Lords Sitting of 13 October 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.

Lord Ahmed
Nazir Ahmed, Esquire, having been created Baron Ahmed, of Rotherham in the County of South Yorkshire, for life—Was, in his robes, introduced between the Baroness Ramsay of Cartvale and the Lord Davies of Coity.
Lord Hanningfield
Paul Edward Winston White, Esquire, having been created Baron Hanningfield, of Chelmsford in the County of Essex, for life—Was, in his robes, introduced between the Baroness Platt of Writtle and the Lord Dixon-Smith.

Drug Prices
2.48 p.m.
Lord Ashley of Stoke Lord Ashley of Stoke asked Her Majesty's Government:
Whether they will review the NHS medical drug pricing system.
The Parliamentary Under-Secretary of State, Department of Health (Baroness Hayman): My Lords, the Government are currently reviewing their arrangements for controlling the price of medicines for the National Health Service. We are in discussions with the Association of the British Pharmaceutical Industry about the future of the PPRS, a system for regulating the prices of branded prescription medicines supplied to the NHS. We will make announcements about the shape of the new scheme when the discussions have been concluded and decisions on future policy taken.
Lord Ashley of Stoke: My Lords, I thank my noble friend for that Answer. Does she agree that the pharmaceutical industry has a tremendous list of achievements to its credit but that that does not excuse the exploitation of a number of drugs by some firms? Have the Government investigated the case of syntometrine, which is the drug given in virtually all cases of childbirth to prevent haemorrhage? She will recall that the price was increased eightfold overnight and that was within the PPRS. What is the Government's view of that massive overnight price increase? What are they doing to prevent such exploitation?
Baroness Hayman: My Lords, I am aware of the case, and other comparable cases, to which my noble
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friend alludes. The PPRS requires that any price changes should be agreed with the Department of Health. Such agreement was not reached in the case to which he refers. It is a matter of concern and the department is trying satisfactorily to resolve the situation. Any new scheme must take into account the fact that such problems occur and ensure full compliance with its terms.
Earl Howe: My Lords, this is the first opportunity I have had from these Benches to congratulate the noble Baroness on her appointment to her new position in the Government. I do so most warmly. Does she agree that an effective way of reducing the NHS drugs bill is to encourage doctors to prescribe generic medicines, where they exist, rather than branded medicines? If she does agree can she say what incentives or levers there will be for doctors within the new primary care groups to prescribe generic rather than branded products?
Baroness Hayman: My Lords, I am grateful to the noble Earl for his welcome, his kind words and his constructive and helpful question. Generic prescribing is an important way of containing the cost of the drugs budget while at the same time ensuring that the needs of patients are met. The primary care groups will provide great opportunities for encouraging generic prescribing through the spreading of good practice, the implementation of the information systems which can support effective prescribing—for instance, the new PRODIGY system—and through uniform budgets ensuring that the relative costs of the various healthcare provisions are properly assessed one against the other.
Lord Dean of Beswick: My Lords, expensive drugs which would be of immense benefit to certain categories of patients are not presently available through the National Health Service because of their price. Can the price of such important drugs, especially those used in the treatment of cancer, be negotiated in order to make them available to sufferers who would benefit from them?
Baroness Hayman: My Lords, we are concerned that any system of price regulation encourages the uptake of beneficial medicines and pharmaceuticals whose expense can often be offset by savings on, for example, the cost of hospital admissions. We hope that the proposals for the evaluation of new treatments on the basis of their clinical and cost effectiveness carried out by the National Institute for Clinical Excellence will ensure not only cost effective prescribing of what is available but the proper and universal adoption of new treatments which may be beneficial.
Baroness Knight of Collingtree: My Lords, will the Minister consider the possibility of putting on all NHS prescriptions the actual value of the prescription, which is always well above the sum asked for in a prescription charge? Would that not be advantageous?
Baroness Hayman: My Lords, I am not certain that the sum is always well above that which is charged.

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I accept some of the basis for the noble Baroness's suggestion in terms of responsible use of pharmaceuticals, but not that the price of a product should be a disincentive to people who need it using it. However, we all know that there is wastage in NHS drug prescription through non-compliance with the instructions of doctors or by wastage through over-prescription of drugs that are not taken. I am particularly interested in the potential role of community pharmacists in helping patients to understand their responsibilities in this area.
Lord Peston: My Lords, before asking a question, I declare an interest as an honorary member of the Royal Pharmaceutical Society and also as chairman of the Office of Health Economics. While the Government are entirely right to scrutinise the drug bill as a whole and also in detail, can my noble friend tell us how total expenditure on drugs within the NHS compares, either as a percentage of GDP or as a percentage of total health expenditure, with the expenditure of similar nations in Europe? Is it the Government's view that the drugs bill on that comparative basis is excessive?
Baroness Hayman: My Lords, what the Government are concerned about is getting value for money with regard to the drugs bill. My noble friend is right to point out that the international comparators are quite good. Drugs are cheaper in some countries but we are cheaper than other countries. The figures are broadly comparable within the EU. However, that does not take away from us the responsibility for ensuring that, while the profits are there to pay for future research and development, we do what we can to contain what is a very high proportion of NHS expenditure.
Lord Clement-Jones: My Lords, on behalf of these Benches I add our congratulations to the noble Baroness, Lady Hayman. We look forward to working with her. It is clearly, on precedent, a very good route for promotion. I welcome her reply to the Question. However, will she confirm that the mechanism for new price controls will be based on the prices of individual drugs, will be statutory and will be based on the cost effectiveness of those drugs and not on the current profit-based system which favours the larger pharmaceutical companies and does not obtain the best deal for the taxpayer or the NHS?
Baroness Hayman: My Lords, I am grateful to the noble Lord for his kind words. I do not know whether it is a good route to promotion. It is certainly a hard act to follow. Perhaps I may also welcome the noble Lord to his Front Bench responsibilities in this field. I hope he will understand if I do not go into the detail of the future scheme, given that we are in the process of negotiation about it. Final decisions as to the shape of the scheme have not yet been taken. However, the principles are quite clear. We want to see the NHS getting value for the money spent and we want a scheme that ensures full compliance. We want to ensure that there are no loopholes and that it is fair and effective to all the parties. We want a scheme that is more
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transparent than has been the case in the past, not least because of the requirements of EU law, and we want to support effectively competition and innovation through research and development in this important industry.
Lord Annan: My Lords, I wonder whether the noble Baroness will take the review just a little further, into the whole funding of the NHS. Does she not agree that 50 years ago Aneurin Bevan got it right when he regarded medicine as a profession and not as part of a business enterprise? Does she not further agree that the internal market, imposed on the National Health Service by the previous government, has been disastrous in that it has created a vast army of bureaucrats who settle like blowflies on the National Health Service and suck into their guts the money that should be going to patients, to doctors and to nurses?
Baroness Hayman: My Lords, the noble Lord tempts me to go more than a little further in answering his question, but the point he makes is fundamentally right. The NHS was one of the greatest achievements in terms of social justice that has been seen anywhere in the world, not just in this country. Many who worked in it were deeply troubled by the introduction of a quasi-business ethic into it. The new climate of collaboration and co-operation rather than setting up false internal markets has been welcomed and will greatly help in achieving better value for money from the money we spend.

IMF and World Bank: Restructuring
3 p.m.
Lord Renton of Mount Harry Lord Renton of Mount Harry asked Her Majesty's Government:
Whether they will put forward specific proposals for the restructuring of the International Monetary Fund and the World Bank.
Lord McIntosh of Haringey: My Lords, the Chancellor of the Exchequer has already put forward a wide-ranging set of proposals in his recent statement to the IMF's interim committee and his annual meetings speech, building on the ideas he had set out in his speech to the Commonwealth Finance Ministers Meeting in Ottawa. He emphasised the need to develop and implement new procedures and international rules of the game to meet the challenges of the new global economy. His proposals included the development of a new co-ordinating mechanism to ensure proper standards and effective surveillance of all countries, and identify systemic risk. This would be a new permanent standing committee for global financial regulation, bringing together not only the IMF and Bank, but also the Basle Committee and other regulatory groups. The Chancellor proposed also the development and implementation of four codes of good conduct: for fiscal policy, financial and monetary policy, corporate governance, and social policy.
Lord Renton of Mount Harry: My Lords, while I thank the Minister for that Answer, do I detect a note

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of dangerous complacency in it? Indeed, the Chancellor made those proposals but is there any sign whatever of them being actively carried forward at a time of continuing great disquiet in the financial markets around the world? Is it not a fact that the events of the past three months have shown that the Bretton Woods system, which is based on fixed exchange rates, is now thoroughly out of date and the best brains around the world must get together and find a replacement to deal with a system which has billions of dollars sloshing in and out of markets? I appreciate that an answer to a Starred Question in your Lordships' House will not provide a full solution but will the Government find time for us to have a full debate on that vital subject?
Lord McIntosh of Haringey: My Lords, the noble Lord asked me whether the Government will put forward specific proposals and I answered that Question. I thought that was the least I could do in the circumstances. But, of course, he then goes on to ask a perfectly proper question about the reception given to those proposals. I must tell him that the reception given to the Chancellor's proposals, as indeed earlier to the Prime Minister's proposals in his speech to the New York Stock Exchange and to a very significant speech by President Clinton, has been broadly positive. Working parties are now going ahead to implement, with international agreement, many of the proposals which the Chancellor and others have made. The noble Lord is quite right that we have seen the testing of global financial markets in recent months. I am afraid that there is no reason to suppose that a speedy and ideal solution will be reached.
Lord Shore of Stepney: My Lords, new proposals are certainly welcome, but surely the overriding priority at present is new and extra resources for the IMF. It is the only world ambulance service that we have for sick economies and currencies. We all know that the new arrangement to borrow, which would put in its hands an additional £47 billion for lending, has yet to be approved and will not be approved either until the American Government provide their subscriptions or other countries, including our own, are prepared to increase their own subscriptions to bring the level up to the necessary threshold of 84 per cent. I hope very much that my noble friend can assure the House that the Government have fully taken on board the urgency of action in that regard.
Lord McIntosh of Haringey: My Lords, my noble friend is entirely right that extra financing for the IMF is essential. We have certainly played our part in that. This Parliament has passed legislation enabling us to increase our quota and to participate in the new arrangements to borrow. We have announced an increase in our quota from £5.8 billion to £8.5 billion, which is nearly £3 billion. In addition, we shall make available up to an extra £2 billion under the new arrangements to borrow. It is true that at this moment Congress is fighting a battle with the president at the
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end of the session. We do not know what will be the result. There needs to be participation by all member states.
Lord Steel of Aikwood: My Lords, under the fourth heading which the Minister enunciated—that of social policy—is there yet any sign of being able to overcome the objection of the Japanese Government to further debt write-off for the heavily indebted countries? The noble Lord will be aware that a country like Tanzania spends 30 per cent. of GDP on debt servicing and others spend even higher percentages, particularly when the debt is incurred from previous dictatorial regimes. That is quite scandalous.
Lord McIntosh of Haringey: My Lords, there have been substantial advances in the international discussions on the HIPC initiatives in the past week or two. It has been agreed that there will be a review of the current debt sustainability analysis and a review of the exit ratios; that is, the targeted results of aid to the heavily indebted poorest countries. It has been agreed also that money provided for post-conflict countries may be included towards the track record. Therefore, the review which will take place early in 1999, together with other relaxations, should make a real difference within a very short period.
Lord Grenfell: My Lords, perhaps I may declare an interest, having been an employee of the World Bank from 1965 to 1995. Does my noble friend agree that one of the prime purposes of providing the funding for the IMF, which has been referred to by my noble friend Lord Shore of Stepney, is that it will take the pressure off the World Bank which at the moment is under pressure from both the IMF and the US Treasury to provide short-term liquidity financing for countries in difficulty? The prime purpose of the World Bank is to finance long-term development and it should be out of the business of providing short-term liquidity. Does my noble friend agree that that needs urgently to be done?
Lord McIntosh of Haringey: My Lords, there is no suggestion that the World Bank should be used to provide short-term liquidity. It has provided funding of something like 26 billion dollars in the past 12 months, but it is still acting within its prudential limits. The objectives of the World Bank remain as they always have been; that is, tackling poverty and promoting structural reform both in financial crisis countries and the heavily indebted poorest countries.
Lord Mackay of Ardbrecknish: My Lords, on the question of the IMF, are the Government satisfied that the IMF has always given sensible advice to those countries whose advice has had to be called in or have there been occasions in the past where perhaps the IMF has been more part of the problem than part of the solution?
As regards the World Bank, has any progress been made in relation to the suggestion made by Mr. Kenneth Clarke when he was Chancellor that the World Bank

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should sell some of its gold reserves and use the interest from the money to help those very poorest countries with their debt burden?
Lord McIntosh of Haringey: My Lords, I am surprised at the first question coming from the Opposition Front Bench. If the noble Lord wishes me to go into an historical dissertation on the wisdom or otherwise of IMF decisions, his government may well be involved. But in any international organisation over a period of 50 years there will be mistakes.
As regards the World Bank and Mr. Kenneth Clarke's suggestion, I answered that in response to my noble friend Lord Grenfell. The World Bank is succeeding in lending substantial amounts of money but doing so within its existing prudential limits.
Lord Ewing of Kirkford: My Lords, is my noble friend aware that the World Bank does not have any gold reserves? They are all held by the IMF.
Lord McIntosh of Haringey: My Lords, I am grateful to my noble friend for correcting the noble Lord, Lord Mackay of Ardbrecknish.

Cycling in London
3.9 p.m.
Lord Hacking Lord Hacking asked Her Majesty's Government:
What steps they are taking, in furtherance of their environmental policies for the reduction of traffic in London, to introduce bicycle lanes in central London and otherwise to make London safer for cyclists.
The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty): My Lords, in London, as elsewhere, the Government are keen to encourage cycling through initiatives which co-ordinate education, enforcement and engineering as part of their integrated transport policy to tackle congestion and pollution. In particular, the Government are supporting the London Cycle Network through the transport policies and programme settlement. That scheme is being taken forward by the London boroughs in conjunction with the traffic director for London and with the Highways Agency. It covers the whole of London. Its aim is to help to create conditions that will encourage more people to cycle.
Lord Hacking: My Lords, I greatly welcome my noble friend's Answer, but does he agree that the heart of the problem is that too many private cars are permitted to enter central London? Does my noble friend further agree that until that problem is addressed there can be no reasonable prospect of having safe bicycle lanes and no reasonable prospect of London Transport being able to operate an efficient bus service?
Lord Whitty: My Lords, that is why I believe that the London Cycle Network and cycling generally must
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be part of an integrated transport policy for London. The Government are engaged in that. It will eventually become the responsibility of the mayor of London and of the Greater London Authority. Improvements to public transport and restrictions on private traffic flows during key periods and in key areas of London would together make a better transport environment and make travel to work, for business and for leisure, more reliable.
Lord Brabazon of Tara: My Lords, before the Government encourage any more cyclists on to the streets of London, will they try to ensure that a significant minority of existing cyclists at least obey the provisions of the Highway Code? Is the Minister aware that the enemy of pedestrians in London is not the motorist, but the cyclist because very few motorists drive on the pavements? Most motorists obey traffic lights, do not go the wrong way down one-way streets and behave correctly at pedestrian crossings. Will the Minister do something to enforce on cyclists the provisions of the Highway Code?
Noble Lords: Hear, hear!
Lord Whitty: My Lords, I accept that a minority of cyclists flout the existing laws. Noble Lords are clearly familiar with them! This raises an issue of enforcement, but I underline the fact that in London, as elsewhere, most serious injuries to pedestrians are not caused by bicycles or by public transport, but by the drivers of private motor cars. The problem is how to control the amount of private car use in the London area.
Lord McCarthy: My Lords, although agreeing—
Lord Clark of Kempston: My Lords—
Noble Lords: Lord McCarthy!
The Lord Privy Seal (Baroness Jay of Paddington): My Lords, I think it is the turn of this side to ask a question.
Lord McCarthy: My Lords, although agreeing with what has been said about the need to protect cyclists, I feel like declaring an interest with regard to pedestrians. Is it not the case that the police no longer prosecute cyclists who knock down pedestrians on pedestrian crossings? Is not that so?
Lord Whitty: My Lords, prosecutions are, of course, matters for the police authorities. However, I do not believe that what my noble friend said is generally the case. As I said, the more serious injuries are not caused by cyclists. I accept my noble friend's commitment to pedestrianism. Personally, I am much more committed to walking than to cycling, but both should play a part in having a healthy and safe transport system in our metropolis.
Lord Clark of Kempston: My Lords, can the Minister say what the Government intend to do to

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protect pedestrians? Cyclists flout the law. I refer to the fact that they ride without lamps in the dark, jump traffic lights and ride on pavements. Is it not time that we considered registering cyclists? There is no question but that the police are not protecting pedestrians.
Lord Whitty: My Lords, I do not know whether I can add much to my answer to my noble friend Lord McCarthy. Clearly, it is important that cyclists obey the rules. However, more pedestrians are injured by cars than by cyclists. Perhaps Members of your Lordships' House have a slightly distorted view of cycling—
Noble Lords: Hear, hear!
Lord Whitty: My Lords, cycling has a major contribution to make in our urban areas.
Lord Elis-Thomas: My Lords—
Baroness Thomas of Walliswood: My Lords, does the Minister agree that cycle paths—
Noble Lords: Cross Benches!
Baroness Jay of Paddington: My Lords, perhaps the noble Baroness will agree to ask her question next. I think that the noble Lord on the Cross Benches should ask the next question.
Lord Elis-Thomas: My Lords, I thank the Leader of the House for that. Does the Minister agree that the Road Traffic Reduction Acts of 1997 and 1998 provide a framework for the reduction of car movements in London and other great cities? What progress is being made in implementing those Acts? Is it not a fact that cyclists mount pavements because of the lack of adequate cycleways here, unlike in the great city of Copenhagen, which has wonderful cycleways?
Lord Whitty: My Lords, I largely agree with the noble Lord. The provisions of the Road Traffic Reduction Acts are being pursued in the London boroughs and will, I believe, be pursued energetically by the coming new administration for London. It is true that many of the problems of cycling which have been identified by noble Lords arise from the lack of space and lack of provision for dedicated or even designated cycle tracks in London. The London Cycle Network is currently addressing that issue. In the next three years it intends to provide 2,900 kilometres of designated cycle routes throughout London.
Baroness Thomas of Walliswood: My Lords, does the Minister accept that many of us welcome the promotion of a cycle network in London because networks provide a basis for decent cycling provision? Does he agree that decent cycle paths need to be sufficiently wide and sufficiently continuous to enable a proper sharing of road space between cyclists and the users of other motor vehicles and to ensure greater
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safety for cyclists? What are the Government, or the noble Lord's department, doing to promote the proper design of cycleways?
Lord Whitty: My Lords, I have brought with me a London Cycle Network Design manual which I am happy for the noble Baroness to see. There are many different ways of providing for cyclists. It will not always be possible to have dedicated cycle lanes to any great extent, especially in the City of London and in Westminster. Therefore, we are looking at other engineering solutions to ensure that cyclists have a safe way of proceeding through London, although that will not necessarily be on designated routes in all cases. We regard this as an important issue and I hope that the House will regard it in that way—although I could have been misled by the reactions and controversy caused earlier on this Question.
Lord Renton: My Lords—
Lord Avebury: My Lords, is the Minister aware that the only relatively safe part of the journey between Camberwell and Westminster is through—
Noble Lords: Lord Renton!
Baroness Jay of Paddington: My Lords, I hesitate to intervene again. This is obviously a subject of enormous interest to your Lordships. I think that the noble Lord, Lord Renton, is probably due to ask the next question.
Lord Renton: My Lords, can the Minister give your Lordships some idea of the age up to which people are expected to ride bicycles rather than use their motor cars, especially when the weather is very bad?
Lord McIntosh of Haringey: Ninety-two!
Lord Whitty: My Lords, my noble friend Lord McIntosh suggests 92. I would be slightly more modest than that. Nobody is being compelled to use a bicycle. We want to provide everybody with a choice so that they can safely take their bicycles through London on journeys which are often eminently suitable for cycle trips instead of using either taxis or motor cars. Unless we see cycling as part of the solution to our inner London congestion, we shall continue to have the current congestion, pollution and unsafe roads in London. This Government are determined to tackle that problem.

Business
3.18 p.m.
Lord Carter: My Lords, the usual channels have agreed that I should outline the arrangements being made for the two-day debate on reform of the House of Lords which is to take place tomorrow and Thursday. The House will sit for Questions at the normal times tomorrow and on Thursday. No other business will be taken on either day. I should stress that it will be a single debate and that the Companion indicates that Peers

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should be present for the opening speeches tomorrow and for the closing speeches on Thursday, at least. At noon today there were 106 speakers on the list. I should point out that if all Back-Benchers were to speak for an average of eight minutes the debate would last for at least 14 hours. This self-denying ordinance of eight minutes would allow the House to rise at a reasonable hour on both days.
The draft of the list of speakers will be available in the Government Whips' Office at half-past four this afternoon. It will reflect the list of speakers at that time. The list of speakers will close in the normal way at noon tomorrow. Any Peers who wish to add, or indeed remove, their names should do so as soon as possible so that the arrangements for tomorrow can proceed in good time.

European Central Bank: ECC Report
3.20 p.m.
Lord Barnett Lord Barnett rose to move, That this House take note of the Report of the European Communities Committee on the European Central Bank (24th Report, HL Paper 112).
The noble Lord said: My Lords, with the leave of your Lordships, I shall pay a few tributes. First of all I thank the members of my committee, who are listed in Appendix 1. Without that excellent committee we would not have the excellent report that we are debating today.
I thank also the Clerks and specialist advisers. John Goddard was our Clerk and specialist adviser almost throughout until, at the end, he had to leave and was succeeded by Dr. Philippa Tudor. Both of them were excellent. We had also a specialist adviser, Professor Charlie Bean, who gave us, in Appendix 4, a definition of the stability pact, which I know is not altogether clear to everybody who reads these things. I would also like to thank our final specialist adviser and Clerk, Dr. Philippa Tudor, for the glossary in Appendix 3. Very often in European matters initials cause some confusion. I hope that that schedule will help.
I am sure my committee would join me in thanking the excellent witnesses. They are listed in Appendix 2 of the report. I shall refer to them again.
The title of our report is The European Central Bank: Will it Work? Our aim, which is set out in paragraph 4, was to consider how and whether the European Central Bank would work. The report does not discuss the merits of the decisions already taken or whether the UK should join. Whether we should join now, in two years, 10 years or never is not an issue as far as the report is concerned, and we did not discuss it.
Nevertheless, I appreciate that there will be many who will want to debate the position of the UK with regard to economic and monetary union and a single currency. I know that if I told the sceptics who might take part in this debate that we should never join the single currency they would say "You do not go far
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enough". I know, despite the shaking of heads, that there are some who would prefer—they would not like to say so—that we were not in the European Union at all. I do not wish to refer to that aspect.
I have said before, and I repeat, that, for my part, I regret that we have not been in at the start of this potentially great, momentous and historic occasion. I emphasise that that is my own view, not the view of the committee.
It would be an enormous step forward in European unity. I hope that at least the Government will join earlier than they have so far indicated. Perhaps my noble friend the Leader of the House will pass on that message when she next goes to Cabinet.
It would be quite disastrous, in every sense of the word, if we were to combine the decision with a general election, especially when the UK is in a stronger position to join under the Maastricht criteria than most of the other 11 member states, particularly on the issue of sustainable convergence. I hope that the Government will not insist on leaving the whole matter until the next general election.
Above all, I hope that nobody will delude themselves that we will be able to remain outside the euro zone without consequences for the UK. We cannot ignore the reality of a major trading group taking crucial decisions which will affect UK trade directly without any input from the United Kingdom.
I apologise for that short, personal and slightly controversial contribution to the debate. It was a digression for which I hope I might be forgiven. I return immediately to the report.
The report was unanimous, although there will be a member of the committee speaking after me who, although he did not vote against the report, which was therefore unanimous, might have differences of opinion on one or two of the final conclusions. We shall no doubt hear from him.
The report concentrates on the crucial question of whether the European Central Bank will work. If the European Central Bank fails, so does economic and monetary union. We have said in our report that some will want it to fail, and some sincerely believe that it will fail. My noble friend Lord McIntosh of Haringey—in a debate on 28th July at col. 1425 of the Official Report, if he or his staff have forgotten—said that he believed that it will work. I know that at times he talks without looking too closely at his brief, but I hope that he will be able to confirm today that what he told us then has been confirmed by the Government.
The report is based on the evidence of those witnesses to whom I have referred. They are listed clearly in Appendix 2. Members of the committee may have slightly differing views, but they all agree on the excellence of our witnesses. They covered covering a very wide range, from Commissioner de Silguy, Dr. Duisenberg, now President of the European Central Bank, M. Trichet, the Governor of the Central Bank of France, Professor Tietmeyer of Germany, our own Eddie George, Paul Volcker, a former head of the

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Federal Reserve Bank in the United States, the CBI, the TUC, Members of the European Parliament and our own Chancellor of the Exchequer.
The report recognises the considerable dangers and risks involved in setting up this operation. Before I turn to those dangers and risks, it is worth starting with what we describe in paragraph 133 as the immense and surprising achievement of 11 independent member states. It is a remarkable fact that the single currency has come about and seems certain to start on time as planned, as a result of the sustained investment of considerable effort. Once adopted the single currency is not absolutely irreversible, although it is intended to be so. The political and economic cost of failure is so great that there is an overwhelming will to make it acceptable and successful. The European Central Bank is an essential element in the operation of a single currency.
Let me turn to the risks and dangers relevant to this great operation. We recognise and list some of those risks. There could be fiscal profligacy following the huge effort made to meet the 3 per cent. of GDP criterion. Some countries have been allowed to join without meeting the total public sector debt criterion. For example, Belgium and Italy have more than double the debt set in the Maastricht Treaty, that is to say more than 120 per cent. There is the failure to meet the necessary structural reforms, which will clearly be serious. There are political dangers, and I shall mention one or two of them. There is the pursuit of national interest. There is the question of sustainable convergence within the economic and monetary union and the problems that would result if that were not achieved. Of course, there is the issue of one interest rate for 11 member states.
It will be seen from the evidence that we put pretty tough questions to our witnesses. Many of them were surprised at the implication of our questions; namely, that it would all end in disaster. They, on the other hand, in reply to our questions, made it quite clear that despite the risks they were convinced they would make the system work. Let me discuss those serious risks. As regards fiscal profligacy, that clearly could happen in member states who find themselves in serious economic difficulties. The main weapon would be the stability pact. The penalties are set out in paragraphs 72 to 94 in the summary of evidence. As I said, there is, I hope, a helpful explanatory note given by our professional adviser in Appendix 4 on page 35.
One of the most impressive of our witnesses was Nigel Wicks, the UK representative who has been on the board of the EMI, the precursor to the European Central Bank. Paragraph 73 states that he thought,
"'the spirit of the age' was … towards responsible policies".
One can only hope that he is right. That was his view having attended all those meetings of the EMI. Paragraph 75 states that Commissioner de Silguy stated that in Europe these days there is a stability culture. Again, one can but hope that he is right. For my part, I do not believe that the penalties set out in the stability pact will be used. But as we were told by Herr Regling of the German Ministry of Finance at paragraph 80, they will have some value as a deterrent. But the real way in
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which it will work, if at all, is through this new culture of convergence, of which I have spoken, and through a genuine determination, which we saw in virtually all our witnesses, and a will—I emphasise that will—to make it work. The same applies in particular to the two member states I referred to, Belgium and Italy, who have total debts of some 120 per cent., instead of the 60 per cent. set out in the Maastricht Treaty. They recognise it will take more than 20 years of reasonable policy to bring that down, but the treaty sensibly allows some flexibility. Therefore I hope it will be brought down, perhaps even a little earlier than 20 years' time.
I turn to the political dangers. We have seen a prime example in the presidency of the European Central Bank itself. The committee regretted what had happened over the appointment of the President of the European Central Bank. But when one requires unanimity, inevitably compromise decisions will have to be reached. The alternative is to have simple or qualified majority voting, which I do not think many want. If you do not have simple or qualified majority voting, you will have to have a compromise. For the life of me I have never been able to understand why the Prime Minister felt it necessary to claim a great victory when it was a compromise. There is no need to worry about that; compromises have to be made in these circumstances. To claim a great victory was wrong, but under the treaty Duisenberg has been appointed for eight years. Whatever he told the other governments at the time about a voluntary cessation in four years' time may or may not come about. The post is supposed to be unsackable. I hope your Lordships will forgive a football watcher, but I have witnessed the sacking of many football managers who had substantial contracts. Therefore I would not necessarily wager my hat on presidents of the European Central Bank never being sacked. That can happen.
In any event the members of the committee who met both Duisenberg and Trichet—the French alternative put forward—felt that they were both strong central bankers who would have done an excellent job, if appointed. But therein lies the bigger issue of the independence of the European Central Bank. I refer to the Bank of England in this regard. The Bank of England Act puts the Government's own economic policy second to the question of inflation. My noble friend Lord Peston and I tried to change that in Committee but the Government did not feel able to accept it. The Opposition did not press it too strongly and therefore I assumed they did not feel too strongly about it either. But I do. I would much rather the Bank of England had to take account of matters other than just inflation. But that applies in the case of the European Central Bank. There is a clear difference, of course, between independence, accountability and transparency.
The treaty obliges the president to produce reports and appear regularly before the European Parliament. Obviously we would like him to appear before our Parliament too. But if he had to appear before the parliaments of all 15 member states he probably would not be able to do much other work. Some may feel that may not be a bad idea, but it really would be rather foolish. Eddie George and Duisenberg will be both

