group and protection for those at the top end and the older groups.
Finallly, in terms of variation, we come to the issue on which these Benches differ from the Government, namely regional variations. The argument, stated simply, is that if the cost of living varies between regions there is a strong prima facie case for having a different minimum wage in those regions. The cost of living differs. We have heard about London weighting and know that housing costs vary considerably between the regions. Here I may disagree with the noble Lord, Lord McCarthy, although in London the number of people who will be affected is 10 per cent. and it would only be 18 per cent. in the north-west, that is nearly double, a big difference. This is an area that needs careful scrutiny by the low pay commission. It may be, as the noble Baroness, Lady Turner, said, that when that has been undertaken the degree of regional variation may not be very great. But it seems to us that, first, it should be considered seriously. Secondly, even though it may not be a great variation, a small variation could be quite significant. Therefore, it merits careful thought. We shall return to that in Committee.
That brings me to the role of the low pay commission. As a number of noble Lords said, the simplicity of the Bill is a great strength. But it has been clear from the debates so far in another place that a whole range of issues is likely to arise relating to the interpretation of the Bill when it becomes an Act which the low pay commission will need to examine. For example, we may need further exemptions, and a number have emerged during the passage of the Bill to date. We may need further clarification on existing exemptions, and, for example, the position of voluntary workers was developed during the Committee stage and later stages in the other place. It may need developing further.
The question of young people needs to be looked at as well as benefits in kind. The whole issue of monitoring, coupled with research and implementation of the Bill, needs to be examined. Therefore, we believe strongly that the low pay commission should be placed on a permanent and statutory basis; it should have powers to take initiatives and not be beholden to the Secretary of State for requests for specific pieces of work to be done. We shall return to that at a later stage.
Finally, on enforcement, as the noble Lord, Lord Wedderburn said, no rights are stronger than their sanction. We have a certain amount of concern about the extent to which it would be possible effectively to enforce the measures in the Bill. We have heard and know that a large proportion of employers who will be caught by the legislation are small employers. We also
1076
know that despite the protection in the Bill for workers who assert their rights, many workers are likely to be deterred from complaining either through fear of the consequences or through finding the thought of going to an employment tribunal too daunting. I hope therefore that the enforcement of the Bill will be possible or will not be reduced by there being a shortage of resources. One cheap suggestion in terms of how enforcement of the Bill might be made effective is that the Government are looking at the concept of naming and shaming in another context. It occurs to me that perhaps they should think of naming and shaming poor payers. It might work wonders.
The National Minimum Wage Bill is about fairness and social justice. We have some differences with the Government on specific aspects of the Bill, as I have made clear. But we do not disagree with its principle. We look forward to the debates in Committee and to the later stages as well as to the eventual passage of an improved National Minimum Wage Bill.
10.50 p.m.
Baroness Seccombe: My Lords, I add my thanks to the noble Lord, Lord Clinton-Davis, for his generous remarks. I wish I could be as generous about his contribution, but I am sure he knows that we will agree to differ.
We on this side accept that this misguided measure is part of the Government's programme. We tried to dissuade them from it; economists tried to educate them against it; business tried to influence them against it; above all, small and medium-sized businesses begged them not to go ahead with it. But all to no avail. Labour were determined to go ahead with it. Why? Not because this measure will create a single job; it will destroy them. Not because it will make life easier for business; it will bind them even tighter in a noose of bureaucracy and regulation. Not because it will make people wealthier; it will make many people poorer by depriving them of work. Why then?
Because of old Labour dogma. This Bill is part and parcel of the deal that still binds the Labour Party to a few powerful unions. Those unions made the minimum wage part of their political mantra. It was first sung in the old socialist anti-enterprise age of Michael Foot and Jack Jones. It is still being sung today in a world that has completely and utterly changed. What a pity that a government, so intent on modernising everything that does not need to be modernised, did not act to modernise this absurd piece of old Labour dogma.
That said, of course we accept that the Government must have this Bill. But we intend to subject it to close and detailed scrutiny in the hope that we may persuade the Government to reduce its impact on business and the low paid, who will be the biggest sufferers. We have heard, in this excellent debate today, many good reasons for altering and reconsidering parts of the Bill. I hope that we shall have a chance to pursue some of those in Committee. But how much we would be helped in this place if we were given some clear indication of what the minimum wage will actually be before Parliament is invited to pass the Bill. This is a bad procedure, as my

1077
noble friend Lady Miller of Hendon said. I understand that the Low Pay Commission will report in May. Will the Minister therefore give an undertaking to this House in his wind-up that he will report to us on the findings of the Commission and the Government's reaction to it before inviting a Third Reading for the measure before us today?