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accountable and transparent in what they do. It is the good sense of central bankers on which I personally feel happy to rely. On the other hand Duisenberg stated in paragraph 40 that the European System of Central Banks will have to be "as transparent as possible". That is important. I was glad to receive that assurance.
The main instruction to the European Central Bank is to ensure price stability, without setting any particular level. No doubt some of the many economists who will speak in the debate today will be able to confirm that price stability does not mean 2.5 per cent., but zero. I hope that the European Central Bank will not go for price stability of zero, but it might. In my view it would be wrong for it to do so, particularly if it takes account of the current world problems. I am sure it will, as I am sure our Bank of England will.
But the main question of sustainable convergence and the single interest rate is probably crucial to how the European Central Bank can and will work. No doubt some will believe the worst—I am sure that will be the case—but obviously there will be risks over time. Undoubtedly major financial shocks will come about. We have seen one or two in the past few weeks. That will happen, but I am bound to say I think the members of a European Central Bank stand a better chance of dealing with them than does a single country. They would have a much better chance of achieving something. However, your Lordships do not have to accept only my view. The witnesses were quite clear. There is the overwhelming will to succeed to which I have referred.
While we, of course, recognise the risks and dangers that some have mentioned and we have mentioned in our report, we have answered the question we put to ourselves as to whether the European Central Bank will work quite clearly in paragraphs 96 and 97; namely, that it will work. The risks are considerable but we do not expect it to be allowed to fail. I beg to move.
Moved, That this House take note of the report of the European Communities Committee on the European Central Bank [24th Report, HL Paper 112].—(Lord Barnett.)
3.38 p.m.
Lord Boardman: My Lords, I am happy to pay tribute to the noble Lord, Lord Barnett, who chaired the committee with his customary efficiency and style on a most controversial matter. Apart from the occasional discordant note—I notice he looked at me when he said that as if I might have had something to do with that—he managed to create harmony in his report which overcame many of my difficulties and at the same time made the message of the committee quite clear.
I look forward to hearing the three maiden speeches which are to follow this afternoon. They will bring fresh outside experience to a most difficult matter.
As the noble Lord, Lord Barnett, said, the question which we have to discuss is not whether we should join but whether it would work. Had the question been a wider one about our role, the report might have been considerably lengthier and more discordant.
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A number of issues came up that were equally applicable to the question which might arise in the future as to whether we should join; for example, the fact that there will be one central bank and, at the present time, 11 quite separate finance ministers, chancellors of the exchequer—call them what you may—with their own financial policies. Massive conflicts must arise. We know that the separation of the Bank of England from the Treasury has struck some discordant notes in this country. That has been clear from what has happened in the last few weeks: many people would have liked the Bank to have done something or for the Chancellor to have taken control—as he might indeed have been tempted to do. There have been demonstrations outside the Bank of England, previously unheard of. That is with just one bank and one treasury.
They are doing this the wrong way round. History shows that monetary control follows political control. They are trying to put monetary control before any other form of control. It has been made clear by a number of overseas ministers, among them Chancellor Kohl, that the aim for monetary policy to lead to fiscal union and, ultimately, to political union.
Most of the witnesses we saw expressed the hope that the euro would lead to a combination of national fiscal policies across the euro zone. There was that enthusiastic wish to join, and a reckoning that the fiscal problems which were outlined to them would take care of themselves; they would all join and follow suit, with a fiscal policy which would satisfy them all. I find it difficult to believe that that is true. They then said, "If they do not work, we have the stability and growth pact", which is meant to fine those nations adopting fiscal policies which are at odds with the rest of the euro body. Looking at the pact itself, and the consequences of trying to invoke it, one sees that a massive delay will result; then, after a further pause and further thought, the action taken could mean fining a nation which is already heavily in debt. That does not seem to be a very suitable method of dealing with matters. For example, and to take a quite arbitrary case, because of internal pressures, France decided that it had very substantially to increase its payroll, which made its debt position unacceptable. Can one believe that France would allow the stability pact to be invoked in order that France itself is fined, when one sees what France has done in other spheres of so-called independence?
Many other issues arise. Evidence was given by the trade union representative that European overseas trade is one-quarter of that of the United Kingdom. That may not be strictly relevant since we have not joined, but that was their evidence. There are certainly variations in overseas trade and the effect of the exchange rate would therefore be very much greater on us than on others. The same applies to mortgages. The method of owning property in Europe varies considerably. An increase in the interest rate on variable rate mortgages would cost four times as much in Germany as it would in Italy. There are similar variations right across the board,

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which give me considerable difficulty in accepting that this will go ahead without massive problems.
The objective of the euro is to maintain price stability. One would have hoped that we would have been given guidance, but it was not given by any of the witnesses, who were asked first what they meant by price stability and, secondly, how they would achieve it either by having a monetary aggregate control or inflation as their target. If they decide on monetary aggregates, which seemed to be where the weight of the evidence lay, a scenario of 11 different banking systems and 11 methods of deposit greatly increase the difficulties. Paul Volcker's evidence added considerable weight to that.
America and its single currency are cited to show how very easy it is. What is completely ignored is the mobility of labour. Mobility of labour in the United States enables them to cover particular problem areas. They are on the same exchange rate. One could not expect to achieve that mobility of labour within Europe, at least within the present generation.
Since the report was prepared there have been two events on which I must comment. The first was the appointment of the President of the ECB. As will be seen in the report, question 219 was put to Dr. Duisenberg when we visited him and he gave evidence. He emphatically said that he would not accept for a limited period the presidency of the bank. Yet some months later, when under considerable pressure applied by other countries, particularly France, he yielded. This casts considerable doubt upon the independence of the euro system, when on one issue, and when everyone else is united apart from France, they all concede to France. With that sort of independence one wonders how one can expect fair, independent judgment on the many issues which will face the one bank controlling 11 separate countries.
Looking at the criteria for joining, there have been a number of illustrations of fudging: the French with their aircraft pension fund, or whatever it was, and I am not sure what the Italians did—nobody really followed their bookkeeping. Fudges were made to enable people to qualify, or appear to qualify, under the criteria which had been set down, and that is very worrying. Above a debt level of 3 per cent. on revenue account, the instability pact is immediately invoked. Most countries started with over 3 per cent., so there are very difficult problems for the future. The sustainability of the criteria is of absolute importance in making the euro work. The debt ratios, for example, of Belgium and Italy were twice the amount set as the minimum qualification. There are many problems facing those countries.
The report sums up by stating that the risks are considerable. I believe that they are. I accept the goodwill on the part of all the countries that were anxious to enter the single currency and that, having entered, they will be determined, if they can, to make it work. However, I have grave concern that the task of achieving those ends is beyond them.
3.50 p.m.
Baroness Williams of Crosby: My Lords, I, too, join the noble Lord, Lord Boardman, in saying how privileged I felt to be a member of the sub-committee under the chairmanship of the noble Lord, Lord Barnett. I gained greatly not only from his wisdom but from that of other members of the sub-committee. Serving on the sub-committee has been one of my greatest privileges and pleasures since joining this House. I very much look forward to hearing the three maiden speakers, who all have extremely distinguished records in their careers. I shall listen with great interest and benefit to their remarks.
As the noble Lord, Lord Barnett, pointed out, during the course of our investigations we consistently came across a high level of scepticism on the part of those questioning the witnesses and those witnesses who came from the United Kingdom, compared to an extraordinary level of confidence and belief among those who gave evidence from those countries that have now become members of the European monetary union, the euro zone. Indeed, going back through the record of recent years, we find that from 1990, ever since the report of the Delors committee on monetary issues, there has been a consistent record of extreme scepticism on the part of the United Kingdom, a scepticism that seems strangely proof against almost any evidence that can be brought to bear against it.
As the noble Lord, Lord Barnett, also pointed out, all 11 member states that have now joined the euro have fiscal deficits below 3 per cent. Looking at expectations in 1996, and even into the middle of 1997, we find virtually no press speculation that that was even possible. All 11 have had inflation levels at 2 per cent. or below. Again, almost all British comment was to the effect that that could not happen. As recently as May this year, our colleague, the noble Lord, Lord Rees-Mogg, writing in the Daily Telegraph, predicted that interest rates would rise steadily in the euro zone and that rates in Britain would be pulled up as a result of that convergence. As we all know, the movements of interest rates have been downwards, and countries such as Spain and Italy which have had consistently high interest rates in the past are now moving towards lower interest rates in the direction of the German and French rates. It is not surprising that in the opinion of the committee, which was impartial and objective, what happened was "remarkable and unexpected".
However, when we wrote the report in June 1998, the economic climate was very different from what it is today. It looked reasonably optimistic. The projections were for relatively high growth in Europe and in this country for growth rates of about 2 per cent. in the coming year. All those expectations have had to be revised to take into account a profoundly different economic climate. Looking today at the way in which Dr. Duisenberg, president of the European Monetary Institute, has warned his colleagues that we probably underestimated the possible consequences of the Asian economic crisis, we have to say that we are in a much less warm and friendly climate than

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we were even a few months ago. Yet in that new climate, increasingly the European zone is emerging as a zone of stability.
Perhaps I may quote a distinguished American commentator writing earlier this week in the Washington Post. His remarks are well worth listening to. He said:
"The emergence of the much maligned welfare states of Europe as a zone of relative currency stability and a source of growth is a big economic change that official Washington is having trouble taking on board. It contradicts much of the conventional wisdom that developed about the global economy throughout the 1990s".
That is a quotation from Mr. Hoagland, a leading commentator.
There are questions about the sustainability of the European Central Bank's monetary policies. No one who looks back at the past 20 years of British economic policy can speak with too much optimism about our ability to sustain any single economic policy for any length of time. There are also questions about accountability. But, as the noble Lord, Lord Barnett, pointed out, the accountability of the European Central Bank to the European Parliament is well in advance of what used to be the accountability of the Bank of England to Parliament. It could be improved; however, it is a very exciting new development.
This country is already paying a very high economic price for having decided to stay outside the European Central Bank when it was launched in the summer of this year. That economic price is constituted under three headings. First, it is the price of relatively high interest rates compared to those of most of our European neighbours. In the long run, those higher rates will act as a brake on the relative growth of the United Kingdom.
Secondly, it leaves sterling open to speculation. Nobody who has read the history of our economic policy over recent years can doubt how open and vulnerable sterling is to the possibilities of such speculation. Within the euro zone, to quote the report, the reduced importance of the external exchange rate for trade within the euro zone is 10 per cent., whereas in the United Kingdom it is about a third. That leaves us wide open to the possibility of speculation against our currency.
Thirdly, there is vulnerability to the markets. Those who believe that they can pursue an independent fiscal policy without regard to the globalised financial markets should look at the opinion of the committee as stated at paragraph 100:
"National fiscal policy is, in practice, constrained by the ability of international financial markets to punish countries pursuing profligate or otherwise unsustainable policies".
We have seen time and again the price that is exacted by the international financial markets from those currencies in which they have lost confidence.
There is also a very high political price. First, we shall have very little influence on the way in which the European Central Bank goes about its new and heavy duties. That troubles me greatly. Perhaps I may quote Sir Nigel Wicks, Permanent Secretary to the Treasury, in his evidence to the committee. He said that the United
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Kingdom would have to accept the arrangements which would be built up over the next few years. If we look closely at the institutional structure of the European Central Bank, we see that the governing council is the crucial international decision-making body, and that consists of the 11. The general council on which we sit is a much less central and powerful body.
Finally, I turn to what I believe to be one of the most serious challenges that Europe has faced, or for that matter, the world has faced. I refer to the global crisis. First, there is the decision about how we are to pursue growth policies, how we are to sustain the rest of the world—because we are a zone of relative stability, and still of relative growth. It is a decision in which inevitably now the United Kingdom will be a marginal player. I profoundly regret that. I believe we have a great deal to contribute. But as was clear last week from the remarks of Mr. Strauss-Kahn, the French Finance Minister, those who are not within the European zone will be regarded as at best a second level of decision-makers.
Finally, perhaps I may say one word about the new global architecture which is likely to be constructed within the next few years and as regards which again we shall not have the political strength we would have as members of the European Central Bank. Last week I was chairman of a World Bank seminar on the social consequences of financial crises. It was frightening to sit in that seminar and hear the evidence of the social consequences already being borne by countries like Indonesia, where the per capita income has fallen 20 per cent. in this year alone and where the levels of unemployment have risen by over 6 million. It was frightening to hear Russia describe the possibility of famine in some of its southern and eastern regions.
I believe the time has come for a major European initiative, and I believe there is no one else who can take on the burden of that initiative, for the United States at present is, as we know, almost totally absorbed in its own internal affairs. I hope that Britain will be part of that initiative. I believe that as members of the European Central Bank we could play a much larger part than, with the best of wills, we are likely to play outside it. I believe that—and I speak for all the Liberal Democrat Benches in saying this—British membership of the European Central Bank is an essential next step towards Britain playing her proper role in the world.
4.1 p.m.
Lord Ashburton: My Lords, the process of putting this report together was certainly a fascinating one, not only because it enabled us to question a significant number of the people who are or will be at the heart of the administration of the common currency, but also for the way in which that process enables one to pick up nuances of feeling and opinion which, given the fact that most of our witnesses were professional public servants, may not be easily expressed if they have to be explicit. Of course, there was also the great pleasure of the chairmanship of the committee by the noble Lord, Lord Barnett, which since I joined the committee I have learnt to admire for all sorts of reasons.

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For anyone interested in the subject, the report deserves careful reading. There were a number of points made to us which encompass and exemplify the intimate mix of political urgency and economic practicality. I quote purely as examples three paragraphs in the Summary of Evidence, Nos. 72, 94 and 96. But there are others: for example, in paragraph 65 of the evidence when the Governor of the Bank of England was speaking to us and in Mr. Wolf's evidence as a whole.
It was often emphasised by the public servants that the setting up of the common currency was rightly and necessarily a matter for political decision and that the role of those with whom we were discussing it was that of enabling the European Central Bank to work in practical terms, not to criticise the decision to embark on such a remarkable enterprise.
I think all of us were impressed by the thought and preparation that had clearly been given to the design of the bank, though there is obviously still room for difference of opinion on whether it is too independent of political control. We heard both sides of that. But that independence seems to me to be inevitable anyway, given the lack of intergovernmental institutions to which the ECB could be made answerable at present.
I believe more or less everything that can be done to forearm the European Central Bank for its task has been done, but a careful reading of this report will reveal a number of paragraphs in which the words "confident" or "believe" or even "hope" are used. These make it clear that no one can know whether the problems that will undoubtedly arise over the years—and, indeed, looking at the economic storms already in progress all over the world are arising now—can be dealt with in a way that will prove socially and therefore politically acceptable to the very disparate electorates which are coming together within European economic and monetary union.
When the project for a common currency was first unveiled. I felt perfectly happy with it as a sound and desirable aim for the European Union. In particular, I have no problem with it in principle on the grounds of loss of sovereignty, and regard that as being more a matter of sentiment than reality. But it never in my wildest dreams occurred to me that it would not take much longer to get off the ground than it has. There were three principal reasons for this. The most fundamental one is the fact that there seemed to me to be a very big job of explanation and education to be gone through before the electorates of the potential participating countries could be anything like ready to embrace the idea fully, let alone to demand it as a desirable way forward.
The second reason was that it seemed inconceivable that the degree of convergence specified as a precondition could be achieved. Here I had common ground with practically everyone. This last assumption gave me some comfort, given my feelings about the lack of popular understanding and support.
The third reason was that the seat of my pants—a sensory organ that I do not underrate—asked me whether I seriously thought a single identical interest rate from Scandinavia to Iberia would be continuously appropriate.
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I hate shorthand expressions such as "Europhile" and "Europhobe" which conceal at least as much as they reveal. But I must for convenience swallow my dislike because it makes my task that much simpler. I am and always have been a convinced Europhile. I believe this country is a part of Europe and should remain a full and enthusiastic member of the European Union for as long as it exists. Long may it do so. I have already said that I believe the aim of a common currency is well worth pursuing, so I have no reservations in that direction.
But I nevertheless regard the way in which the common currency has been brought forward so swiftly as amounting not so much to an act of faith as to a huge political gamble whose outcome is unknowable. A huge step forward of this kind deserves at least a minimum of bottom-up demand enthusiasm and understanding to match the top-down political drive. I do not believe this move has the necessary bottom-up demand either from electorates or from business as a whole. More important, I do not believe a common currency is necessary for the effective functioning of the single market, which was the most significant and for me precious economic development and achievement of the European Union for many years. That achievement certainly had a broad measure of bottom-up support from industry and thoughtful electors alike.
It seems to me that the danger of social dissatisfaction with economic circumstances in one of the leading significant participating countries being blamed on the euro—that is the hardships they are suffering being blamed on it—is all too real, however misplaced such blame might be. There will be no lack of political opponents in each country ready to foment such trouble. Much more time should have been spent in familiarising electorates with the whole enterprise and a considerably longer period of time taken to make sure that convergence was demonstrated to be robustly sustainable over a long period and not just a snapshot.
As the noble Baroness, Lady Williams, said, I would much prefer to be able to join in a venture such as this ab initio. It is certainly not ideal, to say the least, in terms of our perceived Euro commitment, for us to be biding our time. I nevertheless have come to the conclusion that it is on balance right for us to do so, though it must surely also be right not to set embargoes, as some people seem to be doing, or trying to do, on our joining for as long as the life of the next parliament.
My doubts are not about the ECB; they are much more about governments. If my doubts are shown to be groundless, the gamble is seen to have come off and the European Central Bank has proved equal to the worst problems that arise, then I have no doubt that we should and will join up with the 11, and I shall recant with pleasure and look forward to hearing the same from the seat of my pants.
4.10 p.m.
Lords Burns: My Lords, it is a pleasure to have the opportunity to make my maiden speech in this debate today and I am grateful to noble Lords for their welcoming remarks. I am very conscious, of course, that European monetary union and the European Central

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Bank have been intensely controversial issues for as long as I can recall. In keeping with my former role as a civil servant I will do my best to stay clear of the most controversial aspects, although at times that is quite a tough task.
Perhaps surprisingly, I have had only limited personal experience of Select Committees of your Lordships' House. In 1985 I appeared alongside the Chancellor of the Exchequer before the Select Committee chaired by the noble Lord, Lord Aldington, which was inquiring into the causes and implications of the deficit in the United Kingdom's balance of trade in manufactures. The Chancellor of the Exchequer at the time was, of course, the noble Lord, Lord Lawson, and I recall that both the report and the government's response created quite a stir.
Last year I gave evidence to the Select Committee on the Public Service chaired by the noble and learned Lord, Lord Slynn of Hadley. On both occasions I enjoyed the courtesy and thoughtfulness shown by the committee as well as the challenging questioning that went along with it. I would like to congratulate the noble Lord, Lord Barnett, and other noble Lords who were members of that sub-committee, on what is, I believe, an excellent report. It covers a range of issues that are vital to the future success of European monetary policy. The committee has taken evidence from an impressive list of witnesses—people who are truly expert in their field. The committee has summarised the material, I believe, with great skill.
Today I would like to make three points, which I hope will contribute to your Lordships' discussion of these important issues. The first point is to emphasise that setting monetary policy is extremely difficult, even at the best of times, and that mistakes inevitably occur. Monetary policy affects the economy with long and variable lags, as we all know. The authorities have to deal with imprecise and out-of-date information, and they have to work with fallible economic forecasts, which are often thwarted by changing and unpredictable patterns of behaviour. There is no easy way around this and there are no short cuts.
I believe that what the report of the Select Committee shows is that the task facing the ECB will be even more complicated than usual. It has to set a single monetary policy to cover 11 nations as if they were a single economic entity. But, in the past, key statistics have been collected in different ways and there is no coherent historical database for this 11-nation entity. Economic forecasts could be even more uncertain than usual because a single currency and a single interest rate might well change economic behaviour in some countries. I believe that money supply figures are likely to be particularly affected.
We have the additional complication of the recent worldwide financial turbulence. Widening interest rate spreads, volatile exchange rates and declining share prices have added considerable uncertainty to the outlook. So, whatever systems for monetary control are chosen, I believe that we have to accept that there are significant risks of error. These could come either in the form of easier or tighter monetary conditions than
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intended. There are costs associated with both types of error and in either case there will be plenty of criticism to share around.
My second point is that the best defence against such criticism is to have an open and transparent process of decision-making. I agree with the emphasis that the committee puts on that. It is vital that the explanation for decisions should be comprehensive and should be issued with the minimum of delay. As the committee observes,
"the Bundesbank culture of mystique surrounding its decisions would be a dangerous one for the ECB to imitate".
I believe that this mystique contrasts well with the publication here of the minutes of what became known as the "Ken and Eddie Show" and subsequently of the new Monetary Policy Committee. These minutes have gone a long way towards improving understanding of the decision-making process and the complexities that go with it.
The Select Committee report says that it has been convinced that,
"publication should not go so far as to disclose the course of the argument, with its ebb and flow as minds are made up and changed".
I have a good deal of sympathy with that because it could lead to a stifling of discussion and forcing people into inflexible positions. But I do not believe that that rules out an ongoing, timely record which would set out the possible alternative interpretations of the available data, the key uncertainties and the balancing of the arguments. In other words, it should be much more than simply the presentation of the case for the decision.
My third and final point is to support those who argue that the ECB should be much more precise about the inflation performance that they wish to see. I can understand why, in setting policy, the ECB might want to take account both of money supply behaviour and inflation targets. The committee makes the case for "pragmatism and prudence". The separate histories of the individual countries involved mean that they do not want to throw away the methods that they believe have worked for them.
The committee reports that,
"the tacit consensus among central bankers is that a range for the approved measure of inflation of from zero to two per cent. constitutes prices stability".
My own experience has made me increasingly doubtful about the wisdom of defining price stability in terms of an inflation range. A narrow range gives the wrong impression of the ability to control inflation and a broad range does not give a clear enough steer for policy. Instead, I support the approach that has been taken by the present Government in giving operational independence to the Bank of England and that has been to express their ambitions for inflation in terms of a single figure while recognising that deviations will occur which need to be explained and justified.
This is not just a matter of judging performance; it could have important implications for the conduct of policy. The success in the battle against inflation means that after 20 years or more of a bias towards disinflation, Europe has now reached a position close to price

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stability. We are close to a position where policy can now be unbiased and symmetrical. As the Governor of the Bank of England has reminded us, particularly in the present world conditions, it will be important for the authorities to persuade people that they are just as concerned about inflation falling below target as they are of inflation rising above target. I suggest that this can only be done with a clear statement from the ECB about the inflation outcome that it wishes to see in the period ahead.
Whatever our views about the merits of monetary union, I believe that we must all wish the ECB well. Setting policy for the euro is going to take great wisdom and perhaps a little good fortune as well. I have sat through monetary policy discussions in this country for 18 years now, mainly around the Chancellor of the Exchequer's table in the Treasury, but more recently as an observer at the Monetary Policy Committee of the Bank of England. My experience has convinced me that a degree of precision about the ultimate objectives of policy undoubtedly helps decision-making. Equally, it has convinced me that there is much to be gained from being open and straightforward about the reasons for decisions and the extent of the uncertainty surrounding them. It is important to have a system that can cope with periodic mistakes as well as one that delivers long-term success.
Finally, I take this opportunity to thank your Lordships for the welcome I have received and to thank the admirable servants of the House for their patient help and guidance around this complicated building. I look forward to playing a part in the proceedings of the House in the future.
4.17 p.m.
Lord Dahrendorf: My Lords, my first task is a particularly pleasant one. It is to congratulate the noble Lord, Lord Burns, on a maiden speech of characteristic incisiveness and experience. He has had two very distinguished careers already, one as an academic and one as a mandarin. He has made them look not so far apart as is sometimes assumed. We all look forward to seeing him embark on a third career in which he gives your Lordships' House the benefit of his thoughts, knowledge and experience as he has done today. If I had one wish for him it would be that he has the splendid opportunity of serving on a committee under the chairmanship of the noble Lord, Lord Barnett, and with the kind of colleagues which, like the noble Baroness, Lady Williams of Crosby, I enjoyed tremendously in Sub-Committee A.
As regards the issue we are not discussing and to which, with the exception of the maiden speaker, everyone has addressed themselves so far, my sentiments are close to those of the noble Lord, Lord Ashburton, except that I am not sure that they issue from the same part of my body!
I have, as your Lordships may know, voiced doubts about the project which among other things has given rise to the European Central Bank—not fundamental, let alone fundamentalist, doubts but doubts about two issues. One is that a great deal of management time has
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been spent on subjects which I regard as of secondary importance compared to the great issues of competitiveness, employment and social cohesion which we should all deal with in the European context. One must add to that today the considerable cost of the project, which may yet be a significant fact, given the position in which financial institutions find themselves today.
My second doubt has been that this project may turn out to be divisive for a European Union in which I believe, and may at the end of the day lead not to one but to two European unions—Euroland and the rest. And if, as I dearly hope, the enlargement of the European Union works and works soon, then half the members of the union will be in and half will be out. But having said that, I entirely share the view that what has been started by 11 members must work; and I am bound to say I am impressed by the technical effort, and, so far as one can tell today, the success of the technical effort, which has been put into setting up the institutions which are necessary for monetary union, notably the bank.
Will it work? Probably yes, but let me say a few words about a subject which has puzzled me throughout and which continues to puzzle me. It is that vexing question of independence. President Duisenberg said that there is no other central bank in the world which is as independent of politics as the European Central Bank. Paul Volcker, in answering our questions, spoke of a,
"central bank Nirvana, a central bank without a government to oversee it or to be independent of".
Indeed, the European Central Bank is independent of a government which does not exist. The French Interior Minister, M. Chévènement—now, sadly, very ill—went further and suggested that we shall have a European currency without a government and European governments without currencies. He asked, "What will it mean?".
There are two schools of thought. One is the so-called functionalist school—not a term which thrills me when I hear it in the European context—which argues that once you have a common currency many other things will almost automatically fall into place. Harmonisation of other policies is bound to happen. In the end there will not only be fiscal harmonisation but tax harmonisation, and indeed at the end of the day what began with the euro will lead to political union.
Some hope that this will happen; some fear that it will happen. It seems to me quite likely that it will not happen and that those who believe in this functionalist progress are quite deeply wrong. The debate conducted in the United Kingdom does not take full account of the massive changes in attitude which have happened in Continental countries in recent years. It could be argued that the political union of Europe was buried at Maastricht, when Germany gave up political union as a condition for the first steps towards monetary union. I do not think anybody seriously discusses full political union in Europe now.
The other possibility is not the functionalist one, but it is one which makes one wonder for other reasons. We have already the beginnings of a monetary policy which

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is sort of separated from the rest of policy—from the rest of economic policy and beyond. In my less responsible moments I wonder whether the euro is likely to become rather like our weights and measures: kilograms or metres. Just as the prototype metre was deposited in Paris after 1899, so the prototype euro is now deposited in Frankfurt and will not change and is unaffected by what happens.
One almost wonders whether, with all the obvious differences, the European Central Bank is not in some ways in the nature of a currency board, except that it is not pegged to some other currency but to its own principles. These are obvious overstatements, but it is important to see that stability has become, for those in charge of the European Central Bank, a kind of fetish. When President Duisenberg was asked what he would do if monetary relaxation was demanded for employment purposes, he replied:
"Our supreme goal is at all times containment of inflation".
When he was asked whether he foresaw agreements with the dollar à la Plaza or Louvre agreements, he said:
"Only if they do not conflict with the goal of price stability".
When he was asked about countries at different points of the economic cycle, he said that this was not a matter for a "euro-wide monetary policy" but one "for governments", meaning of course national governments. As a result, we may be going into a situation—or shall I be more careful and say that those who live in Euroland may be going into a situation?—in which they have a stable currency somewhere but in which certain major and evident problems are not at all resolved: in fact they are aggravated by an insistence on stability not embedded in a political culture. I mention just two: employment and relations with other currencies over world crisis problems.
On the employment side many have said—Mr. Adair Turner said in evidence to the Committee—that European monetary union, by encouraging mergers and cross-border mergers—will not exactly make a contribution to the creation of employment; possibly to the contrary. However, the important point is that those who administer the currency will turn a deaf ear and a blind eye to issues of employment in their obsession with an abstract principle of stability. This in turn of course may lead to a whole lot of new conflicts.
So far as the international scene is concerned, I find myself entirely in agreement with my noble friend Lady Williams of Crosby when she says that the time has come for a major European initiative. But in these last few weeks I have had the privilege of seeing more than a handful of members of the various boards of governing councils of the European Central Bank and a number of Ministers of Finance. I have seen them respond to American demands for a European contribution to alleviate the world crisis. The sole response which they made was:
"Our answer is to keep our own euro zone stable. The stability of the euro zone is the European contribution to the world crisis".
This is fine for those who are in, but it may not be enough. If one is really thinking of creating a space which exercises responsibility in the critical situation of
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the world financial system, as well as providing for the stability of those within, there are—and this is the only point I am trying to make—questions which remind us that the effective setting up of institutions (including the European Central Bank) can only be the beginning. They remind us also that it is once again, as the noble Lord, Lord Ashburton, said, a process from the top down and one that is inward looking rather than from the outset open to the issues around us in the world which are so visible today.
One must hope therefore that the navel-gazing in Europe will stop before long and that the opportunity to create a stable currency that is responsive both within and without will not be missed. If the process proceeds towards a responsible administration which is responsive to political needs within and without it is possible that Euroland will get a stable currency that becomes the envy of those who are not part of it and it may well expand further. If not, I believe that the jury is still out on where this gigantic experiment will end.
4.31 p.m.
Lord Tomlinson: My Lords, I rise to make my maiden speech with mixed emotions. I have a sense of nostalgia in returning to the Palace of Westminster which I entered in another place almost 25 years ago, only to leave it equally quickly some 20 years ago. I also have a tinge of regret that by being here I also come to the end of a period as a Member of the European Parliament, which I have enjoyed immensely. But I come here also with a sense of deep gratitude to friends, colleagues and Officers of the House who facilitated the beginnings of this transition. One of the joys of coming here is my familiarity with the role of the Select Committee on the European Communities and the high regard in which it is held not only throughout the European Union and its institutions but far beyond. The report on the European Central Bank is no exception to the way in which the work of your Lordships' House is received.
Too often debates on matters European are not really debates but exchanges of prejudice that have been held for a long time: on the one hand, uncritical acceptance of everything that emerges from Europe or, on the other hand, a kind of paranoid hostility to all or any such proposals whether or not they contain a benefit for this country or anyone else. Against that background I believe that the report of the Select Committee is especially welcome because it is based on a sound analysis of evidence of high quality.
It is important to emphasise one or two matters that the report is not. It is not a report on economic and monetary union. Were it to be so I would be making a very enthusiastic speech. It is not a report on whether, when, or in what circumstances the United Kingdom should join the single currency. Were it to be so, I would be almost as enthusiastic as was my noble friend Lord Barnett when introducing the debate, parts of which he made on his own behalf rather than on behalf of the committee. It is an evaluation of great clarity and lucidity as to whether or not the European Central Bank will work.

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I concur with a number of the conclusions of the committee and its key opinions. First, in the area of economic policy I believe that the single currency would lack credibility without monetary policy being set by an independent central bank. Article 105 of the European Community Treaty requires that,
"The primary objective of the European system of central banks shall be to maintain price stability".
There can be marginal argument as to what constitutes price stability. However, I suspect that when we get there we shall recognise it, and given the present circumstances we are pretty close to it. I share the view of the Select Committee that such price stability is conducive to, and probably a prerequisite of, stable growth and employment. Central bank independence and the pursuit of price stability are, in the words of the Select Committee,
"foundation stones on which the practice of modem economic management rests".
I assert my belief that such policies are an imperative for the United Kingdom and would be so whether we join a single currency or are perverse enough to take the kinds of decisions discussed in Bournemouth and stay out during the medium to long-term.
Secondly, I turn to accountability. It is fundamental that independence from political control should not be confused with an absence of accountability. I believe that the European Parliament remains pivotal to the process of accountability. In his evidence to the Select Committee the Chancellor of the Exchequer stated that based on his experiences of appearing before the Economic and Monetary Committee of the European Parliament he did not expect from it,
"any failure to inquire [into] or to scrutinise what the European Central Bank does".
Dr. Duisenberg is also required by the treaty to appear annually before the European Parliament, but has already conceded that he will appear quarterly. It is imperative that there is accountability for public acceptability of an independent central bank. I believe that the European Parliament is best placed to play that role. I note with satisfaction the view of the Select Committee that that will raise both the public profile and the perceived importance of the European Parliament.
Thirdly, I turn to the stability pact. In some quarters the convergence criteria to help create the culture of stability have been much maligned. The days of automatic acceptance of excessive and growing budget deficits were outlawed by the treaty. I welcome the committee's positive evaluation of the effectiveness of the stability pact, an integral part of which is the injunction to carry out structural reforms in labour, product and financial markets. In this respect the UK is well placed for the more competitive climate of the single currency. It needs such an advantage to offset the disadvantages that already exist from being outside the single currency: interest rate differentials; susceptibility to speculative attack; and transactional costs for businesses that do not trade in euro.
Finally, the central question in the report is whether the European Central Bank will work. I believe that for too long many in this country have "rubbished" the
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predictions of governments of success on the basis that they are merely statements that reflect an excess of optimism. Many predicted with what sounded like authority that the convergence criteria would not work and that only five or six members would qualify. Sceptics ignored the sound preparatory work of the European Monetary Institute and preferred their prejudices to the ever-emerging evidence.
I believe that the single currency will come about on time for 11 countries. Others, including the United Kingdom, are qualified and in principle are favourably inclined to join. The current achievements are great; the plans proceed on time and the commitment and investment of political will is of the highest order. I can only welcome and share the conclusions of the Select Committee:
"The European Central Bank is an essential element in the operation of the single currency. While the risks are considerable we do not expect it to be allowed to fail".
4.40 p.m.
Lord Renton of Mount Harry: My Lords, it gives me great pleasure to follow the maiden speech of the noble Lord, Lord Tomlinson. Of course his words were wise and well-informed as one would expect from the amount of work he has done in the European Parliament on European Community issues, in particular finance. It will be a pleasure for us all to hear him more often in your Lordships' House.
We arrived in another place in the same year, 1974. I remember him well in 1975 and 1976 sitting behind the Prime Minister Harold Wilson as his parliamentary private secretary, one of the "doers" and fixers behind the scene, passing notes to his Prime Minister which I, stuck well back on the Conservative Back Benches, would love to have been able to read. The noble Lord must have enjoyed that time greatly before his defeat in 1979. But at least that defeat enabled the noble Lord to go on to the European Parliament where he had an extremely distinguished career.
Perhaps I may also congratulate him for one great piece of wisdom in his maiden speech: his warm congratulations to the noble Lord, Lord Barnett, and other noble Lords including myself who were members of the committee. I made my maiden speech in this House about 15 months ago on a previous report by the committee of the noble Lord, Lord Barnett. To my amazement, a few weeks later, I received a telephone call asking me whether I would like to join the committee. I was pleased to accept; and like the noble Baroness, Lady Williams, the noble Lord, Lord Ashburton, and the noble Lord, Lord Dahrendorf, I, too, found this committee extremely pleasant, intelligent, and able to hear extremely expert witnesses. So perhaps he will be pushing at an open door as well.
I join with others who have congratulated the noble Lord, Lord Barnett, on his chairmanship. I say this to the noble Lord, Lord Tomlinson, in case he joins us at any time. The noble Lord, Lord Barnett, is particularly tough on any member of the committee who wishes to ask a second or supplementary question. We are kept in order in a remarkable way. For those of us who have previously erred and strayed on Select Committees in

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another place, where we could get away with three or four questions before being called to order by the chairman, the committee of the noble Lord, Lord Barnett, is not like that. One is kept strictly to one question at a time. More importantly, much thought, led by the noble Lord, Lord Barnett, went into the preparation of the report. After hard work and some compromises we arrived at a unanimous report. I think that all noble Lords who served under him are pleased that we were able to reach a unanimous report on such a deeply important subject as the future of the European Central Bank.
At this stage of the debate all the arguments for and against the report have probably been put forward. Therefore one tends to move to a rather personal note; I hope that noble Lords will forgive me. Working under the chairmanship of the noble Lord, Lord Barnett, I approached the subject of the European Central Bank with a certain degree of agnosticism. Referring to those labels to which the noble Lord, Lord Ashburton, rightly objects, I have always been labelled as a Europhile. But I have always had considerable agnosticism about whether the time was right, whether as a country we were ready, whether the European Continent was ready to move forward to economic monetary union and a single currency with all that that means in the handing over to a shared body of a degree of sovereignty. Of course it does that. To pass over the ability to print one's own money, to fix one's own interest rate, to a central body of 10, 11 or 12 other countries is a major move of sovereignty; and we should recognise that.
I was worried, too, about fiscal harmonisation as the next step following from the central setting of bank interest rates. I was worried about the centralising of interest rates. One sees some of the problems that can come from that with the pressure that is now being put on Ireland, in the middle of its boom, to bring down its interest rates from around 7 per cent. to 3.5 or 4 per cent. in order to be prepared for 1st January, the single currency and single central interest rates.
At the same time one has Tietmeyer from the Bundesbank making noises last week that he thought that German interest rates were low enough already, that employment figures were improving in the Federal Republic, and therefore why should the Bundesbank lower interest rates any more.
However, despite that agnosticism, throughout the 15 months or so that the committee sat, throughout our proceedings and hearing witnesses my impression was increasingly that the single currency was going to happen, but that it would occur with a good many more members than was thought likely at the start. When we began five or six were generally thought to be the number; it is already 11. Above all, I was impressed by the technical competence, the sheer amount of work, dedication and thought that had gone into the matter from all the experts that we met—Commissioner de Silguy, Trichet, Duisenberg, and Tietmeyer. One felt that every one of them had dedicated past years of their life to making certain that this enterprise was successful.
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As a result of that, and of the feeling from all sides that it was a great European enterprise, I became more convinced that it would be successful.
Last week I was in Brussels for a small international convention. De Silguy was to have spoken to us. However, he had gone to Moscow that morning, and his chef de cabinet came instead. He used to work for Trichet in the Banque de France or in the Trésor. I was impressed by his competence, his certainty that the enterprise would start on time even in these difficult financial world markets and that it would be a success. I take up a point made by the noble Baroness, Lady Williams of Crosby. He emphasised that in the past months of world turbulence one of the strong currencies has been the euro. One can see major international banks in the future wishing to have part of their reserves not only in yen (a questionable currency) or the dollar but in euros too. He pointed out that of the Scandinavian currencies, those which have been weak in recent months are the ones that are not joining the single currency. The currencies which are joining have been remarkably strong.
I have come therefore more and more to the conclusion that the central bank will work and that we should be a member of it and of the single currency. In an interesting and intellectually stimulating speech, as is so often true of him, the noble Lord, Lord Dahrendorf, ended with the words, "the jury is still out". I disagree with that. I think that the jury has returned its verdict. The only difficulty is that it has returned its verdict: that it is going ahead. But we are not part of it, and that is the problem which Britain has to face up to.
Perhaps I may quote a few words from the evidence given by Mr. Paul Volcker to our committee on 24th March. Paul Volcker was an extremely respected head of the American Federal Reserve for many years. In answer to a question he said:
"The United Kingdom might find it difficult to live for good reasons and happy reasons, with a monetary policy which suits all of the continent of Europe now because it is cyclically out of phase, but in the long run you have to assume those problems are not insurmountable. You do get different cyclical phases in the United States now too. The theoretical advantages of having some monetary independence I think rather pale against the advantages of having a common currency".
That sums up the opinion of many of us: the advantages of stability of exchange rates within the euro zone—a strong currency, and lowering of transaction costs, perhaps adding between 0.5 and 1 per cent. to GDP as a result of being a member of the euro zone. To me those now reflect the balance of probabilities.
Peter Millar, the news editor of the unhappy paper the European, wrote in an article at the weekend:
"Britain's relationship with Europe has been either confrontational or sticking its head in the sand".
That is an accurate but very gloomy description of our relationship during the past years.
Our position at the moment is one of a good natured ostrich, but we must soon get our heads out of the sand. When we do, when we have a referendum, it will be better for employment in this country, better for industry

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and bring lower short-term interest rates. My opinion is that the decision to join the European currency will be one in favour by a majority of at least 60 to 40.
4.50 p.m.
Baroness Crawley: My Lords, I thank noble Lords and officers of this House for the courtesy they have shown me as a new Member during the past week.
I took a lot of advice from colleagues about the subject of my maiden speech. They said, "Keep it simple, keep it non-controversial, make it funny, but remember to keep breathing!". It was all exceptionally good advice and I thank them for it. So I chose the European Central Bank as my subject, given the non-controversial nature of Europe in this House; and I chose the countervailing theories of the European Central Bank's raison d'être being either price stability or money supply targeting, just to keep the speech simple!
To be a little more serious, it is a privilege to make my maiden speech in a debate on this report from the Lords Select Committee on the European Communities. For many years, as a Member of the European Parliament, I have been aware of the truly excellent work of the committee chaired by my noble friend Lord Barnett. Indeed, I have watched my European colleagues—Spanish, Greek, Swedish—thumbing through the Lords' committee reports and quoting from them. I have overheard MEP colleagues advising one another, "Don't give evidence to the House of Lords' committee unless you know your subject inside out and back to front. It is a committee not to be trifled with". Brussels acknowledges a major player in the great European debate in its respect for my noble friend's committee.
This report on the European Central Bank raises three essential questions of accountability, transparency and credibility. These questions are pivotal to any serious discussion on whether or not the ECB will work. The committee not only raises these questions but answers them after a thorough analysis of evidence from experts such as Eddie George, Hans Tietmeyer, Dr. Duisenberg, the President of the ECB, and, of course, our own Chancellor of the Exchequer.
First, the committee attaches great importance to the accountability of the ECB to the European Parliament, as suggested by my noble friend Lord Tomlinson. As noble Lords will know, the European Parliament will provide the principal forum in which, in public, the ECB will have to justify itself to elected parliamentarians and, more importantly, to the public at large. The president of the ECB will appear before the European Parliament on a quarterly basis and he and the members of his executive board will attend the parliament's appropriate committees. However, it is vital for the role of accountability beyond this formal link that the ECB listens continually and responds to the tensions, the strains and the achievements of the real economy where businesses have to survive and where men and women have to earn a living.
Secondly, when looking at the issue of transparency, it is important that we do not see the treaty obligation of independence for the central bank as a way of closing
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off the ECB from wider popular scrutiny. As the Chancellor of Exchequer said in his evidence to the committee, the days of an ivory-tower approach from central bankers are over. He went on to say that the reasons for the actions of the central bank must be understood widely by financial markets and by the general public of the member states. I, too, believe that without essential public understanding and eventually trust the ECB cannot prosper as many of us would wish it to.
Credibility is the third major topic approached by my noble friend's committee. The ECB's performance in these first early years will promote its credibility or otherwise. The fact that it is moulded on the structures of the highly successful German Bundesbank should give it a solid foundation; although I share the concerns of the noble Lord, Lord Burns, about the secrecy culture of the Bundesbank.
However, credibility must be seen in a wider context than that. As the committee report succinctly puts it (and I repeat what was said by my noble friend Lord Tomlinson):
"The independence of the central bank and the primacy of the policy objective of price stability are foundation stones on which the practice of modern economic management rests".
The committee's report continues:
"We see price stability as desirable because it is conducive to or possibly even a prerequisite for long-term stable growth and employment".
Indeed, for the citizens of Europe, for all of us, success and credibility of the ECB must go beyond price stability and, in words elsewhere in the treaty:
"be associated with sustainable growth and a high level of employment".
Only then will the ECB gain that public support and trust so necessary for its long-term and therefore our long-term prosperity.
Unless we have spent the past eight months in a separate solar system, we all know that on 1st January 1999 11 of the 15 member states of the European Union will adopt the European single currency. As the report puts it, and as was said by my noble friend Lord Barnett, that is,
"an immense and surprising achievement".
The ECB is an essential element in the operation of the single currency. Despite all the considerable associated risks, the report does not, as it puts it, expect that the ECB will be allowed to fail. I sincerely hope that we will become part of the single currency as soon as it is in the economic interests of this country to do so and, of course, on the clear agreement of the British people. As the noble Baroness, Lady Williams of Crosby, so eloquently put it, our influence on developing monetary and fiscal policy will be so much greater inside rather than out.
Our discussions today on Europe and the views expressed from all sides of the House put me in mind of an aeroplane journey I had back from Strasbourg last week with a Conservative MEP colleague who was heard to mutter darkly, in response to the steward telling us that we were about to enter an area of extreme turbulence, "Huh, we must be flying over Bournemouth!".

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However, I would quickly add that controversy on Europe is not of course confined to the Benches opposite.
I thank your Lordships for your patience and courtesy. I hope that this excellent report will be widely read. My noble friend Lady Rendell might spice up the plot or have us all asking, "Who done it?", before the conclusions next time, in an effort to ensure that it reaches a much deserved wider audience beyond the political classes of Europe.
It is a privilege to make my maiden speech in this important debate on our future in Europe and it is a real pleasure to do so in this the 40th anniversary year of the first women to take their seats in the House of Lords.
4.59 p.m.
Lord St. John of Bletso: My Lords, it gives me great pleasure to congratulate the noble Baroness, Lady Crawley, on her outstanding and powerfully presented maiden speech. The noble Baroness comes to this House with enormous experience and expertise, having been a member of the European Parliament since 1984, having served as deputy leader of the European parliamentary Labour Party and also serving still on the European Parliament economic and monetary affairs committee. From the brief resumé in the House Magazine, I learnt that she started her career as a drama teacher. I popped a brief note across to her saying that that was an excellent precursor to being a Member of your Lordships' House; more so perhaps for being a Member of the other place. I sincerely hope that we shall hear a great deal more from the noble Baroness in the years to come. I should like also to congratulate those other noble Lords who have made their maiden speeches today.
It is perhaps opportune that this debate has been delayed until now. I know that the noble Lord, Lord Barnett, had given the Chief Whip a fairly hard task in trying to get the debate heard before the Summer Recess. I say "opportune" because, as the noble Baroness, Lady Williams of Crosby, mentioned, it comes at a time when the recent global financial turbulence sparked off by the current economic crisis in South East Asia and the emerging markets has put a greater spotlight on whether or not the European Central Bank will be a success under the prevailing circumstances. With investor confidence at a low ebb, hopes that the single currency will be launched on a strong economic tailwind look unlikely.
It is perhaps also "opportune" that the debate has been delayed until today as tomorrow is the 75th birthday of the chairman of the committee, the noble Lord, Lord Barnett. As one of the younger members on the committee, it has for me been one of the greatest honours and privileges that I have had in my times in your Lordships' House, times which, unfortunately, the way government legislation is likely to go, may be short lived. We shall certainly be sad to lose the noble Lord's expertise when he leaves the committee at the end of this Session. His agility, charm and, as the noble Lord, Lord Renton, mentioned, his sometimes bullying tactics
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have been quite refreshing. I wish also to thank the two Clerks who served the committee, our past Clerk, John Goddard, and Dr. Philippa Tudor, for all their assistance.
Our report was far reaching, but focused on the challenges facing the ECB, particularly the challenge of gaining credibility and ensuring price stability and a stable single currency. As many witnesses pointed out, the credibility of this new institution will need to be earned by its results, and this will take some time. I was certainly encouraged by the evidence of Dr. Duisenberg, the ECB President, who stressed that, in order to build support and credibility, the ESCB would have to be as transparent as possible and would have to explain to the European Parliament, to governments and to the public at large, its targets, why it takes or does not take measures, and why its targets have or have not been met.
As the ECB has been modelled on the Bundesbank, it is obviously unlikely to be as transparent as the Bank of England. As for accountability, even though the President of the ECB is formally required to appear once a year before the European Parliament, it was also encouraging to hear from Dr. Duisenberg that he thought that it would be a good idea for him to appear before it four times a year. That shows that he has high on his priority list transparency and accountability in order to gain credibility for this important new institution.
The Chancellor of the Exchequer and other witnesses stressed that for the ECB to work its actions must be understood not just by the financial markets but by the European public. I also think that the comments of Sir Nigel Wicks, who was an excellent witness, are worth mentioning. He said that for there to be confidence in the euro, the ECB would need to,
"explain, explain, explain, convince, convince … Parliaments, press and the public at large—about what they are doing and how they are going to do it".
It is all one big PR exercise.
Quite apart from the need for transparency and accountability, one of the major challenges facing Council members will be making the mental transition from the nation state to the euro zone as the exclusive reference point for policy. I believe that this psychological shift will be particularly important, as the ECB will in all likelihood face an unusually uncertain economic outlook.
Several commentators in Europe claimed just several months ago, before the economic crisis, that the Asia and emerging market crisis would not spill over into Europe. How wrong they were! Dr. Duisenberg acknowledged that the international financial turmoil would have a dampening effect on world growth. Clearly, Europe cannot remain immune from a global crisis. At times like this—I say this in my capacity as a consultant to a City firm—investor confidence is a global problem.
This need for the ECB to be closely informed about the real economy and sensitive to the various patterns of growth and decline which occur across the euro zone was highlighted in paragraph 105 of the report. While I support the independence of the ECB. I hope that it

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will not be too rigid in its implementation of monetary policy and will allow an element of flexibility. It was interesting to note that, when questioned on whether the single currency would work, the British witnesses were less confident than the European witnesses and tended to see more problems. There did, however, appear to be a general consensus among central bankers that price stability would constitute a measure of inflation between zero and 2 per cent.
The report made scant reference to the fact that there will be different inflation rates in the future between member states. European countries have had very different inflation experiences over the past 30 years and their economic cycles are unlikely to become synchronised simply as a result of European monetary union. Certainly the structure of the balance sheets of their private sectors and the ways in which prices are determined in goods and labour markets across the euro zone differ substantially. As a result, the channels by which a given change in interest rates affects the different economies are likely to vary. This means that the ECB will face a difficult job in setting a single interest rate to keep inflation low.
On average, in the euro zone, it is inevitable that from time to time the interest rate that is appropriate to hit an average inflation target for the whole of the euro zone will be quite inappropriate for some countries. In a recent report published by Merrill Lynch, for which I declare an interest as a consultant—I do not know whether I will still be a consultant after today's debate as it has just announced a number of redundancies but no one knows who they are—it was predicted that if the ECB is unwilling to allow, in its words, "Euroland inflation" to rise above 2 per cent., normal interest rates may need to increase to around 6.5 per cent. by the year 2003. It believes that a more realistic target might be for Euroland inflation to average about 2.5 per cent. and in that case, in its opinion, rates would move slowly and by less.
That Merrill Lynch report forecasts that German inflation would in all likelihood be substantially below the euro zone average for most of the next decade and claimed that Germany may favour having the ECB adopt a loose inflation target for the euro zone. I mention that because the argument of those who claim that it is self-evident that the German members of the ECB Council will push for a tougher regime than others is flawed.
I certainly concur with the statement in paragraph 113 of the report that:
"we hope that the ECB will be flexible in their application of monetary targets in pursuit of low inflation".
There has been much fresh speculation over the past few months as to whether the ECB will use a combination of inflation targeting and monetary aggregate targeting on a trial and error basis when making interest rate decisions. One of the ECB's more immediate problems in that regard will be the new euro zone economic data, which has no history and track record.
As to whether the ECB will work, I have no doubt that at a technical level, it is totally competent and has the will and leadership to make it work. However,
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I remain sceptical as to the sustainability of the convergence criteria of all member states. Having said that, I agree with Mr. Adair Turner that the achievements of the past few years in terms of convergence have been far greater than anyone would have forecast five years ago.
Clearly, a big test for the ECB will be its ability or inability to cope with asymmetric shocks. The test of a single currency, as the Chancellor of the Exchequer mentioned, will be whether it delivers growth and high employment. The two principal potential economic dangers to the success of the single currency, which were noted in paragraph 131, were unjustified budget deficits and a failure to make structural reforms.
In conclusion, while the challenges and risks for the ECB are high, there is no doubt that there is an overwhelming political will to make it successful and acceptable. While I hope that we shall, in the foreseeable future, become a member of the ECB, I certainly concur with the noble Lord, Lord Dahrendorf, that the jury is out. While I may also be an agnostic Europhile, for the time being, I believe that a "wait and see" policy is the best way forward.
5.12 p.m.
Lord Shore of Stepney: My Lords, I have apologised to my noble friend who introduced this report and who has been chairman of the committee because unhappily, as a member of the Neill Committee, I found myself having to take part in a press conference which coincided precisely with the opening speech on this very important debate. Therefore, I apologised to my noble friend and, indeed, to the noble Lord, Lord Boardman, whose speech I regret to say I did not hear. But I have heard the other speeches and, of course, I have read the reports. Perhaps I should add to my apology to my noble friend because I do not share the enthusiasm for this report which many noble Lords have expressed in the debate so far.
I do not share that enthusiasm for a whole number of reasons, but not least because it is not anything like as informative and penetrating as, for example, the other excellent report over which my noble friend presided and gave us a few months ago on enlargement of the European Union. That really did open up the subject, I thought, in a way which was extremely helpful to the whole House.
Looking back, perhaps it was not the right time to undertake this report. I say that because in a few months time, God knows, we shall have so much more actual evidence of what it is like to have a single currency, which will be of great benefit to us. We shall have actual experience rather than guesswork about the future. In particular, I am thinking of what will happen when our friends and neighbours across the Irish Sea are compelled to align their interest rates with those of the other members of the Euroland. That is a major problem and could even cause an economic crisis.
Moreover, I wish to see how our friends, the Italians, manage to sustain their position in relation to the convergence criteria, not just for the year of convergence but for the next year and the year after.

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Also, I have considerable doubts about whether our Belgian friends will manage to perform as adequately as certainly President Duisenberg expects. I shall say more about him later.
Therefore, it would have been a wonderful time now to be starting this inquiry. It would have been better had it spilled over into the new year when we could have seen a great deal more about how those countries are reacting to the difficulties and much more important—and indeed the main subject of what I shall speak about in a few moments—we should have known how the European Central Bank and single currency had faced the greatest economic challenge that has beset the western world, and, indeed, the world economy, for the past 60 years.
It is the European Central Bank—let it sink in to every Member of this House—which will be in the position of taking the lead in trying not merely to defend Europe from the effects of the approaching slump but also in contributing to the rescue of the whole international economy and community. Does anyone in their senses believe that President Duisenberg is better equipped to handle those problems than the finance ministers of the major countries of the European Union? I leave that to one side for a moment. I hope that I have registered a point of very genuine concern.
However, allowing for all those difficulties, I wish that, even within the scope of the report, the committee had been more inquiring about, for example, the convergence criteria; how far they were genuinely met; and how far they are sustainable. That would have been valuable. Also, a few more penetrating remarks about the relationship between the Euro X Committee and the Economic and Monetary Committee would have been helpful and might have provided some guidance about a potential problem in the not-too-distant future.
Therefore, those are my initial problems. I must say also to my noble friend that it was an odd report in the sense of the question it asked—namely, whether the European Central Bank will work—as though one could dissociate whether it will work from the question of whether it is a good thing. Of course you have to go over the argument again about the pros and cons, as everyone in this debate has found it impossible to avoid doing. It is not a question of, "Will it work?", but of, "Will it work well and better than the present arrangements?"—not only for European neighbour states and the European Union, but for this country also. That is the question with which we should be exercised. In my belief, it is a serious error, a mistake, not to face that but, to some extent, to dodge it.
I wanted to develop a little further what I felt to be the fundamental problem. Perhaps it can best be summed up by quoting what President Clinton said about a fortnight ago when he turned his mind—but, unfortunately, not the mind of the rest of the American political establishment—from his domestic and private affairs to the great affairs of state. Referring to the economic and monetary crisis, he said that, worldwide, the balance of risk has changed from inflation to deflation. Let that be properly absorbed. The fact that the balance of risk has
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changed has been repeated by our Chancellor of the Exchequer. It was put out as a sort of communiqué by the G7, speaking for the whole international community.
As soon as that point is registered—that "the balance of risk has changed"—one faces the fact that the European Union and the European Central Bank are not remotely tuned into this new and overwhelming problem; nor, I fear, is the committee. It ended up stating on page 3—this has been quoted previously but I shall quote it again:
"The two principal potential economic dangers to the success of the single currency that we see are fiscal profligacy—excessive and unjustified budget deficits—and failure to make structural reforms".
They are important points, but they are second-order points which should not dominate the considerations and concerns of serious people concerned with the affairs of state here and abroad.
When one starts to think about it, one wonders what role the European Central Bank should play. What if expansion is required of the European Union economy? What if that expansion requirement leads to an excess of the 3 per cent. borrowing limitation which the treaty imposes? Supposing—God knows, this is not all that remote—we are faced with something like that, with something even greater than the 1974 secondary bank crisis when a whole range of banks went bust, what will we do? Then we were a government who controlled the monetary system and the Bank of England. We instructed the Bank of England to organise its lifeboat, which saved all the depositors of those secondary banks but, of course, properly and correctly wiped out the bad management under which their affairs had been conducted. Can we do that in Europe? Can we instruct President Duisenberg to undertake large-scale rescue operations should they be necessary? I am not at all sure but, frankly, I have far less confidence in relying on him than on our own resources and national arrangements—other than, of course, the changes which our own Chancellor so unhappily and unfortunately made in the Treasury's relationship with the Bank of England by giving it the freedom of action which it has now and which I sometimes think that the Chancellor may very much regret having granted.
But it is not only a question of the treaty problems that I have outlined. Here we are about to undertake this massive initiative of the eleven powers by setting up this institution, whose purpose is said to be:
"the primary objective of the European system of the central banks shall be to maintain price stability."
Would anyone in their senses in 1998, looking at the economic problems that face us, decide to set up such a major institution, the primary objective of which is to maintain price stability? Goodness me, that simply reflects the great concern for what was the major problem of the 1970s and 1980s—inflation. That was written 10 years ago when the problem of inflation and hyper-inflation dominated all our thoughts, but it is hopelessly out of date. What wisdom we have in this country in not having a written constitution. That means that we are able to change policies and institutions as events require. To change that nonsense about the Bank's "primary objective" would need a treaty