A minimum wage is not a good way to help the poor. Many low-income earners tend to be on their way to higher paid employment anyway; many others are working part-time for low wages out of choice; they are not the main income earners in a household. As the noble Lord, Lord Harris of High Cross, said, this Bill may deprive earners of getting on the ladder in the first place, and deprive some part-timers of the chance to find any work.
The chairman of the Low Pay Commission admitted, as famously once did the Deputy Prime Minister, that he would be surprised if there were not some job losses. He implied that those jobs might be better lost anyway. Jobs better lost? Someone who has the commitment to take a job must be truly disheartened by such a view coming from someone whose earnings were reported to have been over £200,000 a year. I believe that the way to raise wages is to enhance the success and the profits of employers. That will not be done by adding to burdens on employers and increasing the complexity of taking on new staff.
Look at what happened in France, as my noble friend Lord Bridgeman said. When the noble Lord, Lord McCarthy, mentioned other countries, I noticed that he did not include France in his list of countries which have a minimum wage. There they have a minimum wage of £3·60 per hour, and they have raised the threshold of the wage. But in France the Wall Street Journal reported that real earnings of the lowest-paid 10 per cent. of the workforce rose by only 4 per cent. in the 10 years to 1997, compared with a 13·8 per cent. rise in the same period in unregulated Great Britain. Yet for such little relative gain, the rise in unemployment among the young in France has been truly terrifying. I shudder to think that we should go down that road.
What will be the impact of this measure on public services? Will the Minister undertake to write to me on this before we come to Committee stage? Will he specifically set out how many employees of the health service would be affected by a minimum wage set at £3·70 an hour or £4 an hour? What would be the costs of implementing the minimum wage in the NHS at those levels? Are any sums allowed for a minimum wage in the expenditure plans for the NHS, and, specifically, in the extra money announced by the Chancellor in the Budget last Tuesday? If so, on what level of wage are the Government's plans predicated?
We welcome that the Armed Forces are now exempted from the Bill. That was the result of much pressure, not least from some on these Benches. We understand the exemption also for share fishermen. But, in the light of the fact that the Government have abandoned their commitment to a uniform national wage, will the Minister now consider specific exemptions for small and medium-sized businesses in those sectors of industry most open to shifts in cash flow or to the sudden impact
1078
of a minimum wage? Will he also undertake to review the draconian enforcement powers and fines proposed for small companies in technical breach of the requirements of this legislation?
Industry as a whole and the millions of businesses that make it up are inherently different. It must be nonsense, I believe, to seek to impose a single minimum wage across all industry in every area. I do feel that I, as a rural village resident, must refer to one matter which does concern me greatly. Perhaps I may give an example of a small delicatessen in a village—very different from a large employer like Tesco. The owner works hard but needs additional help. She consequently employs three people part-time. This is the type of work and the hours that suit them. One is able to walk to work, the second cycles and the third sometimes cycles and sometimes arrives by car. This is their choice. Obviously travel to work for them is inexpensive as none of them has to travel more than one mile, which is very different from those who commute to London. They know that the owner makes just enough profit to keep the business afloat and that any extra financial pressure will in all probability result in the closure of the shop. I know I do not have to remind your Lordships of the dramatic decline in the number of village shops in rural areas and I am desperately alarmed that the implementation of this legislation would result in the demise of thousands of village shops country-wide.
The three employees I have referred to know only too well that the only alternative employment available would involve them in travel of at least 10 miles or so, which means extra expense and extra time away from home. This type of employment is often combined with family responsibility, when time is of the essence. I cannot for the life of me see why employer and employee in these circumstances should not make their own arrangements.
If the Government go ahead with this legislation they will have to accept that business closures will lead to extensive unemployment in country areas. It seems to me, therefore, that, as I have said before, in this Bill we can see that Old Labour is alive and well and that government action will result in elderly people in villages who do not own cars suffering as their local shops disappear in addition to the rise in rural unemployment.
But if the Government are as determined as they seem to be to press ahead with this damaging measure, I beg them to consider carefully and constructively some of the many pleas for moderation and exemptions from this measure that we have heard today and which we on this side will want to explore further as the Bill makes its way through the House. Tonight's debate has highlighted the many issues of concern and set alarm bells ringing. We look forward to scrutinising those issues at the next stage of the Bill.
10.59 p.m.
The Solicitor-General (Lord Falconer of Thoroton): My Lords, I believe that the expectations of my noble friend Lord Clinton-Davis have been fully realised. This debate has been an interesting one and of the highest possible quality. Perhaps I may pay a particular tribute to the noble Baroness, Lady Seccombe. I understand that

1079
this is the first time that she has wound up such a debate. Perhaps I may say, without any degree of patronisation, what an excellent speech it was.
A number of points have been made in the debate; but I first of all draw attention to the depth and quality of the speeches made in support of the Bill. I refer first to the speech of the noble Baroness, Lady Turner of Camden, who was assistant general-secretary of a union. She brought before the House specific examples of the effect of low, exploitative pay. I refer to the speech of the noble Lord, Lord Wedderburn, who is one of the most distinguished labour lawyers in this country. He went into detail about how people are exploited by way of low wages. He gave chapter and verse of the way they are exploited by low wages brought on them by people in a position to abuse them. I draw attention to the speech of my noble friend Lord Evans of Parkside who gave detailed and personal examples of his impressive history in a shipyard and the consequences of low and exploitative wages there. I draw attention to the speech of my noble friend Lord Thomas of Macclesfield who was the head of a business which employed a large number of people. He made the point with force and authority that employing people and paying them a decent wage means that the employer invests more in the employee and makes him or her more worth training and fitted for the economic society in which we live.
I refer to the speech of my noble friend Lord McCarthy who completely demolished the arguments advanced about job losses. So far as I am concerned, he made my reply almost redundant. The noble Lord is one of the most distinguished industrial economists in the country. I draw attention to the speech of the noble Lord, Lord Davies, who described the struggles that had been made on behalf of the unions to obtain a minimum wage over a long period of time. I draw attention to the speech of the noble Lord, Lord Monkswell, who effectively demolished the arguments advanced about the USA by the noble Baroness, Lady Miller of Hendon.
The speeches drew attention to two particular things. They drew attention to the extent to which people are exploited by the use of low wages. Did anyone on the other side of the House refer to that in their speeches? Not one of them did. The speeches made the second point that if one pays people decent wages, one gets more out of them and the company improves. Did any noble Lord who spoke against the Bill or its detail refer to that point? Not one of them did.
The case for a minimum wage is a case for decency and fairness; but it is also a case for improving employment practices and the quality of the work that is done. That case requires to be met, but it was not addressed for one moment by those who oppose the Bill.
What were the arguments advanced against the minimum wage? The noble Baroness, Lady Miller of Hendon, made very tired arguments sound fresh and exciting. She began with something she described as "the myth of the mandate". She sneered at the Labour Party for doing that which it promised to do in its manifesto. She said that what we had to do in the manifesto was a myth. She told us that she had been
1080
training canvassers for the past 25 years for the Conservative Party. I dread to think what she told them to say on the doorstep if that is the view she took in relation to the myth of the mandate.
She then referred to the myth of the USA. She simply selected one part of the material relating to the question of whether the minimum wage causes job losses. She said that one can draw no conclusions from the USA. She, like many other speakers, then addressed the issue of job losses. She said that it was plain that if a minimum wage were introduced, there would be job losses. My noble friend Lord McCarthy completely demolished those arguments.
Perhaps I may repeat the highlights in relation to it. In considering whether job losses will be caused, one has to have regard to the rate at which the minimum wage will be set. If it is set at a sensible level, the broad opinion of academics and those who have done research is that it will not cause job losses.
What is the material on which the Conservatives rely to suggest that it will cause job losses? It depends on the day of the week and the particular Conservative to whom one is listening. As my noble friend Lord McCarthy said, sometimes the figure is 975,000; sometimes it is 60,000; sometimes it is 1·6 million, and I have even heard it said that 2 million jobs will be lost. What is the material on which they are relying? They ignore the studies about the effect of the wages councils which showed that they did not have a negative effect on jobs. They ignore the studies of the USA and other countries with minimum wages which show that there are no negative effects on jobs.
The Conservatives rely on figures based on assumptions that they themselves create. The particular favourite at the moment is the 1996 DTI figure which was based on a minimum wage of £4·15 and an assumption that differentials would rise by 50 per cent. right up the hierarchy. As I understand the position of the Conservatives, if there was such a minimum wage, the earnings of the chairman of National Westminster Bank would rise by an appropriate percentage to preserve the differential. With respect to the Conservatives, that is completely bogus. I would respectfully suggest in relation to the issue of job losses that, instead of simply selecting figures that suit a particular prejudice, all the evidence is considered in the round.