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amendment and years of argument. Unanimity would be required before anything could be done. Clearly, that cannot make sense—and it does not.
When I think about this, I am genuinely disturbed. One would have thought that during the summer months President Duisenberg, the ECB president, would have absorbed something of the gravity of the situation, not only in the European economies but in the world economy, yet he was quoted in the Financial Times on 10th July 1998 in, I think, the middle of the Russian crisis—certainly long after the Far East crisis had become apparent—as saying that governments in the Euro-zone must aim to run balanced budgets and that countries with particularly high levels of national debt—Belgium and Italy, for example—should be running surpluses. There was no qualification or mention of what everyone agrees is now the major problem facing the British, European and world community; namely, deflation.
Perhaps noble Lords will allow me to trespass a little beyond my time and to conclude by saying that all of us have a duty to think again about what we have let ourselves in for in relation to European economic and monetary union.
5.28 p.m.
Lord Bruce of Donington: My Lords, from the speeches that I have heard in this debate I fear that, possibly as usual, what I am about to say will not find favour with the majority of noble Lords who are present. That is a phenomenon to which I am accustomed; indeed, to which I am completely inured. Nevertheless, I propose to give some of the reasons why I entirely support the words that have fallen from the lips of my noble friend Lord Shore.
As a distinguished noble Lord opposite said—cannot remember the name—"the jury is out on this whole question". However, the noble Lord did not define "the jury". Of course, "the jury" is the people. For the past 60 years or so it has been my privilege to try, as best I have been able, inside Parliament and out, to be of political assistance to the people of my own country. I do not think that there is anything particularly disreputable about that. In fact, it has been a reason for my existence over the past 65 years—and I remain proud of it. We have to look around the world and at our own country today to form some conclusion as to how this new scheme of things, the European Central Bank, will work. One has to bear in mind that the main problem, at the moment and for the foreseeable future, is how to solve the problem of areas where there is an abundance of individuals with varying skills—some skilled, some not—who are willing and anxious to work and make a living. When the abundance of the earth in terms of raw materials is available—in many cases very easily available—and when the world, or part of it, is gorged, with the monetary instruments that enable them to come together, why is it at this time we do not face that problem, as indeed Maynard Keynes faced it? I recall that one of his supporters, a Mrs. Joan Robinson, a very distinguished economist indeed, wrote a very
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perceptive article in the first edition of Contributions to Political Economy, published under the aegis of my noble friend Lord Eatwell. This is what she said:
"Mrs. Thatcher declares that there 'is no other way'; forgetting that for 20 years after the war we enjoyed continuous growth with almost no inflation."
So for 20 years we were able to make a reasonable shot of it. We were able to take up ever-increasing quantities of people, bring them together with the raw materials and partly-finished goods, and so on, so that unemployment was very low. Inflation for that period was approximately equivalent to the target that has now been set. Surely we have something to learn from that.
From what I have observed so far in the current debate, despite protestations at the commencement of every speech that the speaker did not intend to discuss the merits or otherwise of the single currency, most of the debate has been dominated by that very consideration.
When I read reports of this kind I normally go to the questions and the evidence section first and to the opinions and conclusions afterwards, rather than form opinions and conclusions first and then fish out the evidence in support of them. I suggest that is a very desirable trend among people who read reports of this kind.
The evidence is not, of course, so unequivocally in favour of the establishment of an independent central bank and the establishment of a single currency, as the opinions given in the report would have us believe. I will quote from the opinions arrived at by the Committee. In view of the convention—it is not statutory or covered by the rules or customs of the House or of committees—I can understand that all reports are unanimous. I found that out to my cost way back when I participated in one of the sub-committees. While the report was being drafted I submitted 129 amendments, several of which I threatened to bring to a Division. I disappeared from the European Committees immediately following the end of that particular session. I was sunk and I have not surfaced since within that particular ambit.
This is what the opinion of the committee says. Under the heading "Economic Policy in the Modern Nation State":
"many, if not all, economists"—
note that; "many, if not all, economists"—
"even if not yet more widely among the general run of politicians and the public [have] a belief, derived from the experience of success and failure, that the best monetary policy is directed towards long-term price stability and is best left to the operation of a central bank acting independently of short-term political considerations".
I challenge any Member of the Committee, including its Chairman, as to where in the report evidence was given to that effect. It was not. It was a way of insinuating the pressure—with no evidence whatsoever—of a prejudicial trend into the opinion before it even surfaced.
It is even more remarkable, as many of your Lordships who are readers of The Times newspaper—and I still have that addiction—will know. The Times published a letter on the 25th September last from 13 or

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14 economists who completely dissented to the whole proposition. I could add many, many more names to their number. It is somewhat peculiar that this assertion should be made quite clearly in the full knowledge that it was not true. There is no unanimity among economists. The noble Lord, Lord Peston, will agree with that on this particular question or, as far as I know, on any question.
It is the way that the report has been drafted. I am very surprised that it contained the degree of unanimity that it did. Knowing, as I do, most members of the committee personally, and having a high regard for them all, including its Chairman, I know it cannot be true.
The problem is far greater than has been raised. It is not price stability in the sense that it is mentioned here. It has been mentioned in most trenchant terms in the evidence. Consider the stark nature of the evidence that was given to the Committee:
"Dealing with problems of high or rising unemployment or of lagging economic growth in some areas and not in others is not, and cannot be"—
I repeat, "is not and cannot be"—
"a primary concern of the monetary authorities."
It goes on to reiterate the reply that,
"the primary aim of the Central Bank is to achieve price stability and, without prejudice"—
mark those words—to that primary aim, monetary policy shall support the general economic policies in the Community". A little further on the Chairman states,
"if you look at the unemployment problem … we all agree and we always say in the Central Bank community"—
it seems to be already established that we now have a central bank community too—
"and in academia that it is very much of a structural nature".
That flies in the face of all the evidence. I do not wish to criticise Her Majesty's Government—heaven forbid that I should do so!—but in the United Kingdom we have the same central bank control over interest rates and the inflation rate. Already it is quite clear that the universal application of these policies across the United Kingdom in regard to public expenditure, for example, has produced a situation where in some areas there is a high degree of employment, notably in financial circles and in the banks, although that has been a little dented after the events of the past few weeks, but in other parts of the country there is large-scale unemployment. That has occurred with a centralised monetary policy in the United Kingdom.
That is much more the case in Europe as a whole. How is a policy whose primary, indeed dominant, treaty-backed aim is price stability, to deal with patchy unemployment—some of which affects a large percentage of the population—which varies throughout the states of Europe? How can the application of a single monetary policy, whose primary aim is price stability, deal with the varying economic circumstances that exist not only among the individual member states but within the member states themselves?
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It requires a deep conviction—based on what, I do not know—to assume that the European Central Bank will work well, because the conditions are not there in which it can work well. I have no doubt that it will work as the whole machinery of the treaty is behind it. The treaty has laid down with pretend mathematical accuracy the various percentages relating to kinds of economic activity that can be identified, monetary, fiscal or otherwise. It has laid them down. We are tied if we believe what the Commission says. The Commission originated the policy long before Maastricht, when it published its original plan for Europe. It assumed certain things would happen. It laid down in the treaty the various percentages to be given to the varying factors: total current deficits, total capital liabilities, and so on.
We all know what has happened in practice. Two months before the establishment of the European Central Bank those Maastricht criteria incorporated in the treaty and in its protocol were to be strictly adhered to for two years. We have been told that the percentages relating to countries' deficits, public expenditure, total debt and all the rest of it, were set in stone. But recently when the conference was held to establish the bank, those all went out of the window. In point of fact, most of the countries that are participating in the scheme have varied the conditions. Those varied conditions have been accepted. This will not do. I agree with the noble Lord, Lord Ashburton, that we need to be informed to enable us to make a proper judgment because at the moment, with the aid of much money that has been pumped into the information project by the European Commission, we are simply being bamboozled in advance of all the facts becoming known.
5.45 p.m.
Lord Marsh: My Lords, the noble Lord, Lord Barnett, opened with a stern reminder that UK membership of EMU was a non-issue in this report. With the sublime self-assurance of the extreme Europhile he then proceeded to deliver a demand for early and unconditional British entry into EMU with a passion which even enthusiastic Moonies might have found embarrassing. The reality, of course, is that you cannot talk about the prospects for the central bank without raising the UK position, because that and the title of the report encapsulate all the fears of those who want to see and trade with a prosperous Europe and a thriving single market but who want to be sure that this unique experiment will work before we are irrevocably committed to membership of it.
The suggestion that anyone who questions any part of EMU or the European Union is some mad xenophobe is not true. For the past 25 years of my life the overwhelming majority of my income has come from overseas. Most of the time I have worked for foreign companies. I have the honour to be the unpaid chairman of Business for Sterling. It is one of those organisations where one is not paid to run it. One is expected to contribute financially towards the running of it and that is considered a privilege. The majority of the members of that organisation trade in Europe. The biggest market of JCB, for example, is in Europe. The members of that organisation want to see the system work. There will be

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a single currency and there will be a central bank. It is of interest to all of us as to whether it works or does not work. But some of us have doubts about it, thus the simple question,
"The European Central Bank: will it work?".
It is an attractive question because the answer is also simple and indisputable; namely, no one knows because there is no precedent for a central bank facing the problems that the single currency and EMU present.
Regular attempts are made by those who know better to suggest an analogy with the United States. That is absurd. The United States is a fiercely chauvinistic nation state. When Americans sing "God Bless America" they do so as a politeness knowing in their hearts that the Almighty would never think of doing anything else! Unlike the members of economic and monetary union, the United States has a single constitution, a single legal system and—this is important—a single language. That is a major economic issue that I shall discuss later. Those three factors, a single constitution, a single legal system and a single language, ensure stability and a degree of labour mobility on a scale which is impossible in the area of the European Central Bank, at least for many years.
Having said that, the fact that the central bank will face many problems unique to Euroland cannot rule out the possibility of success, any more than one can rule out the possibility of failure. We do not know. We have no basis upon which to judge it. There are too many imponderables. It is simply a matter of the conclusions we reach on our particular risk analysis. The problems are well known.
There are three possible outcomes for the central bank: first, within a few years it is seen to be a complete success. Nightingales will sing in Berkeley Square. Tony Blair will take the credit for it and will be canonised, and the world will be happy. It is in everybody's interests that it should succeed. Failure would be disastrous for all. It could succeed but some of us are highly sceptical about that. Others take a different view.
Secondly, it will be seen to be working for the other members but not for the United Kingdom. The arguments are well known in terms of trade patterns, the economic cycle and a whole range of factors which make us genuinely different, not because we are cleverer or because foreigners are inferior, but because of our history and a number of other things we have developed differently. It is perfectly possible, therefore—and I know of no one who disputes this—that it could work for Euroland but not for the United Kingdom.
The third possibility is that it will fail, and no one in their right mind could be other than horrified at that prospect. If it fails, then for those who are in it there is only one way out and that is through total chaos. That is why whether we go in or wait is an important question. If it costs something to be absolutely sure that this works, it may well be worth paying the premium in order to establish and preserve the safety of this country by not being involved. It is said, "But we have to go in". What happens to us if we do not? We will be in the same position as every other country in the world except
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for 11 European countries, some of which are very small. Will the French suddenly say, "We will no longer sell our wine to these Rosbifs. They will not come with us"?. Of course they will not. Will the Germans stop selling BMWs or Audis? Will Italian cheese-makers stop selling us cheese? We will trade with them, as we trade with other countries and other currencies. That is therefore an option which is available to us.
The public support for Business for Sterling by a growing number of experienced and senior business executives from all sectors—major companies, merchant banks, manufacturers, retailers—is evidence that an increasing number of people with no political axe to grind but who listen to the advice of their treasuries and of their finance directors believe that the odds against success are seriously underestimated. There are many elements to that concern. There is the concept of "a single interest rate meets the problems of all"—one size fits all. The lack of labour mobility is a counter-balance to serious regional problems. We know what they are.
There is, however, one central issue above all else. the noble Lord, Lord Barnett, has great faith in his view. It is unusual. As a Treasury Secretary he was tough to the point of being obnoxious.
Noble Lords: No!
Lord Marsh: But pleasantly so! That view is the idea that the political will has an enormous benefit, helps things along and will solve the problem. If political will were sufficient to have a major economic impact on nations' histories there would be no unemployment in Europe. All governments want to solve those problems but do not manage to do so.
This is a group of nations, some of which have stubbornly pursued policies which have been the direct cause of high unemployment and political instability. Their constant pursuit of protection of their national interest is perfectly open. We are asked to believe that the magic of the single currency alone will transform their traditional behaviour overnight, because unless that happens the central bank cannot succeed. It is bad enough for any independent central bank to have to deal with a difficult relationship with its government; the idea of a central bank which has to deal with 10, 12 or 20 governments makes independence crucial. Each of those governments will have their different interests.
The intention was that the central bank should be independent. The noble Lord has a rather cavalier view about its independence, but it is set out quite clearly in paragraph 10:
"The independence of the decision-making bodies of the ESCB, in the performance of their tasks is rigorously protected by the terms of Article 107 of the Treaty. Under these provisions the members of these bodies shall neither seek nor take 'instructions from Community institutions or bodies, from any government of a Member State or from any other body. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies'".

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Under Article 109 that was applied particularly to the appointment of the president—the most powerful man in the entire system. It is very clear:
"Under Article 109a of the Treaty, the President, the Vice-President and the other members of the Executive Board of the ECB shall be appointed by common accord of the Governments of the Member States … Their term of office shall be eight years".
Not "may", not "probably a good idea", but "shall". That is the theory. We were able in the course of the inquiry to see how it works in practice.
At the bottom of that page there is a fascinating note in the report, in the smallest type I have ever seen:
"The appointment of Wim Duisenberg for eight years although there is also an understanding that he will voluntarily retire early. This arrangement appears to conform to the text of the Treaty if not the spirit".
I was fascinated by that. What did he actually say about this amazingly important thing? We know what happened. There were two candidates. The treaty is absolutely clear that one thing and one thing alone should be the basis of the choice of the appropriate candidate: the ability to do the job. The treaty is clear beyond peradventure that no national government should seek to attack, change or influence that. The treaty is clear that it is for a period of eight years. It is not picked out of the air because in so far as anybody has the faintest idea of what an economic cycle is—"it is probably around six, seven, eight years or so". All that is absolutely clear. Then a second candidate emerged. There was a strong argument and the promoters—the French Government and nobody else—had one perfectly clear view: it was for the pride of France that he must become president.
How do you cope with that? We thought we were lucky because we had a British Prime Minister chairing the meeting, but this farce took place over one weekend, and he agreed. It was said that he be appointed for eight years but he would serve for only four years; after that, the French candidate would take over. Subsequently, however, he changed his mind and said he could not commit himself to resigning. At the moment it is absolutely clear, again beyond peradventure, that the president of the central bank will serve eight years—except that it may possibly be four and, if it is four, he will probably be succeeded by the French candidate, who might see out the end of that term and do another four years, or it might be eight years. In fact nobody has the faintest idea what will happen to the most important element in the appointments made.
Perhaps I may quote from an exchange between the noble Lord, Lord Shaw, and Dr. Duisenberg which took place before the fateful weekend. The noble Lord asked him (at paragraph 216) what would happen in regard to a second candidate:
"is it important in those early years as to which country the President comes from?".
The answer from Dr. Duisenberg was:
"Yes, and the answer to it is no, because the President and every single member of the Executive Board has to comply with certain qualifications specified in the Treaty, but nationality is not one of them, not one of the qualifications, so that in a sense I regard as not of importance".
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Later he was asked a further question. The noble Lord, Lord Shaw, asked:
"On the question of the Presidency, which I appreciate you are not likely to give us an answer to, … can I just press you",
and mentions the matter of the split presidency. The idea was already around then. Dr. Duisenberg said:
""It is an idea and if the proposal were to appoint me on the condition, which is not in the Treaty, that I would accept this to be only for a limited period, I would not accept that appointment".
What changed his mind? It was political pressure alone—and it was not the French this time; it was the chairman and the other governments.
The noble Lord, Lord Barnett, made a comment that I shall remember for many a long day. He said that if there has to be a common view, it means that there has to be compromise. I understand the noble Lord's point, and I am not surprised by it. However, if that is a part—and all the evidence of the past history of the Commission demonstrates that that is how it is done—then there cannot be a successful central bank; if is open formally to pressures from each of its members. On that basis, since hearing the noble Lord the doubts that I had when I came into the debate are much harder now than they were.
6.2 p.m.
Lord Grenfell: My Lords, at this late stage I shall try to be brief. Perhaps I may begin by warmly congratulating my noble friend Lord Barnett on having once again exercised his legendary skills in taking us through a long and complicated inquiry. As always, it was a great privilege to be associated with him and fellow committee members in this endeavour. I add my thanks to those who greatly supported us, in particular our specialist adviser, Professor Charlie Bean, and to John Goddard and later Dr. Philippa Tudor in their roles as Clerks to our committee.
We are discussing the report more than four-and-a-half months after its publication, as my noble friend Lord St. John of Bletso pointed out. I agree with noble Lords who said that the delay in tabling this debate may be fortunate in that it gives us a chance to review the early months of operation of the European Central Bank.
The report before your Lordships provides a useful framework within which to examine some of the issues that have preoccupied the European Central Bank during the four-and-a-half months of its existence. I make no apology for going into some of the nuts and bolts. At this stage it is worth examining what has happened since the report was written. Perhaps noble Lords will forgive me if I do not go too deeply into the text.
Given the time constraints, I wish to focus on only four issues: first, the search for a monetary policy strategy; secondly, the difficult matter of the convergence of interest rates; thirdly, the response to asymmetric shocks; and last but not least, accountability and transparency.
The first issue I wish to touch on is the still unresolved question of choosing a monetary policy strategy, which is at the top of the agenda at today's meeting in Frankfurt of the Governing Council of the

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ECB. It might come close to solving this problem today. At the time when we concluded our inquiry, it looked as though the Governing Council would opt for a mix of monetary targeting and direct inflation targeting on a trial and error basis, with the monetarist approach dominating. The odds still seem to be on the ECB following the Bundesbank's practice of adopting monetary aggregates, probably M3, as a useful anchor—not that Europe-wide M3 data are easy to capture—and also, like the Bundesbank, taking other factors into consideration in setting the interest rate, in this case most importantly an implicit inflation forecast.
Dr. Duisenberg told us that once the Governing Council had been established, the choice of a strategy could be quickly made and implemented because all the instruments for monetary policy had already been prepared within the EMI. In the event, the assumption that the strategy could be put in place by the Governing Council by September this year proved far too optimistic. The competing claims of monetary targeting and inflation targeting are still being debated.
The argument for inflation targeting seems to me the stronger and should replace monetary targeting as the dominant element in some form of hybrid strategy. Witness after witness confirmed that while the quality of the monetary data would determine whether monetary targeting would work as an ECB policy instrument, there were no really good quality statistics for the European money supply. Further, nobody really knows how stable money demand will prove to be in the Eurozone, and as Wim Duisenberg has acknowledged, the transition from national currencies to the euro could itself distort demand.
A formal or informal inflation target will be badly needed to reinforce any monetary targeting. Inflation targets offer the great benefit of transparency, but they are a relatively new invention. They have no great track record; therefore we cannot assume at this stage that it is to be a sure winner in the context of economic and monetary union. With regard to the problem of data, doggedly raised by the noble Lord, Lord St. John of Bletso, throughout the inquiry, I am pleased to hear that late last month the Eurostat announced that it will henceforth publish a single Eurozone inflation figure much earlier each month to assist the ECB's policy-making. That is a major step forward. It can refer to individual country statistics later.
Here in Britain, since 1992, we have done pretty well with inflation targeting. However, I am inclined to think that a target for the Eurozone should not be set as rigidly as it is here in the directives of my right honourable friend the Chancellor of the Exchequer, even given the let-out in the case of shocks and disturbances. For the Eurozone a target range seems to me to be more appropriate. Here I part company from the view advanced by the noble Lord, Lord Burns, in his authoritative maiden speech. I believe that we should examine the experience of New Zealand, for example. The governor of New Zealand's Reserve Bank, who has given a zero to 3 per cent. target range for inflation—am not saying that 3 per cent. is appropriate for the
826
Eurozone—sees targeting a range as the better way to go, provided, and I quote:
"we take our responsibility to keep inflation above zero as seriously as we take it to keep it below three per cent.".
Because of the possibility of statistical error, a zero at the bottom of the range could risk an unwitting dip into deflation so it may be that a 1 to 2½ per cent. range would be a safer target for the Eurozone.
This brings me to the second issue. With only 80 days to go before the Eurozone has a single interest rate set by the ECB, convergence towards a central rate and where that single rate will eventually be set are burning issues. As your Lordships know, there are still major disparities in Eurozone member short-term rates. If rates are to converge around the 3.3 per cent. Franco-German level, which is approximately where the ECB is considered likely to set the rate, some countries still have a long way to go. Spain's recent cut brought its benchmark rate down to 3.75 per cent. and last Friday Portugal and Ireland brought theirs down to 4 per cent. and 5.7 per cent. respectively.
With the Dublin authorities justly fearful of stoking up inflation in an overheated economy, convergence for them will be a fine balancing act, as the noble Lord, Lord Renton, mentioned. One must hope that they make it. One must also hope that Italy, where short-term rates are still above 5 per cent., will not, because of the political crisis, be too long delayed in managing to cut its rates.
The IMF is forecasting average European GDP growth at 2.8 per cent. in 1999. Major international banks have been cutting their forecasts to between 2.3 and 2.5 per cent. That, taken together with cuts in inflation forecasts, seems to me to make it a near certainty that the ECB will set the rate lower than was being forecast only a matter of months ago. It was encouraging to hear Wim Duisenberg recently dismissing as groundless rumours that the bank would endorse a high interest rate policy. A persistent concern has been that the bank would want to prove its anti-inflation credentials by erring on the side of higher rates. I do not think it can afford to do so now and I do not believe it will do so. But how far should it go in the opposite direction? The Deutsche Bank is saying that the ECB may cut rates down to 2.75 per cent. in two goes during the first six months of 1999. That seems a little optimistic to me. Will the dollar continue its slide against European currencies? Will there be a downturn in the Eurozone severe enough to warrant such a cut? We shall just have to wait and see.
The problem of severe economic downturns brings me to my third point, a question that has exercised us a great deal in the course of our inquiry. How will the European system of central banks deal with asymmetric, rather than global shocks? Again and again we were reminded, especially at the EMI and at the Bundesbank, of the limited role of monetary policy and of the national responsibility to provide the flexibility, especially in labour markets, to deal with structural problems and asymmetric shocks. For example, since unemployment problems in the larger European economies were

827
basically structural, they could not, as Dr. Duisenberg and Hans Tietmeyer among others insisted, be solved by monetary measures.
None of us disagreed with them. Nor would I personally disagree in theory with the point emphasised by the governor of the Banque de France, Jean-Claude Trichet. It was this: in the absence of automatic transfers of the kind that a federal budget system can provide in the United States, a Eurozone country respecting the commitment demanded by the stability and growth pact to move, over a few years, to budget balance or near or into surplus has room to manoeuvre when a shock hits. It can, in Jean-Claude Trichet's phrase,
"use its own breathing space".
I can accept that in theory; I am not so sure that I can be comfortable about what may be the practice. We raised with many, if not all, of our witnesses the question of whether the ESCB would not eventually need some kind of counter-cyclical fund to help particular countries or regions cope with short-term strains. Most dismissed that or any significant degree of budget centralisation to allow for that type of fiscal transfer as likely to be politically unacceptable. Only the CBI and the TUC witnesses seemed to feel that there was a serious need to see whether institutional mechanisms could be devised to achieve transfers between countries which are above and below trend growth, which, being reversible, would not constitute a net addition to flows and would therefore be politically more acceptable.
I understand that the president of the Central Bank of Austria has recently said that he and fellow governors of the ECB would have to consider in the next few months the instruments needed to deal with asymmetric shocks. He sees the possibility of dealing with it through the disposal of liquidity and suggests that the ECB could give national central banks the authority to raise or lower liquidity levels.
Whatever might or might not be a workable and politically acceptable instrument or mechanism, it seems to me that the case for fiscal transfers must be more positively examined by the ECB than hitherto. I am not suggesting that we go back to the Macdougall Report of the 1970s, with its call for a significant degree of centralisation of budgetary power as a sine qua non for the proper functioning of a monetary union. I am thinking more of a pooled fund on which countries below the growth trend can draw, repaying as they move back above the trend.
I come finally to the ECB's accountability and transparency. One hears much talk of a democratic deficit in light of the ECB's design as the most independent central bank ever created. I subscribe entirely to the view of Herr Regling of the German Finance Ministry that there is prima facie no such democratic deficit since the ECB's independence was written into a treaty ratified by national governments. I agree also with him and Sir Nigel Wicks that the requirements for the ECB to produce reports and appear before the European Parliament and its relevant
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committees will ensure accountability. I agree also with my right honourable friend the Chancellor of the Exchequer that the strengthening of the European Parliament's role, which was mentioned forcefully by the noble Lord, Lord Tomlinson, and the noble Baroness, Lady Crawley, in their impressive maiden speeches, need in no way diminish interest or scrutiny at the national parliamentary level.
At the risk of hearing cries from some noble Lords of, "He would say that, wouldn't he", perhaps I may close by offering your Lordships two short quotes on accountability from an article which Dr. Otmar Issing, the ECB's chief economist, contributed this summer to the Financial Times. The first quote was:
"The ECB will, from the outset, give absolute priority to the fulfilment of its obligation to be fully accountable to the public".
The second was:
"'Personalisation' of the internal debate can only be detrimental to the decision-making process and public perception. What is important is that the main arguments which have led the ECB to take a certain policy decision are explained to the public convincingly".
I endorse those views.
The European Central Bank has already taken important decisions in preparation for 1st January 1999—many more than I have had time to mention. The minimum reserves is one that comes to mind; wider access to the target settlements system is another. There are other major questions not yet answered which will have to be dealt with. For the European system of central banks, and the ECB at its core, the first years will be very testing and maybe the first year, 1999, the most testing of all. Launching EMU in the troubled waters of a global financial crisis is not what many foresaw, let alone wanted. In that context, the ECB may have come rather too slowly to full acceptance of the kind of impact that this crisis might have on the euro zone. But it seems now to be fully aware. We shall see how well it copes from 1st January onwards.
On the basis of what we learnt in our inquiry, which was a great deal, and what is set out in this report before your Lordships' House, I for one am reasonably confident that it will work well. It has a good constitution, an expert and experienced leader, a strong executive board, a technically excellent staff and some of the world's most competent central bankers on its governing council. I certainly wish it well.
6.17 p.m.
Lord Montague of Oxford: My Lords, my contribution will turn to something the Government might examine at the present time rather than choosing this moment to follow the course of many previous speakers.
As an industrialist, I must say that those who talk as though we have had a glorious era with our economy have very short memories. I am a stop-go creature. We have had a terrible economic time throughout my life; we have had a terrible economic time since I have been an industrialist. There has always been a golden moment. We may yet once more be coming to the end of another of those golden moments. We were told that if only we could behave as the Tigers did in Asia, all

829
would be wonderful. That is not being argued any more. Now we have the capital destruction that faces us. We do not know its size; we know that the casino bankers have lost a fortune. We are about to start monitoring it. We say we will not regulate it. But what is the point of looking at it if you do not do something about it if, when you examine it, you do not like it? Who knows where we are going?
Before I turn to my contribution, I wish to thank the noble Lord, Lord Barnett, and his committee. I think they have done a wonderful job and those who criticised them were being very unfair. If we look at the way they handled their witnesses, they got all the information out of them. That is the art of a good chairman and a good committee.
I also congratulate the three maiden speakers on wonderful speeches. They each contributed important elements to our debate, and I am sure that we are very impressed by what they said.
While I am in a congratulatory mood I would also like to congratulate the previous Prime Minister, John Major, because I believe it was a great achievement to put us in a position which enables us to watch a single currency as it takes place and then to take our decision. I believe that that was very wise. Bearing in mind what I have said already about the uncertainties that exist in the world at all times, and which certainly exist at present, I hope that the referendum will not come too soon so that we get a decent opportunity to take a look. I am not saying whether it should occur during a particular parliament or during a particular period of time. But let us have time to assess what will be in the interests of our people.
As I asked earlier, what might we be usefully doing at the present time? I believe that the Government and all of us might be thinking of a very important area of our economy which is different from that of other economies in Europe and certainly in America; namely, our housing market. As we know, it is controlled by mortgage interest rates, which are shortly to be set by the central hank. It would have a tremendous effect on our economy because of the way our mortgages are structured at the present time. We mostly have variable mortgages. In America more than 80 per cent. of mortgages are at a fixed interest rate and not subject to variation in the bank and interest rates. More than 70 per cent. are on 30-year fixed interest rate mortgages, some 12 per cent. are at 15-year fixed rate. That has proved very beneficial to the American people because as the interest rates decline they are able to refinance these term borrowings at a lower rate. They have to pay for this and that is not improper. But all the time they are able to protect themselves.
We have heard from the noble Lord, Lord Shore—and I agree with him—that in the short term we are likely to experience a period of deflation. I believe that is so. But we do not know for how long. We know that all these things are cyclical. There will be a period of deflation, which will not go on for ever. There will then be another period of inflation. I suggest that we choose this moment to see what we can do to protect our people
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from the effect of all this on what they pay for their mortgages. We need to draw their attention to these matters. We need to train and educate the people.
I have two specific suggestions. First, I believe that it is quite improper that there should be redemption penalties placed on variable rate home loans. Three years ago, in Ireland, these redemptions were banned under their consumer credit Act. I believe that we should look carefully to see whether we might do the same thing. The second point to remember is that when we want to influence people to do something we do not hesitate to use our tax system. Perhaps I may remind noble Lords of two areas in which we do that. We have a different tax rate for leaded and unleaded petrol. We do exactly the same thing as regards capital gains tax. We produce various Tessas; we are about to produce another incentive so that people will save, bearing in mind that if they do so in a certain fashion they will not have to pay capital gains tax.
I turn to the relief that people receive on mortgage interest rates. We could use that as a selective instrument. There is no reason why we should not say that the mortgage interest tax relief should relate solely to fixed interest rate mortgages. Both of these propositions have to be examined thoughtfully by specialists in those areas, which I do not pretend to be. I believe that it is timely and important that while we watch and wait before deciding what it would be wise for us to do, we take this moment to look at that very important area in our own economy, which is rather exceptional as I have explained; namely, the way in which we arrange our home loans and mortgages.
6.25 p.m.
Lord Hussey of North Bradley: My Lords, the question we have been asked to answer is whether the European bank will work. Unlike most of my colleagues, I am neither a banker nor a politician. So I will not weary noble Lords with my views on political or economic issues. I will leave that to others who, like me, have been honoured to serve on this committee under the urbane, effective and sometimes stern chairmanship, of the noble Lord, Lord Barnett.
The creation of a European Central Bank integrates the economies of 11 different states. It is a gigantic experiment affecting the livelihood, incomes and standards of life of millions of people across 11 countries with different languages, different traditions, histories and characters. It is a bold concept based on one bank, one coinage and one interest rate, which may cause much greater problems for some countries than others. I see this issue as an outsider simply wondering whether or not it will work.
I have spent most of my life managing various media companies. I doubt whether many of your Lordships will regard the media world as an outstanding repository of good management practice, but at least it has taught me some principles which govern the introduction of major reforms. First, there needs to be a clear and undisputed agreement on the objective. Secondly, there should be an equally clear agreement on how that objective is to be achieved. Thirdly, it has to be decided

831
who has the ultimate authority to make decisions. Finally, there must be a general acceptance that the objective is right and desirable and that the method employed is likely to achieve it—that is, acceptance by the people affected. Any doubts about the objective, the method and the authority are bound to lead to misunderstandings, arguments and possible failure.
As regards the ECB, it is not absolutely clear that there is an undisputed view as to how the bank should operate. For example, how rigorously should a Bundesbank-type policy be followed or whether a certain flexibility might ease the strain. A decision has been reached about the president, but not without an embarrassing disagreement and a patched up compromise. That is hardly the clear understanding and acceptance for which we might have hoped.
It is fairly clear where the ultimate responsibility lies. It is with the board of the central bank under its president, six people and, alongside them, the ESCB with 11 national governors of 11 national banks. They are the servants of the Community and they are not there to represent the interests of their countries. But there are also the following groups, which are all connected, all of whom have a major interest in the operation of the bank. There is the Council of Ministers, ECOFIN, Euro-X, the Stability Council and the European Parliament. They must not seek to influence members of the decision-making body. I find it rather hard to believe that they will not at times press their countries' views. Can the governors of national banks really sit at the top table and not do so? Over the presidency, Mr. Chirac said:
"I represent my nation and would expect others to do the same"—
hardly the essence of the Community spirit.
The president of the bank will report quarterly to a European Parliament which appears increasingly anxious to listen, to comment, to criticise—and possibly even to influence appointments. I do not think your Lordships would expect the Governor of the Bank of England not to report back to Parliament, and what about all the other people reporting back to all the other parliaments?
They are the elected representatives of the people. The governors of the ECB are not elected. It is not a democratic body. That does not make it wrong, but just different. It seems to me that there is a doubt about the rigour with which the stability pact will be applied on a wide range of people who may comment on and possibly try to interfere with policy. There will be no shortage of cooks to stir this bank's broth.
Now look at the other side of the equation: the punters, if we may so describe the inhabitants of Europe. Everyone we have seen emphasised the same points, and it is a great compliment to our excellent and skilled chairman that most of the important figures in this enterprise have been willing to spare the time to come
832
and meet your Lordships' committee. The Chancellor told us that for the general public to understand the ECB, transparency in its decision making would be the key. Herr Teitmeyer said:
"The first task is of establishing credible independence."
Paul Volcker said:
"The central bank cannot survive unless it commands universal public support".
All agree that it is absolutely critical that from the start the bank enjoys the confidence of the population. We have asked them how they expect to achieve that and I cannot say that we have had a very satisfactory answer. The best we are told is that there will be a massive publicity campaign and many speeches explaining the virtues of the bank and the benefits it will bring with it. The ECB will be long on advisors, but I fear it may fall short on accountability and transparency.
The critical issue is to build up confidence as quickly as possible from the start. The secret of the Bundesbank's success was that the German people believed in it. They had confidence in it and that enabled it to be so successful. All the countries have made tremendous efforts to reach the Maastricht criteria, even if in some cases the umpire was looking in the other direction at the right moment. But can they stand the different pace and pain of what will follow? The Commission is committed to the reform of the structural funds and of CAP. If some are going to get more, others will get less. This will create further difficulties among countries with divergent economies and different fiscal policies.
A European bank dependent on a firm monetary policy has to satisfy millions of people with a "one size fits all" monetary policy—people, incidentally, who are most concerned with unemployment and interest rates. We have asked what will be the position if unemployment continues to rise, and interest rates with them. It is always wise to have plan B. Supposing in one country the strains become considerable and one political party decides to reflate and go for an electoral platform based on a democratic rejection of the unelected ECB, and then wins the election. "What happens then?" we asked. "That is a very difficult question", came the reply.
By normal managerial standards, the ECB is a very complicated set-up, described by one commentator as a gigantic and irreversible gamble; but the political will that has driven the Community has been astonishing in the strength and determination exercised by distinguished bankers and politicians intellectually and emotionally committed to its success. The risks are obvious and I do not need to outline them further; but I agree with the noble Lord, Lord Dahrendorf, that, as far as I am concerned, the jury is still out.
There have to be doubts about whose authority is paramount, about a universally accepted objective, a complex structure and the people's confidence. But it will be disastrous for the Commission if the bank fails, and we all hope earnestly that it will not. In the end great events are moulded not by structural theories and managerial charts, but by the determination and insight

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of the leaders and their ability to command the confidence of those they lead. I agree with the words of Commissioner Silgui:
"I think it will work. I hope it will work. It depends on the people's will and the Ministers' political will"—
to which I would add "and a bit of good luck to get away to a good start".
6.35 p.m.
Lord Peston: My Lords, I wish, like other noble Lords, to congratulate my noble friend and his committee. They have produced a report that will be valuable to students of the subject, to policy makers and, I am absolutely certain, to the economic historians of the future. As an innocent bystander in most of this debate, I intervene with some trepidation. However, I wish to make a few comments on part 4 of the report of the Commission.
I start with paragraph 100, in which essentially the question emerges: how far can a government operate its own monetary policy? The answer to that in elementary economic terms in the short run is that possibly it can set short-term interest rates, even in the presence of international capital mobility. But in the long run its scope is severely limited and there may be no scope at all. In this country monetary independence—and here I echo my noble friend Lord Montague—has meant the ability to have a higher inflation rate than the world average, to have a chronic tendency for sterling to be devalued and a need to pay a risk premium on international borrowing. That is what we get from our much-vaunted monetary independence and our much-loved pound sterling.
The report itself refers to stability, growth and employment. I have to say that I stick to my Keynesian views and I would rather have seen a formulation in stronger terms, referring to maximum growth and full employment. Low inflation is helpful to those ends as long as it is not the sole objective of policy. In my view, the greatest catastrophe—this applies not just to economic matters but to social matters that have been referred to—and the great betrayal occurred in the late 1970s when the advanced industrial economies abandoned full employment and chose inflation as their policy objective. That was the mistake and those who were then surprised at the emergence of inequality, poverty and social disaffection were actually the people who had achieved them. Why were they surprised?
In that connection I have to say that I support independence for the Bank of England and for the Monetary Policy Committee. But again I have to say how much I agree with my noble friend Lord Barnett. He and I said that the objective set down—most economists do not know this—in statute, as a matter of law, is inflation. The noble Lord, Lord Barnett, and I, tried very hard to ask for an even wider remit, but we were rejected. What worries me and what intrigues me is how few people know that the inflation objective is actually a matter of law and if for one minute any member of the Monetary Policy Committee were to say "I am interested in wider matters and I think we should go for that", I am not sure whether to do so would be a criminal offence, but they would certainly be breaking
834
the law. My noble friend Lord Bruce of Donington referred to disagreements among economists. What concerns me is how many economists, including monetary ones, do not have the faintest idea about what is written in statute in this country concerning the behaviour of the Bank of England. What applies to us today appears to apply also to the European Central Bank. In paragraph 105 of the report the Select Committee states:
"we see the need for the ECB to be closely informed about the real economy and sensitive",
and so on. I agree with that. However, I am not convinced that the ECB can take such matters into account given the way that it is set up. I should like to know a little more about that.
Perhaps I may digress slightly and take this opportunity (as a well-known creep) to congratulate my right honourable friend the Chancellor of the Exchequer. Let us assume that the world is heading for a recession, which I define as an increase in output which is less than the economy's underlying growth rate. It is fairly certain that we are heading for recession given the definition of most economists (if I may dare use that expression)—or even heading for a depression, which economists define as a fall in output. In such a situation a sensible policy stance is monetary ease on the one hand and a fiscal policy involving a deficit on the other. Excessive attention to inflation at such a time is foolish. To cut public expenditure and raise taxes in those circumstances is sheer madness. If noble Lords believe that in that regard I am an extremist I quote the words of Professor Buiter. He cannot possibly be regarded as an extremist because he is a member of the Monetary Policy Committee. He writes that in so far as there is recession or depression connected with falling demand,
"By acting as a lender of first resort in such circumstances the government can use its unparalleled access to the international capital markets to substitute public borrowing for private borrowing, using the proceeds to sustain activity either through increases in expenditure or cuts in taxes".
I believe that to be entirely correct, and I am delighted that my right honourable friend the Chancellor of the Exchequer shares that view.
Deficits in a slump are compatible with balance over the cycle which was a point that Keynes always had in mind. He did not know about the so-called golden rule. I am less convinced of the theoretical validity of it than some of my colleagues. But deficits in the slump are also compatible over the cycle with the golden rule, so there is no problem in that respect. I believe that macro-economic policy is compatible with the stability pact as long as the matter is approached flexibly. The report has some immensely interesting points to make in this area. In particular, in paragraph 129 it states:
"Turning to the management of fiscal balances and the operation of the stability pact, it is to be hoped"—
the committee adopts a marvellous form of words—
"that a powerful combination of intellectual conviction and perceived self-interest over the medium term will lead to a workable combination of national fiscal policies across the euro zone".
I very much hope so.

835
I believe that my noble friend Lord Grenfell and the noble Lord, Lord St. John of Bletso, referred to asymmetric shocks. It is fairly obvious that if there are asymmetric shocks an asymmetric response is required. Monetary policy is not an asymmetric response. The response to asymmetric shocks is two-fold. On the one hand, I believe that the market can do some of the job; on the other hand, a set of fiscal interventions of the kind described is required. One hopes that that will happen in Europe.
Following one theme that has been raised which is not central to the report, my right honourable friend on his own can do little or nothing about the foolhardy behaviour of commercial banks worldwide. They have lent money with a degree of profligacy that takes the breath away. They have gone for short-term profit without regard to the risk involved and then have the nerve to expect the IMF or the world's central banks to bail them out because of fears of global financial catastrophe and a return to the depression of the early 1930s.
As our recession strengthens, small businessmen go to the same banks for external credit and accommodation to tide them over until the next upswing. One wonders what the response will be. If recent history is anything to go by they will be turned down for lack of collateral as usually happens. One can hardly criticise small businessmen and women in this country if consequentially they feel bitter and believe that it is much better to go bankrupt for a few million than for a few thousand.
As to exchange rates, the committee raises a matter of enormous importance. The committee says that by definition flexibility will end as between the individual members of EMU because that is what EMU is about. But that does not exist internally in the United States. However, the fundamental question posed by the committee—I do not criticise the Select Committee for not answering it—is what is acceptable or even desirable about exchange rates between the great trading blocs. The committee draws our attention to problems that may arise—I hope that we can return to this matter at some other time—if essentially the dollar, yen and euro float. I can envisage a worldwide catastrophe or at least instability flowing from that flotation on such an enormous scale—much worse than anything that we have ever experienced. That is a subject on which I congratulate the committee on guiding us in future.
I turn to paragraph 131. My noble friend Lord Shore referred to the real dangers of fiscal profligacy. I agree with my noble friend. At present I do not see a danger to the world of fiscal profligacy; nor do I see a major danger of inflation. That does not mean that we should not be prudent as regards fiscal policies or that structural reforms are not highly desirable. However, they are desirable in their own right. Their desirability does not arise because of EMU or anything of that kind. We want market systems to work better; in other words, structural reforms in particular are not a substitute for sound fiscal and monetary policy which is interventionist in the short term.
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The question is whether the European Central Bank will work. The answer given by most noble Lords is that it will. That is also my answer. Dealing with the pure economic theory of a single currency, my view has always been that the arguments for and against are finely balanced. In my judgment—I emphasise "judgment" because I do not believe that either economic theory or econometric modelling techniques are sufficiently advanced to decide the matter—the case for the single currency is stronger than the case against. But I have always respected those who on serious grounds take the opposing view, but that is no longer the question. It is all past history because EMU is going ahead. To echo the words of my noble friend Lord Barnett, in those circumstances it would have been best if this country had joined at the beginning for the reason that we would then have been part of those who made it work. My good friend the noble Lord, Lord Marsh, made an excellent speech but I was dismayed by his view, which is held elsewhere, that we could opt out to wait and see. I do not want to opt out. If we are to do this I want the leaders of our country to be there to make sure that it works, not to take the usual course and moan about it, wait, join later and then complain that we do not like the way that it is working because we were never there to do it and no one suggested that we should be one of the leading figures to run it and so on. I believe that the decisive mistake in one sense has already been made. We are not there now.
But I believe that we must join sooner rather than later. To hibernate and say that we shall wait for a decade before taking a view on the matter would be immensely damaging for the economic and financial future of this country, apart from being completely preposterous in a parliamentary democracy. I believe that even waiting until after the next general election is less than satisfactory. On simple practical self-interest grounds, the sooner we join and show economic leadership in Europe the better.
6.50 p.m.
The Earl of Dartmouth: My Lords, first I take this opportunity to congratulate the Select Committee on the exemplary work which has been carried out on the report on the European Central Bank. It is yet another example of the huge reserves of knowledge and expertise which by virtue of being present in the House are available to the nation. I note that at least three full professors of economics have spoken in the debate. So as a mere MBA, albeit from Harvard, I shall ask for their special tolerance and indulgence, as well as the tolerance and indulgence of the whole House, which has always been forthcoming.
Many excellent speeches have already been made, but I intend to focus on one vitally important aspect of the operation of the new European Central Bank: its total independence. The noble Lord, Lord Dahrendorf, pointed to it earlier. That total independence is made clear in the Select Committee's report. I draw the attention of the House to the evidence of Mr. Martin Wolf, economic commentator to the Financial Times, who describes the European Central Bank as,
"the most independent central bank there has ever been".

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I also draw noble Lords' attention to the section which quotes Article 107 of the Maastricht Treaty—it is important—which states that,
"members shall neither seek nor take instructions from any government of a member state".
One of the key arguments put forward by those who advocate joining the euro is that our economic influence would be thereby enhanced. We heard that argument earlier from the noble Lord, Lord Peston. I note that he is fascinated by my remarks which currently address his speech. We also heard it from the noble Baroness, Lady Williams. The argument goes that if we join the euro our national voice would help determine the monetary policy of the euro. In fact, as the Select Committee has so ably demonstrated—I draw the attention of the noble Lord, Lord Peston, to the precise section of the report—nothing could be further from the truth. The nominated representatives of the governing body of the European Central Bank are expressly forbidden by the Maastricht Treaty to take instructions. The mantra of "influence, influence, influence", chanted by many people who should know better, has no basis in fact.
In reality were Britain ill-advised enough to join the euro there would be an immediate question mark on our membership of the G7. On every past form the probability is that we would succumb to pressure from our continental partners to leave the G7. It is thus very hard to see how joining the euro would do anything other than significantly diminish our influence.
I address the point made with some eloquence by the noble Baroness, Lady Williams of Crosby. We may now be a second level decision maker but on joining the euro, and in all probability being forced to abandon the G7, we would in all likelihood become a third level decision maker.
The absolute independence to which I alluded earlier—it is enshrined by treaty—of the European Central Bank is particularly important because of the principles on which the ECB intends to operate. I wish to draw the attention of noble Lords to an article published by a member of the ECB's executive board in the Financial Times on 22nd September, subsequent to the publication of the report. It was quoted earlier in the debate by the noble Lord, Lord Grenfell, who I see is not in his place. The author, Otma Issing, writes:
"National considerations must not play a role with the ECB, even when conditions in one country differ markedly from the 'Euro area average—.
Thus, in case we needed any further reminding, the intention of the ECB has been made all too clear. The ECB will address the huge problem of achieving the correct interest rate, however correctness is defined, for the separate economies within the eurozone by simply ignoring entirely the very real differences in growth rates, employment levels and prosperity—I could go on—between those eurozone economies. That should be a clear warning for Britain. Our economy is markedly different from eurozone economies, especially in structure, cycle and trading patterns, and the way in which the housing market works, so ably spelt out by the noble Lord, Lord Montague; and it is markedly different from the economies of the first wave countries.
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The proud insensitivity of the ECB to national needs is bad enough; but there is a further and more worrying concern. It is clear from the report and the same Financial Times article that,
"the primary objective (of the ECB) will be price stability in the euro area as a whole".
The noble Lord, Lord Dahrendorf, made the point earlier. This overriding emphasis on price stability is very serious for all the first wave euro countries and, indeed, given the importance of the eurozone, for the rest of us.
I wish to restate what I said in an earlier debate that was even more sparsely attended than this debate. It is in our national interest for the eurozone to work. However, the major economic problem potentially facing the world is not roaring price inflation but deflation and its uglier sister, endemic long-term unemployment. That long-term unemployment is particularly severe in the first wave euro countries. That is why it is bizarre that people who purport to be Keynesians should be in favour of that construction.
The shock waves from the Far East and especially the destruction of banking liquidity in Japan mean that it is at least even money that the world is entering an era with at least one of the characteristics of the 1930s; namely, long-term deflation. As the noble Lord, Lord Shore, pointed out earlier, that view is also held by the Chancellor, President Clinton and the Finance Ministers of the G7. In the context of the new deflationary environment, the European central bankers are uncannily like those army generals who are able only to fight the last war but one. If we allow ourselves to be led by those people, Britain will become not so much a nation of lions led by donkeys as lions led by blinkered mules.
What I have said is, of course, open to the objection that the Bank of England, too, has been given narrow objectives relating only to price stability similar to those laid down for the European Central Bank. In that context, I wish to applaud the amendment proposed on a previous occasion by the noble Lord, Lord Barnett, seconded by the noble Lord, Lord Peston. In effect, the amendment aimed to widen the Bank of England's objectives to encompass the well-being of the entire British economy. However, notwithstanding its narrow remit, the Bank of England has to take into account—and only take into account—the needs of the British economy. The mere fact that the British interest rates are currently at a very different level from interest rates on continental Europe—I agree that they should be lower—demonstrates that we can have our own monetary policy. Indeed, we are running our own monetary policy at present.
Before I conclude, and in the context of what has been said in the debate, I have to say that I find it completely baffling that many Keynesians and trade union leaders are strongly in favour of entering the euro and hence having British interest rates decided by the European Central Bank. Unfortunately, everything we know would seem to confirm that the European Central Bank in Frankfurt will be far less interested in manufacturing and employment in Britain than is the case when interest rate levels are decided in London.

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In conclusion, and rapidly, I would like very sincerely to congratulate Members of the Select Committee on their knowledge, expertise, and, above all, their intellectual honesty. But I also feel that I have to add that the most important problem facing the whole of Europe, not only the first wave eurozone countries, is not the operation of the new central bank or the number of currencies in the eurozone, but the lack of competitiveness, which was touched on by the noble Lord, Lord Dahrendorf, and the number of unemployed. It is that crisis, the continuing crisis of the nearly 20 million without work in the euro countries, before we hit a possible world-wide depression which the operation of the new European Central Bank will do nothing to solve and, on the basis of this report, will very likely make much much worse.
7 p.m.
Viscount Hanworth: My Lords, I have hardly any voice worth speaking of, but I hope to recover it in a sentence or two.
The report of the European Communities Select Committee rightly deserves the praise which it has been given and I do not believe that it deserves any of the criticism which I have heard today. It is very readable, which is unusual for such documents. It is both quizzical and sagacious and it opens our eyes to many of the imponderable and undecided issues affecting European monetary union.
The report provides a refreshing contrast to the emotionally-charged Europsceptism of recent years which has been whipped up by the party opposite and which is still being exploited by it for reasons relating largely to its own internal struggles. From time to time, we hear echoes of this frenzy on our own Benches.
The report bears witness to the fact that European monetary union is a reality which will materialise very soon. It now seems certain that Britain will join the monetary union shortly after the next election, when this Government will surely continue in power.
We have witnessed some remarkable developments since the ERM was destroyed by waves of speculation in the international money markets when Norman Lamont was Chancellor of the Exchequer. At the time, many people imagined that this spelt the end of the enterprise of monetary union. In fact, the experience hastened its advent by emphasising the need for European nations to protect themselves against such monetary storms by consolidating their defences.
It might be appropriate to examine some of the supposed costs and disadvantages of our joining the monetary union and to compare these with the costs of remaining outside. We can do so now on the supposition that the union will materialise in a strong and substantial form. This is unquestionable.
One of the supposed costs of our joining is the loss of monetary sovereignty, which is the ability of our own central bank to set interest rates and discount rates at its own discretion and to control the liquidity of the national money supply.
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I would contend that we no longer possess such freedoms; and I believe that most economists share this opinion. We are too exposed to pressures from outside to be able to pursue an independent agenda.
When we pulled out of ERM, which, by his own admission, had Norman Lamont singing in his bath, we were able to cut interest rates at a stroke, which was a great boon; and this did seem to be a persuasive proof of our independence.
The reality was that this opportunity arose from a unique conjuncture in the world economy when the interest rates in Frankfurt were some six percentage points higher than those in New York. In fact, we did not reassert our independence—we simply realigned our policy from a European affiliation to an Atlantic one.
Today, interest rates in Germany are substantially below those in the US and this situation, which is the normal one, can be expected to persist. Our orientation toward the dollar rather than to the euro is bound to impose a burden of higher interest rates.
We should also recognise that our interest rates are higher because sterling is a weak and dependent currency which is bound to offer a premium against the risk of depreciation or devaluation. This is a deadweight loss which is due to our detachment from Europe and our flotation in the choppy and sometimes stormy seas of the international money markets.
There is a real cost in our joining Europe, and this is the loss of our ability to carry out an emergency devaluation in case of a recession or a radical loss of competitiveness. But the chances of our needing this recourse, even in such times, are liable to be greatly reduced by the financial probity of our Government and by the policies of our own Chancellor.
If the devaluation option is to be regarded as an insurance policy we must have regard to the costs of the premiums. Those already include the highest interest rates in the whole of Europe. Tomorrow they may also include another large cost which we certainly cannot afford to pay. This is the loss of foreign direct investment.
France, which will be a first-round member of the monetary union, already attracts a foreign direct investment second only to our own, and if we stay out of the monetary union, France is liable to overhaul us quickly. We know, for example, that Japanese motor manufacturers have recently decided to locate factories in France rather than in Britain for reasons which relate to monetary union.
If we stay out of the union Britain's financial sector will also be at a severe disadvantage. Our excessive dependence on finance, which arose during the Thatcher years, is to my mind, a regrettable feature of modern Britain.
During those years, our export industry was devastated by macro-economic mismanagements. Our position in the league table of economic prosperity sank rapidly and we are now the fifth poorest nation in Europe. Soon, when Ireland overtakes us, we shall be the fourth poorest. Then we shall count ourselves superior in per capita income only to Spain, Greece and Portugal.

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However, our dependence on finance is a reality and, therefore, it represents a genuine national interest which can be pursued effectively only within the context of European banking. A country with such a depleted real economy as our own cannot sustain so large a financial sector.
The hypertrophy of the financial sector has been at the expense of other organs of the economy. In future, it must draw its sustenance from a larger and a healthier body or else it will be the death of us.
European monetary union is going to occur, and it promises to create a strong and robust system. However, the formulae governing the European Central Bank are not ideal. If our negotiators in 1991 had not been so intent on securing our escape clauses and had given more constructive attention to the emerging arrangements we should not be confronted with the present dogmatic prospectus for the Eurobank which is modelled so closely on the German experience.
We should remember that the Bundesbank dates only from 1957; and given that it has been sailing mainly in calm seas, one has reason to doubt whether it has the experience and the wisdom which are so often attributed to it. In fact, it could be argued that the Bundesbank failed its first major test, which was the challenge posed by German reunification.
The European monetary institutions are bound to evolve, and it is vital that Britain's unrivalled experience in financial and monetary matters is brought to bear in this process of evolution.
It seems as though we are heading for a period of uncertainty and even turmoil in the international economy. A consolidated Euroland will be a major factor in favour of stability. It will be so substantial in productive and financial terms that it will not be swamped in the storms blowing from the Pacific, the Atlantic or the Baltic. The capital markets of the currency union will be wide, deep and stable. It is on such calm seas that a small vessel such as our own economy should seek to ply its trade.
Many people fear that monetary union is only a first step toward European integration and that further measures of fiscal integration will follow. What have we to fear from this? Certainly we should have no fear that Britain will be burdened with subventions to other European economies. In consequence of the breathtaking success of Conservative economic policy, we are, as I have already asserted, near the bottom of the league. It is sad but true that Britain would be a beneficiary from any policy of regional redistribution which might arise with the European Union.
7.9 p.m.
Lord Taverne: My Lords, I share the admiration that has been expressed by many speakers for the committee and all its works. In fact, if one looks back at the history of Britain's relationships with the European Community, it might be said that the committee has contributed more than any other activity of our Parliament to the understanding of European issues. I am glad to see the four members of the European Parliament nodding in agreement. The report before us
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is another example of the good work of the committee, which in this field makes it the star of our Parliament. I congratulate the chairman of the committee, the noble Lord, Lord Barnett.
I wish to express my admiration for the maiden speeches that have been made. One often says, as a matter of courtesy, that maiden speeches have been very good, but on this occasion I think that they have been exceptionally good. One can expect from the noble Lord, Lord Burns, a great illumination of the intricate economic problems that we face. I shall refer later to one aspect of the problem of the central bank which he mentioned. It is also enormously to be welcomed that we shall not have a purely Anglo-centric view of the subject but that the experience, eloquence and insights of the two members of the European Parliament who have spoken in the debate will be available to us.
The speech of the noble Lord, Lord Tomlinson, rather contradicted the speech of my noble friend Lord Dahrendorf. When I differ from my noble friend Lord Dahrendorf, which is not often, I do so with the greatest of diffidence, but on this occasion I must say that I have rather more sympathy with the remarks made by the noble Lord, Lord Tomlinson. I do not see that the concentration on stability in the remit of the European Central Bank is necessarily a weakness, or a sign of navel gazing, or that it shows a lack of concern about the creation of jobs. An obsession with stability might well be damaging, but stability does not mean deflation. As the noble Lord, Lord Tomlinson, said, stability can be the basis for better employment policies and other policies which are very much matters for governments and not just matters for the central bank.
I turn to the importance of the report. At the moment the Government's attitude is still one of "Wait and see". Some friendly noises are being made, particularly by the Chancellor of the Exchequer, who clearly believes that membership is desirable in principle. But no decision has yet been taken. We are told, "It depends on economic circumstances". That makes life difficult for businesses because businesses will have to take a decision and a view at least two to three years before entry into the euro by this country. In any event, businesses will be taking a view as to whether the euro will work.
The committee's report is a valuable contribution to the debate because it gives some guidance to business. It is an authoritative report because it suggests that the ECB will work. I believe that businesses would be helped—I very much agree with the remarks of the noble Lord, Lord Peston—if the Government were more committed. Instead of saying, "Let us wait and see. We are quite friendly to the idea", it would be much more helpful if they said, "Yes, we will commit ourselves unless there are special circumstances at the time which prevent us from doing so". It is becoming daily more evident that if the euro and the central bank work, as the committee predict that they will, we cannot afford to stay out.
I turn to some of the doubts. Will the Euroland system break down? Fortunately, we have not heard in the House any suggestion that speculators may somehow or

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other break the euro before it finally becomes legal tender in the year 2002. That is quite impossible because in effect one has one currency although it takes 11 different forms. However, there is still the fear, which was expressed by the noble Lord, Lord Hussey of North Bradley, and, to some extent, by the noble Lord, Lord Ashburton, that some countries might be disposed to jump, that the policies of the European Central Bank will be inappropriate for the special circumstances of the country, that unemployment could follow and then a party could commit itself to leaving the euro and rejecting the central bank and, as the noble Lord, Lord Hussey, suggested, might even win a majority. That cannot be ruled out but the likelihood of it happening must be very small.
The cost of leaving Euroland would be enormous. The complexity would be enormous. A country would not be going back to its former currency because that would have been wiped out and would no longer exist. It would have to adopt a completely new currency. It might be able to do that with regard to domestic debts and mortgages, but how would that country's bonds held overseas be determined? What proportion of the reserves could be clawed back? I believe that such a possibility can be discounted.
I come back to the question faced by the committee. Will EMU work and will it work well? It is not easy to predict. Many obstacles in the face of it working well have been adverted to during the debate. I wish to highlight three problems. The first concerns managing the money supply, which was referred to by the noble Lord, Lord Burns. Not only is it more difficult to manage the money supply for a group of countries than for one country—that is difficult enough—but it will be a problem which the central bank has to face in particularly unstable circumstances. There are likely to be shifting patterns in the way people hold money. Not only will Eurostat data, to which the noble Lord, Lord St. John of Bletso, referred, be uncertain, but the economic indicators as a whole may give a misleading message. In some ways it will be rather like the early 1980s, after financial liberalisation in this country, when a good many monetary policy errors were made because the indicators were uncertain.
There will be uncertainty with regard to how monetary policy will affect prices and output across Euroland. There will be different impacts in different places because of the different financial systems and the different tax structures. That is one good reason why there will be strong pressure for tax harmonisation, certainly in the corporate tax field. A difficult balance may have to be struck. Another good reason for saying we should be there is that the members of Euroland may well harmonise their taxes in ways that work to the disadvantage of the City and this country.
The second problem is co-ordinating monetary policy and fiscal policy. There has to be co-ordination at two levels, which makes it very difficult. First, there has to be success in the major tasks of co-ordinating government policies inside ECOFIN. There is also the
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difficult task of co-ordinating the policy of ECOFIN and the European Central Bank. It is a complex problem that has to be solved.
The third difficulty is the complications arising from the likely rapid increase of the holdings of the euro internationally. As European securities markets become deeper and more liquid, transaction costs will fall and euro assets will become more attractive. At the same time, more and more trade will be financed in euros and there is likely to be a substantial shift over the long term, and indeed probably in the short term, from international holdings of dollars into international holdings of euros. The euro will rapidly become an enormously important currency. Yet the temptation will be to regard the exchange rate as something which can be treated with benign neglect, which is already the attitude of the US administration. If the euro bloc and the dollar bloc treat the exchange rate with benign neglect, one may have a period of great uncertainty and volatility in international markets. That could present a considerable risk. It will call for the closest co-ordination of policy between Europe and the United States.
Formidable problems have to be faced. Not all of them have been dealt with in the report but most of them have and they have been dealt with very effectively. Not surprisingly, I agree with the report's conclusion that it is likely that the central bank will be successful and that EMU will work. It is not as though all things are beautifully managed in other monetary unions, simpler monetary unions. One of the most interesting pieces of evidence was that of Paul Volcker, who pointed out that, as regards the United States, the idea that there is a happy and easy co-ordination of fiscal and monetary policy is a complete illusion. Therefore, the problems are not unique and will not be unique to Euroland. Indeed, if one looks at the management of the monetary union of the United Kingdom, we have one interest rate policy which is totally inappropriate for part of the United Kingdom but must be adopted because it is necessary for another part of the United Kingdom. Those are not new problems. They are more difficult but they are not new.
The other fact which comes strongly from the evidence given to the committee is that there is a greater degree of convergence than one could possibly have expected five years ago. That makes the problems a great deal easier to solve. I am impressed also by the progress being made on structural change. For example, many people refer to the rigidity of wages on the Continent. They have not yet grasped the fact that, whereas only a year or more ago the average wage in east Germany was 90 per cent. of the average wage in west Germany, it is now down to 70 per cent. That is a degree of wage flexibility which would be surprising if it happened in the United Kingdom. There is a great deal more flexibility on the Continent than we sometimes imagine and there is a great deal less flexibility, as Mr. John Monks pointed out in his evidence, in the United Kingdom than we sometimes boast of, particularly as regards the degree of training and the facility of moving from one job to another.