The next argument advanced by those opposed to the minimum wage was the question of differentials. They have said that the inevitable effect of introducing a minimum wage is that earnings will increase for all above the lowest paid and right up the scale. They say that that is what the unions would inevitably seek. My noble friend Lord Clinton-Davis, drawing on evidence from a recent report by Income Data Services, effectively demolished the argument that differential rises would occur—no noble Lord has referred to the study of Income Data Services. That argument was simply advanced as a matter of assertion with no evidence whatsoever to support it. There almost certainly will be instances where the pay of a particular group of workers and of their supervisors will both be

1081
below whatever level is set for the minimum wage. Clearly, in those circumstances the arrival of the minimum wage will entirely wipe out the existing pay differential and will need to be addressed. That can be done only by the employer and workers concerned. However, we do not accept the notion that higher paid workers will queue up for consequential adjustments to their own pay rates. There is no such evidence. People are more concerned with their own pay—
Lord Burnham: My Lords, I thank the noble and learned Lord for giving way. If he thinks that there is no such evidence that there will be a demand to maintain differentials, he should talk to his noble friend Lady Dean of Thornton-le-Fylde with regard to the printing unions in her time as general-secretary of SOGAT.
Lord Falconer of Thoroton: My Lords, I can tell the noble Lord one thing: the printing unions were not having their wages raised by any effect of the minimum wage. The question we are addressing here is what effect the minimum wage will have on differentials. Not one jot of evidence has been produced to suggest that it would have the sort of significant effect that noble Lords are suggesting. People are more concerned with their own pay and with the pay of those with whom they are accustomed to compare themselves than they are with what people elsewhere in the pay range may or may not be getting.
The next basis of attack on our proposals relates to the level at which the minimum wage will be set and to the question, "Why does the Bill not state what the level of the minimum wage will be?" Again, I submit that my noble friend Lord McCarthy dealt with that extremely effectively. We are putting in place a mechanism for the fixing of a minimum wage. That minimum wage will not last for ever. A time will come when it will have to be changed. If one followed the proposals made by noble Lords opposite one would have a huge amount of consultation. One would then decide on the minimum wage and introduce primary legislation. By the time that had reached the statute book the minimum wage decided upon would probably be out of date. Surely, the most sensible way to deal with it is to establish a mechanism for a minimum wage to be fixed after proper consultation.
Next, noble Lords ask why we do not know what the low pay commission has said about the issue. The reason is that that body is considering the matter at the moment. We believe that the two-track approach we have adopted—establishment of the mechanism by which the minimum wage can be fixed and, at the same time, consultation with the low pay commission—means that the matter can be dealt with as expeditiously as possible. But that occurs only after consideration has been given to all the issues by an independent body such as the low pay commission made up of representatives of the employers' side, the employees' side and small businesses.
It was also said that, surely, there should be an exemption for small firms. We appear to have given the impression that low pay is endemic in the small business
1082
community. It is not. Not all small firms by any means are low payers. Who, then, would benefit from a small firms exemption? The answer is that the beneficiaries in the main would be the more disreputable employers—those who competed solely on poverty pay rather than quality and service and those who forced reputable businesses to pay low wages so that they could continue to compete. In popular terminology, they are the cowboys.
Many small firms are on their way to becoming big firms while others, quite rightly, are content to remain modest in size. The Government recognise that small and growing firms are the bedrock of a successful enterprise economy. We appreciate that to run a small firm takes dedication, hard work, drive and imagination. We are taking steps to nurture this area of the economy with a number of policies that are particularly helpful to this sector. In his Budget speech last week the Chancellor announced a wide range of measures to help small firms. However, we shall not exempt small firms from paying the minimum wage. As my noble friend said earlier, employees of small firms are as entitled to receive protection from low pay as those who work for larger companies. This has been increasingly recognised by small firms themselves. I believe that the majority of them would be affronted if they were left out of the minimum wage legislation to form some kind of low-paying ghetto where morale and esteem would be as low as the pay rates.
Nevertheless, recognising as we do the importance of small firms to the economy and the special circumstances within which they operate, we have asked the low pay commission to take full account of the impact of the national minimum wage on small firms when formulating its recommendations. We do not believe that administrative and enforcement arrangements arising out of the legislation should be unduly burdensome for smaller businesses.
The noble Baroness, Lady Seccombe, gave the example of the small country shop. She did not tell us the rates of pay. The effect on the small country shop in relation to the minimum wage will depend on the level at which it is set but, as I have made clear, the low pay commission is to consider the effect on small businesses along with all other businesses when fixing the advice it gives on the level of the minimum wage.