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There is a worry that the one area in which relatively little progress is being made is state pensions. There is still time for reform to take place. Some reform is happening in Germany and a great deal has happened in Italy. There is not yet much sign of reform in France. However, that will be one of the most important parts of structural change which will have to take place.
In the end, I agree entirely with what has been said by many speakers: it is all a question of political will. It is extremely unlikely that the member states of Euroland will say. "Now we are in, we can let rip. We no longer have to follow responsible policies. We do not care if the system collapses. We shall go our own way". Of course they will not do that. They will continue to pursue their determination to make Euroland a success.
One should remember also that the United Kingdom has consistently underestimated the degree of political will which exists among the members of Euroland and, indeed, the degree of pragmatism with which they have pursued their aims. As the noble Lord, Lord Tomlinson, pointed out, we should remember that the sceptics have a very bad track record. They have never understood, because they have not wanted to understand, what is happening on the Continent of Europe. They said that EMU would never happen and they now say that EMU will fail. They were wrong about the first; it is extremely likely that they will be equally wrong about the second.
7.22 p.m.
Lord Mackay of Ardbrecknish: My Lords, I am extremely concerned about this debate. I shall tell your Lordships why. I am the last speaker tomorrow night. I have done a calculation which shows that, if 22 speakers take until half past seven, goodness alone knows how long 50 speakers will take. I shall try to set a good example by being brief.
First, I congratulate the three maiden speakers. They have all brought an interesting and refreshing view to your Lordships' Chamber. The noble Lord, Lord Burns, performed the task of an ex-civil servant and the non-controversial nature of a maiden speech in a quite exemplary fashion. I noticed that he said some nice things about Ken and some nice things about Gordon. That was very evenly balanced.
I am not entirely sure whether the noble Lord, Lord Tomlinson, and the noble Baroness, Lady Crawley, quite managed the same high-wire act of balance and non-controversy. They seemed both to wish to mention some seaside town in the south of England for some obscure reason which I could not quite work out. We enjoyed their contributions and welcome them back home from the European Parliament, a point with which I shall deal later in my contribution.
It took quite some time, in fact until we heard from the noble Lord, Lord Montague of Oxford, before it was pointed out that we can have this debate and contemplate whether or not we should join EMU and, therefore, the European Central Bank thanks to John Major who, in the teeth of opposition from the then Labour Party, negotiated our opt-out. The Labour Party is now happy to use that opt-out, and I pay tribute to it for doing so. That is very sensible. John Major
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negotiated the opt-out because he thought that was in the best interests of the United Kingdom. The noble Lord, Lord Taverne, does not approve of the opt-out. I am used to following the noble Lord. I should explain to the House that my problem in these debates is that, when I listen to the profound Euro-sceptics, they make the hairs on my back crawl and I become quite keen on Europe, and, when I listen to the Euro-fanatics, I go off the idea and would rather listen to some of the more balanced speeches that we have had—and we certainly have had them.
I start by looking at the whole question of monetary policy, what the central bank will do and what its objectives will be with regard to some other aspects of economic policy—employment, fiscal policy and so on.
I am sorry to say to the noble Baroness, Lady Crawley, that I do not believe she will like this quotation because she does not quite realise exactly what the position is. It is a quotation from the report that was drawn to our attention by the noble Lord, Lord Dahrendorf, whose views I usually find myself in fairly close agreement with on this subject; namely, in favour of the European Union but very nervous indeed about what the single currency may do to it. I draw your Lordships' attention to paragraph 58 of the report, which states:
"Dr. Duisenberg, too, was clear that dealing with problems of high or rising unemployment or of lagging economic growth 'is not and cannot be a primary concern of the monetary authorities—.
That point was drawn to our attention also by the noble Lord, Lord Peston. That is the simple fact of the matter.
The previous paragraph states that:
"Dr. Gaddum amplified Dr. Tietmeyer's views by making explicit their position that in a monetary union it remained a national responsibility to provide flexibility to deal with structural problems and asymmetric shocks. This would be done partly by means of national fiscal policy but more especially by the flexibilities of the labour and product markets".
Those two paragraphs make it perfectly clear that, just as the Bank of England, by law, is bound to do only one thing and given only one golf club with which to do it, so the European Central Bank is under the same rigidities, if I may call them that.
I cast my eye down the page to paragraph 60, where the report quotes our Chancellor, Mr. Gordon Brown, who said:
"What I mean is preparing the economy for the future challenges, giving people the skills that are necessary to enable them to get jobs wherever these jobs are, allowing people to make the transition from jobs in older industries to jobs in new industries".
The noble Viscount, Lord Hanworth, may listen to that. I wonder whether the Chancellor would like to tell that to the 150 employees of Light-on; a high-tech new industry in Lanarkshire, who have now lost their jobs; or the 200 in East Kilbride who work for Motorola Ltd.—not exactly an old industry; or the 500 who work for Compaq in Scotland who are also to lose their jobs—not exactly an old industry; or the 600 at National Semi-Conductors at Greenock. I give one example south of the Border and I do not know why I should choose this example but 600 people are to lose their jobs at Fujitsu—not exactly an old industry—in Sedgefield—not unknown to the Prime Minister. There are

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1,000 people to lose their jobs at Viasystems in the Borders. All those people are losing their jobs. They are hardly in old industries. The Chancellor may have to revisit the confidence that he certainly had when he spoke to the committee some months ago.
Therefore, I worry that the European Central Bank will be looking at only one factor and will not be allowed to concern itself with employment aspects and the results of that policy. Therefore, individual countries must find other mechanisms to deal with those issues. One will be in fiscal policy. The noble Lord, Lord Barnett, pointed to the danger of fiscal irresponsibility in member states. The noble Lord, Lord Taverne, makes it clear that he wants tax harmonisation. I noticed that in its evidence, the CBI said that it would not support tax harmonisation. It seems to me that national governments must be left with some tool or other and I should have thought that taxes must be one of the tools with which they should be left if they are to respond to whatever is happening inside their own economies when they can no longer use interest rates.
The other interesting point—this was mentioned by the noble Lord, Lord Grenfell—relates to interstate transfers of cash, as happens in the United States. The simple fact of the matter is that to get an interstate transfer in European terms, one would have to see the European budget increasing or savings somewhere in the current European budget in order to make money available. I certainly have my doubts about the latter, especially when I heard this morning that another £300 million has been dished out by the European Community to help French winegrowers meet competition from abroad. I cannot believe that some of your Lordships would approve of that in any way, shape or form, but I am afraid that it is typical of the way that the system works. It seems to me that that hardly helps with the problems of labour rigidities, regulations and free markets, but there you are. As I am a cynic about reforming the common agricultural policy, I think that it will still pull in a lot of money.
As for increases in the EU budget, I do not think that that will happen either. I advise the noble Viscount, Lord Hanworth, that wherever we may be in the league, we are the biggest contributors to the European budget after the Germans. If it had not been for the rebate negotiated at Fontainebleau by my noble friend Lady Thatcher, we should be even larger contributors to the European budget. Given what we put in, I do not think that we receive much back from Europe.
The noble Lord, Lord Desai, asked Commissioner de Silguy about interstate transfers. I am sorry that the noble Lord is not in his place and participating in this debate. I always find his interventions interesting and enjoyable. Today I have not heard the noble Lord—and that is very unfair. I am sure that the noble Lord must be doing something very important because he is not
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usually backward in giving your Lordships his views on such matters. The noble Lord asked this very question about interstate transfers and increases in the EU budget. Commissioner de Silguy said,
"No, to put it bluntly",
so there will not be interstate transfers.
As the noble Lord, Lord Marsh, said, there will not be the mobility of labour in Europe that there is in the United States, where people think nothing of moving from New England to California. There is some movement in Europe but nothing of the degree mentioned.
The whole problem of the rigidities that will be placed on the 11 members of the European Central Bank as a result of single interest rates is part and parcel of what we shall have to watch happening over the next few months and perhaps for the next two or three years before we can decide whether it will succeed.
Ireland, Spain, Finland and Portugal appear to have pulled out of the recession earlier than France and Germany. Short-term interest rates in those countries, sometimes referred to as the "peripheral countries", are much higher than in the centre. The noble Lord, Lord Grenfell, mentioned that, although he indicated that interest rates were dropping at the periphery. Interest rates are dropping, but what will happen in Ireland? My noble friend Lord Renton of Mount Harry has not been able to wait until the end of the debate, for which he apologised to me and, I think, to the noble Lord, Lord McIntosh. My noble friend got his timing a bit out as to when the debate might end. He was much more optimistic than I am. He has not been a Member of your Lordships' House long enough for that optimism to have gone long since.
Both the noble Lord, Lord Grenfell, and my noble friend Lord Renton of Mount Harry mentioned Ireland, which has high growth, inflationary dangers and high interest rates. Ireland's interest rates will have to fall. How will it cope with that? It will be interesting and instructive to watch how that comes about and the result for the Irish economy.
I shall go over my self-imposed time limit, but I want to turn to accountability because that is important. There is a difference between accountability and political control. I suspect that the French would like political control. That is why there was the argument over who should be the president of the bank. No one else seems to want that. I think that it would be the worst possible outcome. How can there be political control when there are 11 member states, 11 governments? It is impossible. Accountability is, however, very important.
Dare I say to the noble Lord, Lord Tomlinson, and to the noble Baroness, Lady Crawley, that I do not think that giving evidence to the European Parliament will create great confidence in the central bank among the European population? We may regret that, but it is a simple fact. I do not know about other countries—I think this is true there also—but in this country membership of the European Parliament is very much a second best. If you cannot get elected to the House of Commons, you stand for the European Parliament. If you lose your seat in the House of Commons—this is true of members of all parties—you try to be elected to the European Parliament. I decided that becoming a Member of your Lordships' House was by far

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the best option when I lost my seat. Although the pay and rations are not nearly as good, the company is much more congenial!
I do not think that giving evidence to the European Parliament will bring about a great rise in confidence in the European Cental Bank among the European population. It will be a question of the way in which the central bank projects its decisions to the press and the public and of the clear publication of its decisions. The noble Lord, Lord Burns, mentioned that. He mentioned in particular the "Ken and Eddie Show".
I turn now to paragraph 109, with which I disagree. The committee stated:
"On one particular manifestation of transparency we see a case for less than the maximum possible openness. We arc persuaded, largely by the arguments advanced by Dr. Tietmeyer, that meetings of the Governing Council of the ECB should be followed promptly by publication of decisions taken and of the reasons for those decisions, but that publication should not go so far as to disclose the course of the argument, with its ebb and flow as minds are made up and changed".
There are two problems with that. First, given the people involved—the central bankers of other countries—they will not be able to resist giving some flavour of what they thought at the private meetings—that is, if the meetings are kept private. In my view, it is far better to have complete openness. I am surprised that members of a party which says that it wants open government are prepared to countenance the publication of only partial minutes. That would be the worst of all possible worlds. It would almost be better not to publish anything rather to publish partial minutes. It is important that there are clear and meaningful minutes, with the maximum amount of openness, even if that shows disagreements among members. If the minutes do not show that, I fear that the hints in the corridors of power in the member states will certainly show it.
Several noble Lords have drawn attention to the unsatisfactory way in which the Council of Ministers came to a view about the appointment of Dr. Duisenberg and how oddly that fits with the evidence that he gave. The noble Lord, Lord Marsh, read out exactly what Dr. Duisenberg said to the committee, which does not quite square with giving up after four years.
The other point that I should like to mention briefly—Mr. Volcker mentioned it in his evidence—is the importance of the regional aspect. Your Lordships will remember that I tried to persuade the Government that the Bank of England's Monetary Policy Committee should contain someone who has ever lived or worked outside the magic triangle of Oxford, Cambridge and London. I even had the temerity to suggest that a Scot might serve on it, nominated by the prime minister, premier—or whatever I have to call him—of the new Scottish parliament. I shall call him the "prime minister", although I gather that the Prime Minister of the United Kingdom does not approve of that, but perhaps that is a good reason for doing it. Exactly the same arguments apply to the European Central Bank. It is vital that the people on the periphery feel confident that the members of the European Central Bank understand what is happening on the periphery.
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My next point relates to exchange rates. The noble Lord, Lord Taverne, mentioned that he does not like the idea of benign neglect. I agree. This is particularly important for the United Kingdom. Many countries in Europe will not be too worried about what happens in the outside world because so much of their trade is inside Europe. We are not in that position. We are just as interested in trade with the outside world as in trade with Europe. We shall have to be careful about that.
The last question to which I want to turn is: will it work? The noble Lord, Lord Ashburton, quoted paragraph 72 on the stability pact. To the questions:
"How will the stability pact work? Will it be accepted? Will it put undue pressures on the conditions in individual countries?",
Professor Goodhart' s answer was less than reassuring, as the noble Lord, Lord Barnett—or rather, the writer of the report—rightly pointed out. He said, "We do not know". The stability pact is relevant to the question of, "Will it work?". Commissioner de Silguy gave exactly the same answer. He said:
"I hope it will work. I am sure it will. All the ingredients are there. It depends on people's will. The Ministers' political will".
I think that there is a huge amount of political will for this on the Continent. Several noble Lords have said that we in this country perhaps underestimate the amount of political will. I do not. I think that there is a huge amount of political will to make the euro and the European Central Bank work. However, especially in a turbulent economic world, a huge amount of political will does not necessarily mean that it will work. From the point of view of the United Kingdom, however, whether we are in or out of the single currency, those other European countries are important nations. They are our partners in the European Union. Therefore, it is important for their economies and for ours, whether we are in or out, that the experiment on which they are all embarking works. But I think that there are some doubts.
7.40 p.m.
Lord McIntosh of Haringey: My Lords, it is not always the case but on this occasion the courtesies are very easy. It is easy for me because I believe that this is an important and fascinating report. The committee has done some sterling work and the amount of authoritative evidence which it has presented is remarkable, almost unprecedented. The debate which it has engendered in your Lordships' House today—which is not always the case—has been consistently well informed, consistently interesting and sometimes even to the point of the subject matter of the committee.
In addition to that—and again it is not always the case—it has provided an opportunity for three quite remarkable maiden speeches. Without distinguishing between them, they were all extremely well informed, fluent and confident. Without too much breaching of the rule of being uncontroversial, all added successfully to the quality of the debate. In all those senses, this was a successful report and a successful debate. I congratulate the noble Lord, Lord Barnett, and his colleagues.
It is even more remarkable when one considers the timetable for the report and the debate. I assume the committee must have been appointed before Christmas in

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order to begin taking evidence at the beginning of January of this year. At the time when the committee was appointed, a great deal of conventional wisdom was that convergence would not be achieved. If it were, by some fluke, achieved, it would be in a way which would be unsustainable and it would explode very rapidly. Therefore, the timetable for achieving the start of the EMU process and the establishment of the ECB in May of this year would not actually come about. That is reflected in some of the evidence and sometimes in some of the questioning. The noble Lord, Lord Ashburton, was not alone in expressing his amazement at the speed.
The committee was sitting while changes were taking place. It was shooting at a moving target, so to speak. It is remarkable that the report is still readable with the degree of credibility that it has. I did not expect my noble friend Lord Shore of Stepney to find it credible.
There is some difficulty about the timing of the debate. It is true that in a sense it is apposite in that there are 80 days to go before the euro is launched. It is also, as my noble friend Lord Shore of Stepney rightly pointed out, being debated at a time of considerable turmoil in global markets and the global economy. We must take that into account in the view that we take.
It is also slightly out of kilter. As we have been reminded, it should have been on the 75th birthday of my noble friend Lord Barnett. We miss that by a day. We congratulate him four-and-a-quarter hours ahead, if we are allowed to do that.
Having said that, should we not consider whether in a real sense the task which the committee set itself—to ask the question "Will it work?"—is trivial? I do not mean that in the literal sense. Literally, as my noble friend Lord Barnett reminded the House, I told the House on 28th July that it would work. If there were any discipline in the House, no further debate would be called for. The committee does not quite say that. It says in its final phrase,
"we do not expect it to be allowed to fail".
That is a feeble way of saying what I said much more forthrightly. We could have expected more from the committee.
The question "Will it work?" is in a sense trivial, partly because everybody seems to agree that it will work. The real questions—which I cannot debate this evening because I am responding to the debate about the committee's report—are what is the European Central Bank for? Do we want what it is for? If we do want what it is for, how can we help it to achieve that? If we can help it to achieve it, and it does achieve it, how will we benefit by that? Those are the real questions. I can only hint at some of my own views on those issues while confining myself properly, as I have to, to the subject matter of the committee's report.
Of course a single European currency is a huge venture. Anybody who thinks that it has ever been easy must have forgotten that when the United States of America was founded not all of the United States joined in the single currency, the common currency, which was set up at that time. The state of Vermont held out for eight years and had its own currency. I gather that there
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were severe economic problems in Vermont which brought it to heel rather rapidly. I do not know whether there are lessons to be learned from that. I leave it as a question.
It is what the committee's report calls "unchartered" territory. I think it means "uncharted" territory. It will be hugely difficult but, as the noble Lord, Lord Burns, reminded us, all monetary policy issues are difficult and we cannot expect this to be any easier. The more important issue is that the test of a successful single currency is whether it delivers growth and high employment. I cannot say to my noble friend "full employment" because he has not defined exactly what he means by "full employment"—and I am not challenging him to do so.
The two wings of economic policy which lead to this objective of growth and high employment are, as has been said, stability—including, but not confined to, price stability—and the structural reform of Europe's labour, product and capital markets.
The European Central Bank will play a vital role in ensuring the success of EMU. In working to achieve its primary objective of price stability, it will be instrumental in maintaining Europe's platform of economic stability. Low inflation is an essential building block for sustainable long-term growth and employment. We share this objective in the United Kingdom.
To work most effectively, the ECB must be understood by financial markets and the European public. The committee emphasises the need for the ECB to foster transparency in its operations. That was confirmed by the noble Lord, Lord Burns. Somewhat to my surprise, my noble friend Lord Grenfell thought that the degree of transparency which already exists—and I do not know whether he meant the Bundesbank—was sufficient for the purpose. Transparency is a key element in ensuring that the ECB gains the trust of the public. I am comforted in that view by the support of the noble Lord, Lord St John of Bletso, and my noble friend Lord Bruce of Donington, who referred to the need for support from among the general public as well as the financial markets. Ultimately, it will help provide the credibility needed to develop a more effective monetary policy.
The committee also emphasised the importance of accountability. As my noble friend Lady Crawley reminded us in her excellent maiden speech, the ECB and European Parliament must co-operate to ensure that there is proper scrutiny of monetary policy decision-making by a democratically elected authority, while at the same time respecting the necessary independence of the central bank. The framework set out in the treaty, provided it is used effectively, is a sound basis on which to establish this accountability. The ECB must quite properly have independent responsibility for monetary policy in the euro area and operate free from political interference. Indeed, as a number of noble Lords have said, the European Central Bank will be one of the most independent central banks in the world. As the noble Lord, Lord Taverne, said, you could have a central bank which is subordinate to a

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single government but it is difficult to imagine a central bank which is subordinate to the political will of 11 or, we must hope, 15 or more governments. But independence need not mean isolation. The ECB must not be allowed to become remote from those who will be directly affected by its decisions.
Full use must be made of the treaty provisions for ensuring there is a continuous and constructive dialogue between the ECB and ECOFIN. Again, a number of noble Lords—particularly from the Liberal Democrat Benches—referred to this political dimension. The dialogue I have mentioned will be essential to the smooth functioning of monetary union. As agreed at the Cardiff European Council, European leaders are due to meet at the end of this month to examine a range of ways in which European Union institutions and policies can be brought closer to Europe's citizens.
I have said that stability and economic reform are key to the success of the single currency. As I made clear, and as my noble friend Lady Crawley recognised in her, so to speak, throw-away remarks at the beginning of her speech, low and stable inflation is but one element of this. I am not sure that I follow the arguments of my noble friend Lord Barnett—I do not find them outlined so strongly in the report—about fiscal profligacy. Like other noble Lords, I do not see that, as we have come all this way towards conversion and seem to have done it successfully, fiscal profligacy is likely to be on the agenda. However, it is true that continued fiscal discipline, building on the successes of recent years, is essential if the benefits of monetary union are to be realised. The committee recognises in its report the impressive progress made by member states in recent years in reducing deficits in line with the requirements of the treaty.
Indeed, the level of commitment among all member states to maintain fiscal discipline and improve their public finances should not be underestimated. It was demonstrated again recently in the declaration agreed by the Finance Ministers of ECOFIN on 1st May, explaining how the stability and growth pact will be implemented in the important early years of EMU. I am pleased that the committee recognises and supports this level of commitment in its report.
The committee raised the issue of flexibility of national fiscal policies within the stability and growth pact. Fiscal policy will remain the responsibility of member states and their governments in EMU. The stability and growth pact constrains deficit levels, but provided member states pursue sound fiscal policies over the medium term, there should be room for fiscal policy to operate over the cycle. I am not sure that I wish to enter into economic arguments with the economists in the House but it seems to me self-evident that if you are saying that your objective is to have a balance over the cycle, that implies both the possibility of deficit financing and of surplus financing at the appropriate time. I was interested to hear the praise which my noble friend Lord Peston heaped on the Chancellor for his recent statements about the Government's reactions to the changes in forecast GDP over the next year. Those member states with high debt ratios will need to continue their consolidation efforts to ensure they have
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the necessary flexibility. If it is managed prudently, this national fiscal flexibility suggests that there should be no need for a centralised system of fiscal transfers in EMU.
Finally, the committee quite rightly emphasises the important role attaching to structural reform of labour, product and capital markets to make EMU a success. Fully to achieve its potential Europe must now harness the structural reforms needed to ensure its economies become more adaptable and better able to cope with the changing economic circumstances that EMU will bring. Promoting discussion of reform priorities lay at the heart of this Government's agenda throughout the UK presidency of the European Union.
Obviously there are no quick fixes, but progress is being made. The declaration agreed by Finance Ministers in May underlined member states' commitment to economic reform and job creation. At the Cardiff European Council member states reached agreement on four more essential elements: developing the broad economic guidelines to put more emphasis on structural reforms; taking concrete action on employment through implementation of employment action plans; modernising the single market; and promoting entrepreneurship and competitiveness. Although the debate has ranged widely, it is important that we should emphasise that, both as regards the way in which we approach the important global issues which are now to the forefront and the macro-economic issues to which a number of noble Lords have referred, it is for governments, not for the European Central Bank, to take the lead in these matters. That will continue to be the case.
Significant challenges lie ahead to make EMU work and to deliver real growth and employment prospects across the European Union. The European Central Bank as one of the key institutions of the euro area will play a vital role delivering economic stability as a foundation for sustainable long-term growth. But the success of the ECB will depend on how it communicates its decisions. Transparency, accountability and dialogue are the foundations for the credibility on which the effectiveness of monetary policy depends. Of course the member states of the Community must also play their part in supporting and reinforcing the work of the ECB. All member states must respect the commitments they have made to continued fiscal discipline and to the structural reforms needed.
This is the most important, most significant development in the European Union debate. Although Britain is not joining the first wave, it is vital for all of us that EMU is a success. We worked with our EU partners to ensure this was a priority during our recent presidency of the EU and it will continue to be a priority for the Government in the future.
7.57 p.m.
Lord Barnett: My Lords, I shall not speak for long as I know that my noble friend Lady Hilton would not forgive me if I did. First, I must thank our three excellent maiden speakers in the debate today. The noble Lord, Lord Burns, referred to himself as a civil

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servant. That was a somewhat over-modest way to describe a former permanent secretary to the Treasury. I do not think that when I was in the Treasury the permanent secretary would have referred to himself as just a civil servant. The noble Lord tried to be non-controversial and he was. I am sorry about that as I should have liked him to be controversial, even though that is not normally done in a maiden speech. I thank the noble Lord for saying that the report is excellent.
My noble friends Lord Tomlinson and Lady Crawley are both from the European Parliament. My noble friend Lord Tomlinson is an old friend from earlier days in the House of Commons. I well remember our debates in that Chamber. Both my noble friends have given us a good idea of what we can look forward to hearing from them in the future. I congratulate all three maiden speakers on their excellent contributions. Whatever views we may hold, we all look forward to hearing them speak on many occasions in the future.
I thank all other noble Lords who have spoken in the debate for the excellent quality of their speeches, or rather I thank most of them. I am sorry that the noble Lord, Lord Marsh, is not present because I wanted to make one or two comments about his speech. It was kind of him to refer to me as a strong former Chief Secretary to the Treasury, but I could not agree with virtually every other word he said. Therefore, I can hardly say that his speech was of an excellent quality. I have often told the noble Lord, Lord Marsh—as I used to tell the late Lord Wyatt—that he should be sitting on the other side of the Chamber but they cannot find a Bench that is right-wing enough for him! Perhaps the noble Lord, Lord Mackay of Ardbrecknish, will find him one.
If I did not agree with much of what the noble Lord, Lord Marsh, said, I am bound to say that also applies as regards the speeches of my noble friends Lord Shore of Stepney and Lord Bruce of Donington. They will not be too surprised at that. I disagree with virtually every word and I notice how the emotion in their speeches on subjects relating to the EU grows as they continue to speak. When I was in Cabinet with Lord Shore I thought we mostly found ourselves in agreement. I do not believe it would be right for me to bang my head against a brick wall because I doubt if I could convince either my noble friend Lord Bruce of Donington or my noble friend Lord Shore of Stepney of one single word different from what they said, so I leave it at that. I recognise the points they have made and I hope they will forgive me for not taking them up at this hour. In passing, I must say that listening to them one would have thought that for the last 20 years all has been stability and beauty in our economy. That is the kind of economy I cannot recall.
Let me turn briefly to the Opposition Front Benches. The noble Lord, Lord Taverne, and the noble Baroness, Lady Williams, and I have often and usually agreed on the subject of Europe. I appreciate what they said, and what all members of the committee and others who spoke today had to say about the committee's report and about me personally. They were both over-kind and over-generous in their complimentary remarks. I will
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leave aside the contributions of the noble Lord, Lord Taverne, and the noble Baroness, Lady Williams. They were excellent speeches with which I mostly agreed.
The noble Lord, Lord Mackay of Ardbrecknish, thoroughly enjoys his position on the Opposition Front Bench, where I hope he will stay for a very long time. I enjoy listening to him enjoying himself. It is nice to see someone who enjoys that position of Opposition Front Bench spokesman so much. Even when he tries to be party political he does it in the nicest possible way, especially when it is based on a report which was not party political but all-party and unanimous—with one or two variations among the committee members which we have heard today. It is pleasant to hear the noble Lord even when he has nothing serious to say at all, as was his position today.
My noble friend Lord McIntosh of Haringey did not think fiscal profligacy was on the agenda. I hope he is right. I certainly agree with him. Indeed he must not have been listening to what I was saying, which is unusual for him. I said that there was a pressure generally for fiscal discipline and a pressure to make the system work. Despite all our misgivings as a committee, that pressure was there from all our witnesses all the time. I am happy to see that pressure for the making of the European Central Bank and indeed, if I might digress without upsetting my noble friend Lord Shore, the Economic and Monetary Union.
As I said at the outset, not surprisingly the debate went rather wider than the report itself. I beg forgiveness myself for digressing just a little from the main report. The report itself recognises that there are serious risks under which the European Central Bank, and therefore the whole Economic and Monetary Union, could fail. We did not believe as a committee that it would fail. My noble friend Lord McIntosh of Haringey was surprised that we only used the words, "It will not be allowed to fail". I do not understand his surprise. We pointed out the risks. We answered the questions: "Yes, it will work and it will not be allowed to fail". We could not be more explicit than that. I had a little problem, as chairman of the committee, in trying to get them to agree with that report, but generally they all agreed that it will work. My noble friend Lord McIntosh of Haringey did not dispute it tonight, even with the last page of his brief which he read—something he normally does not like to do. He wants to see it work; the Government believe that it will work, and that is the view of the committee.
On Question, Motion agreed to.

Sustainable Landfill: ECC Report
8.05 p.m.
Baroness Hilton of Eggardon Baroness Hilton of Eggardon rose to move, That this House take note of the Report of the European Communities Committee on Sustainable Landfill (17th Report, HL Paper 83).
The noble Baroness said: My Lords, this Motion relates to an investigation which we carried out earlier this year and on which we reported in March.

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Unfortunately, the pressure of parliamentary business has precluded debate on this important and interesting topic until the present time.
The draft European directive on landfill is intended to prevent or reduce pollution to water, soil and air as well as risks to human health. Another key aim of the directive is the reduction of methane emissions in order to reduce global warming.
In the United Kingdom, there are currently 2,857, licensed landfill sites—often old quarries or exhausted clay or gravel workings. A prime intention of the directive is to reduce the amount of biodegradable waste going to landfill sites. About 500 sites in the UK currently receive significant quantities of biodegradable waste. In this country the practice has been to co-fill landfill sites with a mixture of organic wastes and various industrial wastes. This system has helped to speed up the chemical processes and breakdown of both sorts of waste, but in a badly managed site this enhances the risks of seepage and water pollution by leachate.
We found that sites in the UK are engineered and managed to a very high standard and that in only one or two old sites has there been a problem of water pollution. In the long-term, however, no site can be guaranteed leak-proof. In some other European countries mixed refuse has been dumped indiscriminately into open sites and there are long-standing and serious problems which the EU directive seeks to address by insisting on the separate disposal of biodegradable and hazardous wastes.
During this inquiry we visited landfill sites in Cambridgeshire and Scotland and saw recycling and composting facilities. We were very impressed by the strategic approach adopted by the Scottish Environment Protection Agency. We also took written and oral evidence on behalf of the industry from a large number of witnesses, including the Environment Agency, Friends of the Earth, and the Institute of Waste Management.
One of the consequences of placing biodegradable material in landfill sites is the production of methane and carbon dioxide gases, which are serious contributors to global warming. We had interesting but conflicting evidence about whether methane is eight or 70 times worse than carbon dioxide, since it is initially more damaging but has a much faster decay rate and is less persistent in the upper atmosphere; but as it decays to carbon dioxide that, in a sense, is perhaps irrelevant. Only 160 of our landfill sites have methane recovery systems and at only 52 sites is the captured methane used as fuel. On the other, approximately 300, sites which have organic waste deposited in them, there is no system for collecting methane. It merely seeps out into the atmosphere. The estimates of the proportion of methane that is captured range from 40 per cent., which is the EU Commission figure, to 90 per cent. according to the waste industry. One of the beneficial effects of the European directive of moving to sites that are mono-filled with biodegradable waste only is that more waste could be recycled and composted and the technology for methane capture and use could be made more comprehensive.
I very much regret the absence from tonight's debate of the noble Lord, Lord Lewis of Newnham. Not only has the noble Lord helped me towards some understanding of the methane problem; he has also been forcefully eloquent in the committee about another aspect of the directive, which requires specific and separate sites for hazardous waste. Currently in this country some bulky hazardous waste with no leaching characteristics, such as asbestos, is co-filled with other wastes. That presents no danger if they are permanently entombed and undisturbed. If quantities of such inert wastes have to be added into the new specially constructed hazardous waste sites, that would increase their number and size. One of our concerns is that it would be difficult to secure long-term insurance against the risks posed by such specific hazardous waste sites. Inevitably, in the long term governments will be the people who have to shoulder any costs of damage to the environment or to public health. Clearly an important aim of the directive is the reduction of the amount of waste going to landfill sites by encouraging waste minimisation and recycling. These are areas where we lag behind many of our EU partners.
If recycling is to be successful, the evidence is that it is important to create a market for recycled materials and products. For example, under the directive car tyres may no longer be land-filled; 75 per cent. of car tyres are presently dumped in landfill sites. So other ways of disposal such as the re-use of material for playgrounds and road surfaces will have to be found. I understand that a government working party is currently examining that problem. No doubt the Minister will tell us more about that. The composting of organic matter, although financially borderline, is clearly an important contribution to sustainable development. We saw some splendid compost heaps in both Cambridgeshire and Scotland, and those of us with gardens longed for sacks to carry some away. We welcome the current growth of municipal composting schemes and hope that they will be extended and encouraged by the Government.
In the 1993 House of Lords report on packaging waste we established that modern methods of incineration are virtually pollution free if carried out at appropriately high temperatures and that, combined with energy recovery, that could be preferable to other methods of waste disposal.
We are a small and over-crowded island and cannot continue to use scarce land resources indefinitely for waste disposal. Incineration leaves residues which have to be landfilled, but it greatly reduces the bulk of material and is particularly appropriate for certain types of hazardous waste, such as clinical waste, where it is essential.
I wish particularly to stress my concern over the construction industry and its current practice when demolishing large buildings such as the tower blocks which we are so pleased to have blown up in some of the more deprived areas of our big cities. The rubble, bricks, stone, concrete, tiles and so on from those buildings go into landfill sites. The enormous bulk of the material that goes into the landfill sites consists of waste from the construction industry. In the meantime, it continues to quarry stone from some of our most

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beautiful landscape sites which it then uses merely as hardcore for motorways and car parks. That is an area in which the Government could act, and insist that the residue from buildings that are taken down is used for various sorts of hardcore rather than allow the endless quarrying of rock from our landscape.
The Government's response to our 55 recommendations, although belated, was broadly supportive and describes the further progress that has been made in the meantime in negotiations with our EU partners. No doubt the Minister will be able to describe the welcome amendments to the directive that have been achieved in the intervening months since we published our report.
Finally, I wish to express the great debt of gratitude that we owe to our specialist adviser, David Mills, who acted as our guide through this complex topic, and to Tom Radice, the Clerk to the committee, who did all the hard work. I should also personally like to thank all the members of the committee, especially now as I come to the end of my time as chairman. It has been an enormous pleasure and I have found it very enjoyable chairing this particular committee. However, I know that I leave it in safe hands in handing over to the noble Earl, Lord Cranbrook. I beg to move.
Moved, That this House take note of the report of the European Communities Committee on Sustainable Landfill (17th Report, HL Paper 83).—(Baroness Hilton of Eggardon.)
8.15 p.m.
The Earl of Cranbrook: My Lords, it gives me great pleasure to follow the noble Baroness, who so ably chaired this inquiry. As she herself explained, she led us not only from the Chair in the Committee Rooms in your Lordships' House; she also tramped with us across the mud in Scotland and through mounds of waste paper in England and sniffed and compared the compost of Dundee and Peterborough. Our outings were often enjoyable.
I ought to declare my interests, which are stated in the report. I am chairman of ENTRUST, the regulator of environmental bodies under the landfill tax regulations; I am also chairman of an independent advisory board to a large commercial waste management company which operates across the United Kingdom and in Belgium.
Sustainable development is a Community and a national objective. It is a fundamental driver of environmental policy at European Union and member state level. Paragraphs 4 to 8 of the report emphasise that waste management strategies have an essential part to play in attaining sustainable development.
Drawing on the evidence that was offered to us, the committee defined "sustainable landfill", which is the title of the Report, as:
"landfill that is necessary for society and is managed without causing irreversible harm to the environment, so as to ensure that no risks or resource compromises are presented to future generations".
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The objective, as stated at paragraph 9, is that,
"within a generation, any landfill should reach a state where it needs no active controls to contain the wastes, the landfill gas or the leachate produced".
The aim as declared in Article 1 of the directive is to prevent or reduce negative effects on the environment from the land-filling of waste. On page 9 of the report we list those negative effects on the environment. All the adverse effects listed can arise during the operational phase of the landfill or subsequently after closure. Closed landfills remain an environmental hazard. However, during the working life of a site, there are also other impacts not listed in the table which most people, especially those who live near a site, would consider to be environmental. I refer to the terrible crashing noise of the compactors as they work over the landfill mass and the dreadful bleeping noise that they make as they reverse. They incessantly grind backwards and forwards. There is traffic all round a site; there is dirt on the road, rubbish blown in the wind and wasteland weeds growing on the site. There is a general unsightliness and unneighbourliness to a landfill site and people do not like living near to them.
As mentioned in the report, in the autumn of 1996 the landfill tax was introduced into the United Kingdom. At paragraph 126 the committee recognised that the tax is a useful tool in the overall strategy for sustainable waste management. Differential rates impose more heavily on biodegradable materials. Similar taxes already operate in other European Union countries. But I believe that the Landfill Tax Credit Scheme is unique to this country. Through the scheme voluntary contributions by landfill operators made to enrolled environmental bodies can be offset against up to 20 per cent. of their tax obligations. For your Lordships' interest, in the first two years of operations in round figures, 1,100 environmental bodies have enrolled and £95 million has been made in contributions to approved projects. About two-thirds of those projects are for environmental action in the vicinity of landfill sites. So these projects bring some compensation to the people who are most affected by the local impacts of landfill sites and to that extent contribute towards sustainability. In addition, about 10 per cent. of the funding has gone to research and development in sustainable waste management practices, including recycling. That research and development component is expected to increase in the year ahead.
The Government response to our report on page 12, seems to propose the direct use of landfill tax revenues,
"to encourage sustainable waste management".
The Environment, Transport and the Regions Select Committee in the other place has gone even further and has called for landfill tax subsidy as regards recycling.
However, I believe that anything that requires a perpetual subsidy in order to be maintained is, by definition, not sustainable. So I have serious reservations about any proposal to use landfill tax directly and permanently to subsidise recycling, however beneficial recycling may be. I wish to ask the Minister to look again at the proposal in due course. The Landfill Tax Credit Scheme has taken a generous view

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of pilot schemes and allowed them to extend to five years, but I believe that anything that goes beyond five years is clearly outwith research and development.
Among the broader environmental concerns that are listed on our table on page 9, protection of fresh water resources has for long been a significant component of European Union environmental policy. Representing the Commission services, Dr. Ludwig Kraemer, who is the head of waste management services in DG XI, gave evidence to the committee. It was his view that across Europe landfills are the biggest identifiable source of groundwater contamination. He called them "ticking time bombs".
On the other hand, the Environment Agency argued that in England and Wales landfill sites are less of a problem than other sources and other types of pollutant. This view was reflected by the Scottish Environment Protection Agency's assessment of the situation in Scotland. We took no evidence on Northern Ireland.
Noble Lords will see from paragraph 41 that the committee was broadly satisfied by the Environment Agency's argument that close regulation, coupled with safeguards provided by the planning system, has been effective in the United Kingdom in minimising the risks to groundwater from landfill. The Government's reply has endorsed that view.
Having had time to reflect, thinking with the benefit of my past connection with the water industry, I remain content that this analysis, as it relates to today, is probably true. But in the past era of "dilute and disperse"—and there are many old dilute and disperse sites still in existence—many of those landfill sites, some quite small, will have left a plume of underground pollution extending into adjoining aquifers. It is true that in the Anglian Water region in the 1970s and 1980s, abstractive use of some groundwaters for public supply was constrained by contamination from old landfill sites. However, I accept that modern landfill practice, involving impermeable linings and leachate management and so on, minimises current impacts on the aquatic environment.
However, Dr. Kraemer's ticking time bombs are not defused. They are still there. If anything, the practices required by the directive could add to their number and intensify the hazards they present. Our report emphasises the undeniable risk that over time,
"all landfill sites, including those designed to be 'containment' sites, have the potential to fail and cause damage to the environment".
That appears in paragraph 88.
As the noble Baroness, Lady Hilton, described, the current British system works on the assumption that, under management involving full external sealing, leachate recirculation and treatment and extraction of the landfill gas, decomposition processes within a landfill mass will ultimately reach an end point which will be physically and chemically inert. But if the sites are kept dry, the process of biodegradation will be extended interminably. It may never be reached in the dedicated hazardous waste landfills advocated by the directive unless, as we advise, there is greater pre-treatment of wastes consigned to them. The committee's concerns are summarised in paragraph 74
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and our conclusion that the directive does not explicitly advance the cause of sustainability is reiterated in paragraph 115.
The Government's response on page 8 does not face up to this critical dilemma. I do not believe it is acceptable to shrug off the problem onto the industry and say that the industry can find its own solutions.
Air pollution is the third concern for the environment. As the noble Baroness has just explained to us, during the past decade convincing evidence has accumulated to show that anthropogenic emissions of the greenhouse gases are a significant cause of global warming. Both methane and carbon dioxide are greenhouse gases. Whatever the exact figure, there is scientific concurrence that methane is by far the more active.
The Commission's communication quoted in our report at paragraph 49 identifies landfills as accounting for about 32 per cent. of known methane releases in the European Community. That means that landfill is a considerable contributor to the overall problem of global climate change. I very much look forward to the consultation document on climate change that is promised in the Government's response on page 4. However, as regards achieving sustainable landfill, I believe that the Government will want to include this strand as well as the others I have mentioned in their national strategy.
As a member state of the European Union, the United Kingdom's strategy will need to take account not only of the new landfill directive and the existing framework directive, but also of a raft of other binding European legislation. I counted at least 25 directives which impinge on landfill.
At the supranational level, considering the contribution to greenhouse gas emissions made by landfill, again the national waste strategy will need to take into account commitments to international conventions, including the Climate Change Convention and the Kyoto agreement.
Since we conducted the inquiry, there have been waste strategies published for England and Wales, for Scotland and for Northern Ireland. The Northern Ireland strategy was put out in June and is open for comment until 30th November. It is clear that by the time definitive versions of these country and Province strategies are published, the next stages of the devolutionary process will be in place. That is critical.
Environmental matters, including waste management, are devolved functions. The devolved parliament and assemblies will have a duty to fulfil UK obligations under international conventions and European legislation, but it is the UK Government that are answerable for implementation. Moreover, if there is infringement, it is the UK Government that will go before the European Court. It is the UK Government that will be liable for fines and other sanctions. If large fines are incurred, will these be passed down to the devolved administrations? That question needs consideration.
I believe that a new mechanism will be needed for consultation and co-operation between the Scottish parliament and the two assemblies and central

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government to come to a common position. I believe that it will have to cover not only sustainable waste management but the full range of devolved environmental issues. If the topic has not already featured on the agenda of the present Committee of Green Ministers, I hope that it will do so very soon with some urgency.
There is an existing model, the Joint Nature Conservation Committee which was founded to carry forward United Kingdom and international obligations of the three country agencies for England, Scotland and Wales when the Nature Conservancy Council was broken up. It was the subject of intense debate in the House which many of us remember. The end product was not an immediate success. The noble Earl, Lord Selborne, has left the Chamber, but I mention the fact that the Joint Nature Conservation Committee did not begin to work smoothly until its strategy was clarified under his firm direction. As a relict centralising body, it did not work. The JNCC began to work when it genuinely provided a service to its component country agencies in fulfilling their special functions with regard to international, European and Great Britain-wide remits. So it is now a model that could be looked at.
I wish to make a final point. Noble Lords may say that I am anticipating tomorrow's debate, but I wish to make it. In its response to the House of Commons Environment, Transport and Regional Affairs Select Committee Report on Sustainable Waste Management, the Government have firmly emphasised on page 1 that the committee's remit in that area is limited to matters that concern England only. So in future, when the new parliament and assemblies are functioning in all devolved areas, the House of Commons in many of its institutions and deliberations will be restricted to the consideration of English affairs.
As far as our House is concerned, whatever is decided on the future membership and method of appointment, I urge your Lordships to hold fast to our present standing as a Parliament of the United Kingdom. Most of us are Peers of the United Kingdom. This House should avoid structures and procedures that will limit the scope and range of its activities, as will be experienced by Members of the elected House. We should not fail to continue to direct our attention to matters important to all or any part of the United Kingdom. That includes especially overall scrutiny of European Community proposals,
"whether in draft or otherwise",
as is the remit of your Lordships' Select Committee.
8.29 p.m.
Baroness Hamwee: My Lords, I believe that I first became aware of the issue of landfill when I saw a map showing the source of waste in the South East and its destination. That could be summed up as "London dumps on the rest of the South East". So I very much support the concluding thoughts of the committee at paragraph 148 when it makes,
"a plea for a wider vision".
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It refers—as did the noble Baroness Lady Hilton of Eggardon—to,
"the population pressures … and the need to protect an irreplaceable natural heritage"
and the,
"powerful challenge to landfill in the long run".
That same paragraph also referred, as did the noble Baroness, to the construction industry saying that it
"cannot take it for granted that raw materials can be quarried and extracted from the environment on demand without regard to the alternative of using recycled… wastes".
On that point, I hope that the Government might put on their agenda for consideration the wisdom of still requiring a perfect standard of material for infilling when roads have holes dug in them and then repaired. One hears tales of this entirely virgin, I suppose, material being put into a road, dug up again almost immediately and being replaced by yet other virgin material.
Like the noble Earl, I look back at the definition of sustainable landfill. He has already quoted from Paragraph 9, saying that, in the view of the Committee,
"within a generation, any landfill should reach a state where it needs no active controls to contain the wastes, the landfill gas or the leachate produced".
It was interesting to read that comment against those of the insurance industry. Its evidence indicates that insurers require a high degree of certainty in legislation and that there is little insurance market capacity for environmental risks. I wonder whether it is certainty in legislation or about the effects of landfill with which we need to be concerned. In my view that is why there are such difficulties as regards the issue of liability and the changing state of knowledge about the effects of what we are doing to our country.
The report comments on the balance of political expediency and practical experience coupled with the state of scientific understanding. Given the ever-developing state of knowledge, it is difficult to balance those factors. I fully support the view expressed that the price for goods and services should reflect environmental damage if—and I stress if—that damage is unavoidable and if it can be repaired. Certainly, reflecting environmental costs at present is more of a political than an economic principle.
Reference has been made to the new landfill tax in the United Kingdom. The noble Earl mentioned the comments of the Select Committee of another place. At Recommendation 25 of its recent report it states that it considers,
"it to be essential that the Government states clearly its plans for the tax to the end of this Parliament in order that waste holders may plan effectively for the future management of wastes arising".
I was sad to see the response that the Government will consider whether further increases are necessary in the light of EU targets, for reducing landfill. It seems to me that there is a certain circularity in that. And what about leadership? I suggest that it is probable that the landfill tax will have to rise quite significantly. If that is so, then I suggest that it is better to be clear about that in order that both waste collection authorities and businesses can plan.

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It is rarely necessary to suggest that the current Government, or indeed the previous one, should blow their own trumpet, but I believe that publicity about the use of the 20 per cent., to which reference has been made, going to environmental bodies and the real achievements of using the cash represented by that, would be very valuable. It is not something to which one sees much reference. At a local level where money raised from schemes is ploughed back into environmental projects, one can gain quite a lot of kudos and, more importantly, support from the public for the overall programme. Therefore, I hope that we shall see more publicity in that respect.
Some noble Lords may take the view that sustainable landfill is not an immediately obvious EU matter. I wonder whether I detected some divided views on the committee. I rather liked the device of a reference to a "snapshot of views" covering quite a wide range and whether the proposals were over-prescriptive and failed the subsidiarity test. It is the case that waste is a cross-border issue. Quite apart from greenhouse gases, we have recently seen how countries have shopped around for disposal sites and regimes for the most obnoxious—and perhaps noxious—waste, which in some cases seems to have had almost permanent refugee status. I suggest, too, that it is entirely possible that in future non-hazardous waste may also cross borders.
I take the view that waste is a local, regional, national and an international matter. I mention the regions because I believe that strategic issues are raised in the area of waste which can often be quite difficult to deal with at local level. I am not, of course, suggesting that local interests should be ignored. For instance, combined heat and power schemes might work best where there is local ownership of a scheme, where the local community can easily see the use and benefit of the heat which is produced. But regionally, planning has an important, positive role. I agree that however undesirable landfill may be, some will be required. It is important to plan for it and not just to impose controls. It is the kind of activity which is easier and more appropriate for a regional body. I shall be interested to see what is the attitude of the new regional development agencies as regards waste.
We have mentioned the landfill tax at local level. It must have had a considerable effect on the waste collection authorities although I do not know what scope some of them will have had for altering their arrangements when part-way through contracts which had been entered into under CCT. On that subject there can be acceptance that the avoidance and recovery of waste might be a criterion in the best-value regime. That is something that I would welcome. If the Minister is able tonight to report on the effect of the tax on the way in which waste is dealt with and whether there has been a reduction in landfill, I shall be interested to hear it.
Probably, the other side of that question is whether recycling has been increased. After all, that is where local authorities tend to have such a major role. The
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Select Committee in another place recognised the difficulties for local authorities and stated in its recent report,
"If local authorities are to be held accountable for the success of the UK's recycling strategy there must be real incentives for them to take action and sufficient resources available for them to do so. Governments must find some means to measure improvement on a consistent basis or it will leave itself open to allegations of unfairness and lack of accountability".
I differ here from the noble Earl. I shall be interested to hear from the Minister whether the Government have come to a view on how they can improve funding for local authority recycling on which I know they invited views on less waste and more value. I would support recycling revenue coming from the landfill tax going to local authorities in order to provide investment for waste reduction programmes.
It is difficult to make recycling totally attractive. There is a natural limit and raising it is quite awkward. At a very local level—perhaps parochial—it occurs to me that giving more thought to making recycling quite attractive might provide a better message about its importance. Throughout the country one sees recycling banks painted in dingy colours, sitting in a sea of detritus. I think that gives the wrong message. It is staggering how much of the contents of the domestic dustbin can be reduced by separating waste. I daresay that the downturn in economic activity which we are warned to expect may result in less waste, but this may also cause us to hold back on innovation.
It is said that we get the waste management industry—as indeed with all other industries—that we deserve. Things have certainly moved on a lot. Basic quality standards in landfill management have improved because of tougher regulations, and I suspect that even better resourcing of inspection and enforcement would lead to a further improvement.
Fly-tipping is always going to be a problem. I realise, thinking about this subject, that the first words of Italian that I learned when I started going to Italy were "divieto di scarico"—no tipping. One saw those notices against piles of old beds, fridges and cars.
As well as increasing concentration on enforcement, one needs to look at the contents of landfill. I think we are likely to become increasingly aware of the issues of freedom of information and access to information around this subject. We are unlikely to be able to ignore questions of liability arising from the effects of the treatment of landfill. Again, I note the committee's comments on the lack of consistent data on the efficiency of methane capture and the relative global warming potential of methane and CO2.
To conclude, to many of us the personal is still political—that I know dates me. It is always easier to see things in personal terms, and I was very impressed some years ago when a friend moved to Switzerland and reported on the custom there of putting out cast-off items available for collection by one's neighbours before they were picked up by the waste authority and disposed of by them. It rather reminded me of the "I'm not proud" bag which was kept by some friends, in which they put cast-offs which were shared around the group. "I'm not proud" is not a bad idea in regard to

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reducing waste, and we certainly cannot be so proud as to ignore these issues. I congratulate the committee on its report.
8.42 p.m.
Lord Judd: My Lords, in view of the hour and the important business still before the House, I shall try to be brief. I too would like to put on record how good it was to serve under the leadership of my noble friend Lady Hilton of Eggardon. Her commitment to thoroughness, and the good humour with which she put that commitment into action, was something we all deeply appreciated. It was a good committee. There was a wholesome absence of partisanship and a determination by everybody, from whatever quarter they came, to look at the issue in terms of the public interest.
One of the things I enjoyed about the committee was that it gave a practical demonstration of the House of Lords at its best. Certainly the committee had within it relevant expertise, of which the noble Earl, Lord Cranbrook, was a good example. He referred to the interesting times we had together, not only within the House but outside it, and I do not think any of us will ever forget the visit to Dundee. I should like to dwell on Dundee for a moment because there we saw the demands on an imaginative and courageous leadership at local government level when faced with all the other pressures and priorities which perhaps preoccupied those members of the local authority not immediately concerned with the issue.
I am not suggesting necessarily that Dundee had got it all right and that there was not more to learn. But I believe that the spirit and the way in which that local authority and a small number of people within it were trying to take the issue seriously and find the way forward deserve recognition in this House. It deserves all possible support.
In reading the report again, I suppose if I had one reflection—and this is with hindsight—it was that we were perhaps just a little too complacent. There is reference to the high standards which have been achieved in this country, and I would not dissent from that judgment, not even on reflection. However, it seems to me that the need to underline that only the highest possible standards can be acceptable in this area into the future is something which all of us must take very seriously. There are inevitably a considerable number of uncertainties about what is at stake, not least in the implications of long-term storage of hazardous materials, some of which we do not yet fully understand.
In that context it seems to me that the other question which we need to emphasise is that while we may have a suitable and effective balance at the moment between public policy and responsibility and the role being played by private enterprise, we would be foolish to overlook the fact that there is a residual public responsibility which could turn out in certain circumstances to be of gigantic proportions.
Again, I think we need, if we are to avoid complacency, to keep this reality constantly in mind. We do not know absolutely—we are doing our best; we are
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up-front with the latest understanding, the latest analysis, the latest techniques and scientific knowledge—what it is we are engaged in. We have to understand that all of us, not least here in Westminster, are therefore collectively carrying a heavy degree of responsibility for future generations.
If I might be allowed just one other, as it were, strategic observation—because I promised to keep my remarks brief—there were moments when we were going about our work when I became a bit despondent. That was because it seemed to me, as so often happens with public responsibility and public policy, that it was arguable that we were dealing with the symptoms of the challenge rather than the challenge itself in society. Obviously these systems have to be dealt with and dealt with effectively, but what worried me was that we were bringing all this concern into how we manage waste and in the meantime we were drowning in waste so that the issue was, were we going to be able to keep ahead of the problem, or was waste being generated at too fast a rate for humanity to be able to cope?
It seems to me therefore that if we take the report of this committee seriously there is a bigger challenge which we must all face; that is, what we are going to do about the generation of waste. What are the public policies? How are we going to work them out together with industry and commerce to limit the almost wantonly irresponsible way in which waste is being generated in some quarters? We all know the experience of this. If I may without being flippant make this point: if we are to put that challenge to society and if we are to shoulder it in one way or an another, as I hope we will, in this House and in the other place, it is tremendously important that we are able to speak with credibility about the way we manage our affairs within the Palace of Westminster. I take this as just one example, like equal opportunities. It is by what we do here that we will be judged when we speak out on the responsibilities of society as a whole. It is how self-evident those principles in the operation of our affairs within the Palace of Westminster are that matters. None of us who dispose of the paper that comes across our desks every day can be satisfied that within the Palace of Westminster we are setting an example to the whole nation of responsible conduct in this sphere.
This raises a tremendously important issue relating to our visit to Dundee. I was sad to hear that Dundee had to cut back on this matter because of the economic pressures piling in upon that area. There is a tremendous need for education to enable the young, as well as industry and commerce, to understand the dimensions of the problem that confronts us so that we can all work together. I hope that in finding a strategic approach to waste management, not just waste disposal—the curbing of excessive and unnecessary waste—we can take forward the process in a spirit of understanding and voluntary endeavour by commerce, industry, government and the rest. But I would be deceiving myself and others if I did not say that I believe one day in the not too distant future there will be no alternative but to introduce draconian legislation to deal with the problem that confronts us.
8.51 p.m.
Baroness Wilcox: My Lords, the Minister for the Environment, Mr. Michael Meacher, has commented in his commendation of the committee's work that the report is a thorough and wide-ranging review of the issues relating to sustainable landfill. It is so wide-ranging that I have decided to restrict my contribution to this debate to recycling, composting and the domestic consumer. The noble Lord, Lord Judd, who spoke so eloquently, said that we do not realise what we are up against. In that he is not alone. The draft directive is a second attempt at Community legislation on landfill. The first proposals were made in 1991 and rejected by the European Parliament. The new directive was introduced in 1997. It contained two new features in particular: the reduction of the landfilling of biodegradable waste and the pre-treatment of waste before landfilling. I venture that it will be some years before we can significantly reduce landfilling and turn to the directive's favoured method of disposal: incineration.
Our worries have already been expressed by previous speakers and are outlined in the report. That said, while I am not wholly satisfied with all aspects of the directive, like the committee, I believe that if it is sensibly applied it will be an influence for good.
The committee chairman, the noble Baroness, Lady Hilton, has already spoken about recycling and I support her comments. Most of those who gave evidence on recycling were sceptical about the likely effect of the directive in stimulating waste minimalisation and recycling. They felt that the targets and timescales proposed by the Commission would create demand for the greater use of incineration which would be hugely expensive to install and difficult to promote in our densely populated islands. Recycling is a subject that warrants an inquiry and report in its own right. But if within this directive recycling is to be a major policy objective we must first look at its economics and the best practicable environmental option.
First, economic incentives or simple regulations are needed to get the recycling markets going. In the UK greater commitment and effort through regulation are required; for example, that newsprint should contain a minimum percentage of recycled material. Secondly, the logistics of recycling are critical to its viability, so let us separate the paper from the cardboard at the point of collection, not arrival. Thirdly, recycling can make heavy demands upon the environment in terms of transport costs, energy consumption, noise and air pollution. Therefore, it is not necessarily the best practicable environmental action in sparsely populated areas. Fourthly, rigorous life-cycle analysis—"cradle to grave" or, as my Australian colleagues taught me on my trip, "womb to tomb"—is the key to finding the best practicable environmental action for dealing with particular waste streams, including minimalisation or recycling.
Therefore, as a major policy objective I recommend that this House fully supports the importance which the Commission attaches to recycling as a component of
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sustainable waste management. The United Kingdom Government need to be more positive in their initiatives in environmental policy. The new guidance to local authorities from the Department of Environment, Transport and the Regions is a useful first step but many more steps are needed along the way.
The two main alternative methods of dealing with biodegradable waste are composting or incineration. Of the 9.24 million tonnes of recoverable organic waste generated per year in the UK, only 6 per cent. is composted and it produces only 159,000 tonnes of compost. The Local Government Association told the committee in evidence that, although many local authorities looked at composting for their municipal solid waste, the barriers to increasing the level of composting in the UK were lack of markets for the product 'and poor product quality. However, we were assured that technology was advancing.
Both the Commission and the European Parliament favour composting. The Commission plans to table a proposal on composting in the Union. No doubt to cement this intention the European Parliament has proposed a new recital to the directive. The committee agrees in principle with the amendment proposed by the European Parliament and considers that where conditions for collection and processing are appropriate municipal composting operators should be encouraged. We look forward to the proposals of the Commission to encourage composting in the Community.
I turn finally to the domestic consumer. I am sure we all agree that waste reduction is an imperative. Government, industry and consumers must all play their part. I have spent seven years representing the domestic consumer as chairman of the National Consumers' Council against the great power blocks of industry and commerce, unions, government and Whitehall. A consumer is not a woman who shops until she drops in the high street.
A consumer is male, female or some other who buys or uses goods or services, whether publicly or privately provided. Therefore, it is you and me from the moment that we get up in the morning, turn on the light or tap, unzip a banana or open a yoghurt, read a newspaper or deal with the post. Each of us has consumed today and every one of us has been wasteful. Each of us has put something in the bin. I guess that we count ourselves as pretty responsible consumers who want to do our bit but are often confused by recycling claims. So often when we are told that something is right to do it is immediately refuted. Someone produces a counter argument that it is not such a good idea after all.
Is it worth going to the brown bottle bank or do we cause more trouble by driving there in the first place? Why is not my public service broadcaster that I pay my levy for not telling me what my contribution could have been today, not educating me, not surprising me and not applauding me when I get it right? If it is good enough for the Secretary of State for Education to use "Eastenders" to promote reading and literacy, why is it not good enough for our Environment Minister to talk about composters on the allotments in "Eastenders"? Why is it that in shops people are not encouraged to refuse the bags and wrappings that they are offered?