The noble Viscount, Lord Oxfuird, asked about competitiveness. Perhaps I misquote him. I believe he said that the only person who mattered was the customer. That is not the view of noble Lords on this side of the House. We believe that the customer is not the only person who matters. There is an obligation to treat employees with fairness and decency. We also believe that if they are so treated it is likely that the business will be run better and that the customer will thereby benefit. Just to take the narrow view that everything must be sacrificed to the customer is short-term and unfair.
The Viscount of Oxfuird: My Lords, I thank the noble and learned Lord for giving way. He may be aware of total quality management and the programme under ISO 9000 which places the customer first, and

1083
obviously also accommodates the argument that he put forward. They can live together, but it is the customer first.
Lord Falconer of Thoroton: My Lords, I was just responding to the noble Viscount's remarks to the effect that it was only the customer who mattered. That is not the view that we take. What the noble Viscount just said amends and dilutes what he said earlier. We do not believe that so far as concerns competitiveness it is a legitimate argument against the minimum wage Bill. On competition with third world economies, most people who are being paid below minimum levels at the moment are not in businesses that are competing, as my noble friend Lord Clinton-Davis said, with manufacturing industries in Bangladesh or such places; they are businesses employing cleaners at Manchester airport at £1·30 an hour. They are not competing with any third world economy paying low rates.
In any event we believe that the way companies should compete is not on the basis of poverty pay; it is on the basis of quality of service or the quality of goods they produce. We further believe that it is beneficial to the economy as a whole that companies should be prevented from competing on such an unfair basis.
Those were the main arguments advanced against the principle of the minimum wage as a whole. As a matter of decency and fairness and as a matter of logic those arguments do not hold water. It is not without significance that the arguments in favour of the minimum wage were never addressed by those on the other side of the House.
I shall refer now to the speeches made on behalf of the Liberal Democrats by the noble Lords, Lord Razzall and Lord Newby. We are grateful for the support that they have given in principle to the Bill. We believe that they are right to give it their support. We may differ on a number of details, but we do differ on one major issue; namely, regional variation in relation to the minimum wage. They favour a regional variation in relation to a minimum wage. We do not.
Lord Razzall: My Lords, the noble and learned Lord attributes to us a view that we do not have. We favour the low pay commission being given the power to examine whether there should be regional variations. We would not be so presumptive as to say that we have decided that there should be regional variations but that the low pay commission should be given that power.
Lord Falconer of Thoroton: My Lords, fair enough. The Government believe that there should not be regional variations. The arguments against regional variations are strong. We said in our manifesto—we believe it right, not just because we said it in our manifesto, but as a matter of principle—that there should be a simple, easily understood minimum wage.
1084
If there is one minimum wage for the whole country, save for the possibility of those who are 26 or under, that would lead to a much easier, unbureaucratic and well-understood system of minimum wage. If one has regional variations one has the problem of identifying what are the regions; what happens if one works in two places; what happens if one lives in one place and works in another. Low pay is low pay wherever one lives. The purpose of the Bill is to eliminate it.
Moreover, to adopt a regional basis is not to deal with the problem that in many regions there are pockets of low pay and pockets of high pay. What happens if we have lots and lots of regional variations? Do we have six regions, 10 regions or 20 regions? Will they be uprated altogether or separately?
How will you deal with that position? We do not want to create low pay ghettos. Low rates of pay in some areas would act contrary to the Government's aim, which is to encourage firms to compete in terms of the quality of the goods and services they provide and not to focus on low prices based on rock bottom rates of pay. We believe that if you have a regional system of variation you will eventually "ghettoise" and institutionalise low pay in certain regions of the country. We therefore believe that a regional variation scheme will not achieve the overall goals of the Bill, and we reject it.
A number of your Lordships asked why we had adopted 26 as the possible exemption age for young people. The low pay commission is considering whether there should be exemptions or lower rates for people under 26 and we do not know what advice it will give. We took that figure because people under the age of 26 are defined as young people for the purposes of student support, social security payments such as income related benefits and the jobseeker's allowance and the new deal. In practice, that means that some people could join the new deal on the day before they reach the age of 26 and therefore would be working under the new deal at the age of 25. Therefore, a cut off point of under 26 has been chosen.
A number of noble Lords asked what would happen if just before one reached the age of 26 the lower rate were adopted. Would one then be fired by the employer? We sought to provide protection in relation to that by making it a ground of unfair dismissal if someone is dismissed because he is about to receive the benefit of the minimum wage or go into a higher bracket in relation to it.
I have dealt with all the major points raised in the debate. The Bill is delivering on a major manifesto promise. It is part of the Government's policy to make work pay. We have been waiting for the Bill for a considerable length of time and it is long overdue. I commend it to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
House adjourned at twenty-three minutes past eleven o'clock.