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These are not frivolous points. The domestic consumer is responsible for creating about 20 per cent. of the total of industrial, commercial, construction and demolition waste in England and Wales which amounts to 20 million tonnes. An awful lot of stuff is being thrown in the bin, and we have an awfully long way to go.
When working on the Citizen's Charter with John Major as Prime Minister to improve public services I found that some of the best ideas for improvement came from the consumers of those services. There was great enthusiasm. People realised that they could own part of the process. I am delighted that the Citizen's Charter has been continued by the present Government. It has been relaunched and renamed Service First. It will be building on that success. I should like to see some new initiative from the Government to bring the same collaborative enthusiasm and encouragement into waste reduction.
In conclusion, I can do no better than to repeat the words of my chairman, the noble Baroness, Lady Hilton of Eggardon, who has guided us so skilfully, as we have heard, over waste tips and compost heaps to our final conclusions in the report before the House tonight. The UK disposes of over 80 per cent. of its municipal solid waste in landfill sites. Well managed sites pose little threat to the environment. But not all European Union states are as fortunate as the United Kingdom in having efficient and environmentally conscious waste management industries. It is right that standards should be raised to a common level. But we should also aim to reduce waste or get value out of it through recycling, making compost or recovering energy from it rather than just putting it in the ground. Sensibly applied, the new directive will be an influence for the good. I commend the report to your Lordships.
9.1 p.m.
Lord Walpole: My Lords, I believe that paragraph 149 is the most important paragraph in the report. It states:
"Waste reduction is not just an option: it is an imperative".
My comments this evening involve rural areas and rural problems. It is easy to think that I might be referring to the Western Isles, Orkney, Shetland or even the Highlands. However, I am talking about rural Norfolk, which is even more rural than the area of Suffolk referred to by the noble Earl, Lord Cranbrook. I have been throwing away rubbish for nearly 60 years. Therefore I thought that noble Lords would allow me to reminisce because I believe that there are points to be learned.
In the 1940s and 1950s, when I was first conscious of rubbish, there was no waste collection in our part of the world. No one came with a van, a lorry, or a vehicle with compartments. We had to get rid of it all ourselves. I do not refer to people living in large houses, but to everyone, whether they lived in a large or a medium-sized house or a cottage. Everyone had a garden or an allotment. What did they throw away? They threw away food. That went exclusively to animals which they kept—chickens and pigs. I am sure the noble Lord, Lord Mackie, can remember this. We imported
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from London "Tottenham cake". When I asked my father what on earth that was, he said, "That is what is scraped off the dishes of all the London restaurants, put in bags, and sent to us for our pigs". The bags rotted away nicely, and after picking it over—there was quite a lot of cutlery and crockery in it—the food went to animals.
Bottles were returned. It did not matter whether they were wine or beer bottles, or ginger beer bottles from the local factories—those nice ones with the little bubbles in them. They were still in use and were recycled. Strangely enough, in our part of the world the milk bottle is still in use.
If the material would burn, we burned it. That included wood burnt on the fires in the houses. Most houses around us burned wood at that time. All the ashes were put in the garden; that was no problem. The slightly worse kind of ash, the clinker which came from behind a coal or other solid fuel fire was used for garden paths, in particular the path from the back door to the privy.
Anything organic was composted. That left a few glass jars, a few pieces of china and a few bits of indestructible rubbish to bury. I suppose that those are useful in order for future archaeologists to know what we did in the 1930s and 1940s. There were of course no plastics.
By the 1960s I, for my sins, served on a rural district council. We started collecting rubbish. We collected everything except bottles because there was still a deposit on most of those, so one gained more money by taking them back. Everything, unless one fed it to the animals or composted it, was put into a bin, not a plastic bag, and tipped into a hole. There were plenty of holes in north Norfolk—gravel and sand workings; lime pits and, post-Beeching, even railway cuttings. We filled them all. The biggest problem was paper blowing about, and seagulls.
There was not much plastic about. There were not many waste chemicals about. I have not yet heard of any leaching problems from any of my district council's landfill sites in those days. Hospital waste was incinerated, usually on site. And let us not forget that needles were sterilised and reused. That was 30 years ago; it is probably not an acceptable method today.
What on earth happens now? We take the bottles to the bottle bank. I am lucky: my bottle bank is the local pub and that is my excuse for going there. I have to drive half a mile out of my way to get there. Paper is recycled. My secretary was once asked, "What is Mr. Walpole's new year resolution?" She said, "To throw away 100 pieces of paper until his office is clear". I have been throwing away 100 pieces of paper ever since. I can assure noble Lords that we throw away in excess of 15,000 pieces of paper from our postroom every year. That is recycled. In a white plastic bag we can now put tins, textiles and any other paper we have. Compost goes to composting in the garden. The remainder we put in a black plastic sack and it goes to the landfill site. What goes into that plastic bag? Plastic. Anything else? No; it is a plastic bag for bits of plastic.

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I am sure that there are few Members in the House tonight who would take a Saturday morning off to go to the open day of their district council recycling plant. I did that two weeks ago. I was fascinated because I went with other Members of your Lordships' committee to Peterborough. I did not go as a Member of a House of Lords committee but as a member of the public and I was asking rude questions. I regret that most people on the district council know me, but that cannot be helped. They told me that their throughput, the economics and the success of their operation was better than in Peterborough and that 25 per cent. of the waste that they collected was recyclable. That is tremendous. I do not know what the potential is.
I agree with the noble Lord, Lord Judd, that we are educating the public about what to do. I do not say, "Put it in the black sack or put it in the white sack", because someone must investigate that separation and find out what has happened. I say in parenthesis, "Don't go into wheelie bins because they produce rubbish". It is a fact that wheelie bins produce more rubbish than black sacks plus white sacks.
I discussed the matter with members of the district council who are actively considering what slips into the black sacks. There are many plastics which you and I buy which are recyclable. I probably drink more Coca Cola than most Members in the House. The plastic bottles state that they are recyclable but how can I recycle them? I cannot. Why? I am told that there are five different kinds of plastic and that it is very difficult to differentiate between them as they pass by on a conveyor belt. Furthermore, some noble Lords may remember that the biggest recycling dump in the country at Thetford went up in flames about five years ago. Since then—I think quite rightly—the good citizens of Thetford have decided that they do not want it back.
I am also extremely worried about mixed packaging. We all know those lovely drinks cartons which have "sort of cardboard on the outside and "sort of foil on the inside. What does one do with them? The only use I know for them is to give them to my namesake, Lois Walpole. She is an artist craftswoman who makes very nice woven baskets out of them. Chelsea Craft Fair is to take place soon and I am sure that one can see her there. However, you would need 10,000 Lois Walpoles to get rid of all the cartons. They are the most appalling things! And so are batteries, especially rechargeable ones, and fluorescent and energy-saving bulbs. They produce heavy metals, which are not acceptable in a landfill site. We must educate the public.
I have a quality-assured farm. Our biggest problem is getting rid of plastic. One type is black and it comes off silage. The only way we can get rid of it is to give up sheep, which we have done at the right moment. The other type is the plastic bags containing fertiliser. No one wants them. You cannot burn them and you cannot recycle them. At the moment, we are storing them and fairly soon we will have an awful lot of them.
I wish that members of the public would appreciate that spray cans on farms are most dangerous if one is not careful with them. We, and I am sure most farmers,
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have a machine which extracts the spray from the cans and washes them. They are then perfectly all right to go into landfill.
The biggest problem for the rural areas is that the landfill sites will be located in those areas. Distances and fuel have already been mentioned and pre-treatment and the energy involved have been touched upon. I am sure that an increase in landfill tax will see an increase in fly-tipping around the countryside.
Finally, I am glad to see that many cars will be recycled. Well, that is almost a reality. So perhaps the car which previously had in its back window a sticker stating, "My other car is a Lamborghini" will have instead, "Next time I'll be a Lamborghini".
9.13 p.m.
Lord Middleton: My Lords, during the early weeks of our inquiry into waste disposal under the firm and expert chairmanship of the noble Baroness, Lady Hilton, which I very much appreciated, I formed the view that the Commission's directive was not very well founded in science, was over prescriptive and took little account of the principle of subsidiarity.
In the UK, no less than 85 per cent. of our solid waste is put into holes in the ground. We have an efficient disposal industry which has put a great deal of money into safe and sophisticated methods of disposal; we have a wealth of regulations which the industry must operate in order to minimise pollution of the environment; yet we are now faced with a Council directive that sets targets of phased reductions by specified dates of the amount of biodegradable waste going into landfill, at 25 per cent. of the 1993 levels by the year 2010. Only waste that has been incinerated is to be landfilled. There is to be a phasing-out of a practice well established in the UK, co-disposal, which is a reportedly beneficial method of allowing some hazardous wastes to be mixed with and eventually broken down in the tip by non-hazardous wastes.
The evidence we received as to the potentially harmful effect of landfill through water pollution, soil contamination and through the creation of greenhouse gases was conflicting. This less than perfect scientific understanding of the processes within landfill was, I thought, a shaky base for policy making. It is not surprising that the DETR was alarmed, as I was, at the estimated cost of compliance with the Commission's proposals. The additional annual cost to the UK by the year 2010 would be in the range—it is a fairly wide bracket—of £262 million to £695 million, most of that being attributable to meeting the biodegradable waste reduction targets and ending co-disposal. Between £3 billion and £7 billion of capital investment would be needed, mainly on incinerators. This concern about cost was strengthened by the Commission's own cost-benefit report compiled by Coopers & Lybrand.
As was to be expected, we heard in evidence a consistent defence of the British way of doing things, supported by the argument that the modern UK landfill practice fully met the objectives of the directive, which are: to prevent environmental pollution and risk to human health from landfilling of waste. Despite hearing

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a different view from Friends of the Earth, we gave general support to the UK practice. In paragraph 59 we say:
"The United Kingdom waste management industry and the regulatory authorities have good reason to feel proud of the high standards which have been developed for landfill over the years".
We agreed that some aspects of the draft directive are over-prescriptive; we agreed that the overall timescale for change must be proportional to the cost which the directive would impose; we criticised the anti-co-disposal provisions; we asked for flexibility for member states to decide when and how to meet such targets as may be set; and we concluded that we would not support an option which is economically less favourable than landfill.
So it looked as though our inquiry was leading up to a report that would be critical of an over-prescriptive, poorly researched and vastly expensive imposition from Brussels on this country. But—there is a very big "but"—as we have heard, we took particular notice of the British Geological Survey evidence. It said:
"No landfill site, however well engineered and lined, can be expected to retain its integrity indefinitely. Ultimately, all landfills will leak".
Furthermore, landfill is land-hungry. Sites which are acceptable will be increasingly difficult to find. We were therefore led to conclude, as our chairman has explained, that while landfill will continue to play a central part—we expand on this in paragraph 151—as a general principle, anything that can safely be burnt should be, and wherever possible it should be combined with energy production. I agree with that conclusion.
9.20 p.m.
Lord Mackie of Benshie: My Lords, I am a recent recruit to the committee and, of course, a humble one because my line is agriculture; but I have been absolutely fascinated even by the small amount of work that I saw. I was also immensely impressed by our chairman who ruled the whole proceedings with a rod of iron and made a mere man like me feel as though I were in my proper place.
I am happy to see that the next chairman is to be the noble Earl, Lord Cranbrook, who has a passion for, and a tremendous knowledge of, the subject. I am sure that under his chairmanship the excellent work on this important subject will continue. I no longer hanker after the agriculture committee because I can see that this committee covers a wide and fascinating field.
I was quite appalled by what I heard in the speeches. The noble Lord, Lord Judd, immediately took up my main point about Dundee and left me with little to say about it. The noble Baroness, Lady Wilcox, was absolutely eloquent and quite right about the great need to organise our recycling and marketing. My noble friend Lady Hamwee with her wide experience of local government covered the subject in a way that I could not touch.
The noble Lord, Lord Walpole, said word for word what I was going to say about a farm of 60 years ago. He is only a boy so he can only go back for a while,
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but I go back much further and can confirm everything he said. When I was young, in the 1920s and 1930s, in our community of 50 or 60 souls the collection of ashes went into what was called the ash midden, which each house had. It was emptied once a year and spread on the land or put on the roads. There was no plastic. In our house of about 12 people, the only waste was not waste at all. There was a pail for the pigs and the two domestic pigs were fed from that. That is exactly what the noble Lord, Lord Walpole, said about Norfolk. It is true that that was a complete system which worked and did not pollute the countryside.
The difference now is the blasted plastic, but I do not see how we can do away with it. The noble Lord, Lord Walpole, said, that he still has milk bottles. The fact is that plastic milk containers ensure that the milk is kept fresh for a week. It is quite extraordinary that that can happen but that is of great use to the housewife and I am afraid that we are stuck with them. However, we must do something about it.
I agreed very much with the tenor of the report and, indeed, with the Government's comments on it because it is quite obvious that the committee has been extremely practical. It has recognised that landfill is here for a long time to come and it is our job to see that it is not as harmful as the committee in Brussels seems to make out.
I was struck by some of the evidence that I heard and, in particular, by the notion that you mix the biodegradable stuff with the other stuff. That causes a reaction and there is then a consolidation through the biological heating-up which settles down into something that can be left permanently. I believe that we must visit some of our old dumps to investigate exactly how well or how badly the stuff has settled down. Certainly I know of some in my area of Angus where it has settled down and appears to be 100 per cent., but we really need a scientific investigation into the matter.
I turn to recycling. I was very impressed with the efforts made by Dundee Council in that regard. Although I lived only 20 miles away, before I went there with the committee I did not know that recycling was taking place. I was also impressed with a rather good-looking lady councillor who was obviously leading the field and by other able women who made me feel inferior. They were really trying with regard to recycling; for example, the compost that they were producing looked good. It could have been better because obviously with compost there are problems with heavy metals, and so on. They appeared to tackle that, but had a problem with marketing the compost.
The same is true with paper. In Angus I see great piles of paper in bins and I am told that there is no point in recycling it as there is no market for it. There must be concerted action so that recycling is an economic proposition for districts which are large enough to burn paper and produce electricity from it.
I have seen the Swedes at work with the waste from their forests. Of course, they have a great deal of wood and they know exactly what they are doing. They line up waste from forests with odd pieces of waste from farming. They site their power stations in areas large

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enough to support them. Having produced electricity, heat is then dispersed through the houses. All that takes considerable organisation.
The Government, who are obviously pleased with the report, and rightly so, must bend their minds to the question of how in future, when all the landfill sites are filled, recycling can be made to work. That will be difficult. However, the report has been a great help in looking at the problem and suggesting solutions.
9.27 p.m.
Baroness Seccombe: My Lords, I begin by congratulating the noble Baroness, Lady Hilton of Eggardon, and her committee on the report before us today. It is informative and obviously the result of many months of dedicated research and discussion. Perhaps I may also be allowed to draw your Lordships' attention to the importance of work of this nature that is brought into the public domain in this way. I support my noble friend Lord Cranbrook because I feel that we must all ensure that, as we discuss the future of your Lordships' House, such significant work is not overlooked. It would indeed by a tragedy if that were so.
We on these Benches welcome the report on this complex matter. It builds on the work done by my right honourable friend John Gummer when he was Secretary of State for the Environment and the resulting policy of 1995, Making Waste Work. I believe we should recognise the high standards that have been achieved in the UK generally.
I, like the noble Lords, Lord Walpole and Lord Mackie of Benshie, refer to the past. I grew up during the war when I am sure there was far less domestic waste. I remember so well, for example, visits to the local grocer and watching the butter being cut from a huge block and then wrapped. I also remember the biscuits being taken out of a large tin, weighed and then placed in a bag that my mother had taken with her for reuse. Of course they were exceptional times, but over the years packaging seems to have become almost an art form. The use of non-biodegradable substances has exploded. With some items, one is reminded of party games as one struggles to get through layers of packaging.
My own experience of landfill is following the birds on our monthly visits with our car loaded with paper for the paper bank, bottles for the bottle bank and garden cuttings. On occasions we have to queue to get in. It is a very popular place at the weekend. I never cease to be amazed by what people throw away. In that regard, I am reminded of friends moving house. My friend, the wife, loaded the car with things for the tip and asked her husband whether he would go with the car. On unloading, a substantial amount was reloaded as he did not wish to get rid of it, while two chaps on the site asked him if he minded them having some items. He readily agreed and suggested some real goodies, as he saw it. These were rejected but their eyes fell on some old epaulettes that had come out of the attic. They were taken with enthusiasm and it seems that everyone was happy.
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I support my noble friend Baroness Wilcox in her plea for recycling, composting and the personal responsibility that we have in this field. Waste management is an issue that needs to be highlighted on a regular and frequent basis. We are grateful to the committee for alerting us to the formidable talks that we continually face.
We feel that it is less important to have common standards on landfill management because there are differing circumstances in member states. However, we understand that it is a matter of special Community concern to achieve reductions in methane gas production.
I was interested to hear about the hardcore. The noble Baroness, Lady Hilton of Eggardon, made a valuable point when she talked about the type of hardcore being used. The noble Baroness, Lady Hamwee, referred to virgin substances being used for hardcore. When we consider the 4 million new homes that are talked about, and the infrastructure that will have to be built to support them, I hope that builders will be encouraged to use building rubble as hardcore.
We have worries about the pace of change. We feel it is essential that change must be phased in over a period of time. We are confident that the noble Earl, Lord Cranbrook, and his committee will keep Members of your Lordships' House, and indeed the nation, well briefed in the months ahead. We wish them well in their future deliberations.
I conclude by thanking the noble Baroness, Lady Hilton of Eggardon, for her very skilful chairmanship.
9.30 p.m.
Lord Whitty: My Lords, we have had a wide-ranging debate on this subject. My noble friend Lady Hilton of Eggardon said that she regretted that it had taken us some time to consider the report in the House. In fact the timing is ideal—for three reasons. First, it gives us all an opportunity to hear and congratulate the noble Baroness not only on this report but on her tenure as chair of the sub-committee. There is great appreciation for that on all sides of the House. Secondly, the draft directive was submitted to the European Parliament for a second reading at the beginning of this month. The Parliament is now considering the common position which was reached in March. Thirdly, the Government have now—admittedly just in time for this debate—issued their own response to the work of the Commission.
Like other Lords, I congratulate not only the noble Baroness but the whole of the committee. It undertook a thorough and wide-ranging review, and the process of producing this report went from the graphic stories of the mud that the noble Earl, Lord Cranbrook, delighted us with, to a thorough and sophisticated report.
This has been going on in parallel with the Government's negotiations in Europe. Many of the committee's recommendations reflected the view that we took in those negotiations. We worked hard to secure a draft directive on landfill which was acceptable to the United Kingdom. In my previous capacity I remember the negotiations being seen as one of the major problems

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for the UK during the period of its presidency. It turned out not to be so. The current text now addresses many of the issues that the committee raised and several which have been raised tonight and have been taken on board in those negotiations. We do not have a perfect directive—it still leaves some problems—but the work of the committee has helped us through that process.
Final disposal—generally in this country through landfill—makes little practical use of waste. In principle, it is the least desirable option, yet 84 per cent. of our waste is dealt with by this process. For both global environment and immediate neighbour environment reasons we need to switch the way in which we deal with our waste.
However, there are wider issues than the disposal of waste, as has been mentioned. The Government's main objective has been to develop a comprehensive waste strategy. We support in board terms the theoretical hierarchy in waste management; namely, that the first and most effective environmental solution for waste management will often be to reduce the generation of waste.
A number of noble Lords have referred to choice of material by domestic consumers, separation of waste at domestic level and arrangements for collection at domestic level. Both the noble Baronesses, Lady Hamwee and Lady Wilcox, made valuable contributions on that point. However, most waste is produced by industry and commerce. I refer in particular to packaging. The noble Lord, Lord Judd, is absolutely right that there is a more fundamental problem than the disposal of waste; namely, the production of waste and the use of waste in our consumer economy.
The second principle of the hierarchy I have mentioned is that if we cannot achieve a reduction in waste, value should be recovered from the waste. The noble Lord, Lord Walpole, the noble Baroness, Lady Seccombe, and the noble Lord, Lord Mackie, have said that the combination of affluence and plastics has destroyed more traditional methods of recycling and disposal. However, we need to return to that process. Only if reduction of waste and recycling are not efficient solutions should waste be disposed of. The Government are therefore committed to reducing our traditional reliance on landfill. As has been made clear in our consultation paper on waste strategy, there will be cases where the best practicable environmental option for particular waste is further down the hierarchy. For example, recycling can often be more costly than other methods of waste management, particularly if there are no immediate outlets for recycled materials. However, we believe that we must start to make a concerted effort to overcome these problems.
Historically, of course, the suitability of our geology has meant that the UK has made great use of landfill as a means of waste disposal and has considerable experience—more than most of our European partners—in soundly managed landfill. Our landfill facilities generally operate at a high standard under our existing waste management licensing regime. It is critically important to ensure that any regulatory regime provides the environment and the public with a high degree of
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protection. This directive meets many of those objectives. As regards reductions in the landfill of biodegradable municipal waste, the Government were successful in ensuring that we achieved a realistic compromise on the targets which were eventually adopted and that the deadlines for meeting them were not unrealistic.
The text of the draft directive now requires reductions on the 1995 level to 75 per cent. by 2006, 50 per cent. by 2009 and 35 per cent. by 2016. However, additional flexibility is built in as a result of our negotiations and member states can vary those deadlines by up to four years. We negotiated this flexibility as such a large proportion of our waste disposal is carried out through landfill. That flexibility was a considerable negotiating achievement.
The common position sets far more realistic targets than the original proposal. It also allows us sufficient time for the development of a variety of sustainable waste management options, so that rather than relying solely on increased incineration—the noble Baroness, Lady Wilcox, was concerned about that—we shall develop other waste management possibilities.
The Government's response to the report makes it clear that we agree with the committee that the strategy to meet the reductions for biodegradable municipal waste must be aligned with broader national strategies to encourage waste minimisation, recycling, materials recovery and energy recovery.
Possible measures to achieve these aims include using the landfill tax—I shall return to that in a moment—improving packaging regulations, considering how to improve markets for recycled products and working with industry on producer responsibility.
A number of aspects of this have been touched on. The noble Baroness, Lady Hilton, and others have mentioned methane emissions. The objective of the targets is to reduce the landfilling of biodegradable municipal waste in order to reduce emissions of methane and other greenhouse gases. The Government take very seriously their obligations to tackle climate changes which lie behind this. Noble Lords will be aware that at Kyoto we agreed to a legally binding target to reduce a basket of the six main greenhouse gases, which includes methane, to 12.5 per cent. below 1990 levels by the period 2008 to 2012. We will also be consulting shortly on options for meeting our Kyoto target and our domestic aim of a 20 per cent. cut in carbon dioxide emissions by 2010. Waste management will make a major contribution to this.
Research shows that large active sites are responsible for the majority of methane emissions from landfill. Recent guidance means that the Environment Agency will now not intend to license such sites without whole body extraction of methane gas. A passive venting of gas will no longer be acceptable. The Government recognise that more methane gas collected at landfills is burnt off than is used for energy, but the Environment Agency is now actively engaged with industry to address this issue.

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There were also concerns, particularly from the noble Lord, Lord Middleton, in relation to the directive's effect on co-disposal. There is no doubt that the phasing out of co-disposal and the classification of landfills into the three categories of hazardous waste, non-hazardous waste and inert waste will require significant changes to landfill practice in the UK.
In negotiations, our efforts to allow the continued practice of controlled co-disposal were unsuccessful. The arguments were not accepted by the Commission or other Ministers from other member states or indeed by the European Parliament. In the face of such opposition we were prepared to accept the ending of co-disposal provided that there were positive moves in other aspects of the directive and which we had in relation to the timetable as I have now outlined.
Noble Lords will wish to note, however, that the common position allows certain hazardous waste to be landfilled in separate cells at non-hazardous sites. These are those hazardous wastes which are stable, non-reactive, with leaching behaviour which is only equivalent to that of non-hazardous wastes. There is therefore again some flexibility there.
The noble Lord, Lord Middleton, was also concerned about the costs of compliance, and indeed they are high. The estimated investment in new incinerators started at a minimum figure of £3 billion. Although that is over almost a 20-ear period, it is nevertheless a substantial investment. The potential total cost to all concerned on the banning of certain landfill practices is estimated at between £250 million and £700 million. The noble Lord rightly pointed out, however, that this has to be set against the long-term costs of failing to deal with landfill, the effects which landfill leaks will have in the long term and that there is no security of those landfill sites.
The noble Baroness, Lady Wilcox, raised questions relating to incineration. We believe that the deadlines that have been fixed and the flexibility built into the directive should allow sufficient time for the development of other sustainable waste management options, rather than a total reliance on incinerators. On the other hand, we also believe that there is considerable scope for an increase in energy recovery in the form of electricity or heat which can be put to beneficial use, particularly in combined heat and power schemes which can then be part of the integrated approach of the incineration aspects of waste management.
The noble Baroness was also concerned about the option of composting. As she will know, the government document Less Waste, More Value recognises that it has been difficult to develop larger-scale commercial composting schemes, there being barriers on standards, on markets and on acceptability to the customers. Nevertheless, we wish to encourage it. We have established a working party in this area; we are looking at the results of a consultation exercise which ended on 25th September and we hope to take that further.
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So far as concerns the European level, the proposed recycling and composting have not been included in the common position text referred to by the noble Baroness. There will be a proposition from the European Commission on a working paper on a composting directive by the end of this year.
The noble Earl, Lord Cranbrook, raised the need for the Government to boost recycling. Again I refer to the document, Less Waste, More Value. There are a number of measures in place, some of which were referred to: for instance, in relation to packaging and paper and the landfill tax. We were also asked to examine a range of new initiatives in this area. That consultation is continuing. It includes possible ways of increasing assistance for local authorities for recycling purposes.
In response to the point raised by my noble friend Lady Hilton about hazardous waste mono-fills, the UK's existing waste management licensing system places strict monitoring and control requirements on all sites. I assure noble Lords that hazardous waste sites will be rigorously controlled following the implementation of the directive.
The noble Earl, Lord Cranbrook, and the noble Baroness, Lady Hamwee, raised the question of the landfill tax. The landfill tax credit scheme was supported by most of the respondents to the review of the tax last year. The scheme is proving a success, with £72 million having been contributed to environmental bodies in the last financial year. We are aware of the concerns expressed that sustainable waste management options such as recycling and waste minimisation have benefited somewhat less than we had hoped. The bulk of contributions have instead been routed into more high-profile activities such as nature reserves. It was largely for that reason that in his previous Budget Statement the Chancellor announced that we are looking into ways of improving the landfill tax credit system to provide greater assistance to sustainable waste management, and work has already started on that.
The noble Baroness also asked what was the effect of the landfill tax on recycling rates. One has to admit that the effects have been slow. That is partly because local authorities are tied into long-term contracts for their waste management work. However, we consider that the tax rise announced in the previous Budget and the results of the work to which I referred should in the longer term ensure that the tax has a significant effect on behaviour.
A number of quasi-constitutional points were raised during the course of the debate. The noble Earl, Lord Cranbrook, raised the question of devolution. Clearly, the targets in the directive are legally binding on the United Kingdom Government. The targets set will be statutory and will need to be met by the UK as a whole. The question of apportionment of the targets is one that we are pursuing with the Scottish Office, the Northern Ireland Office and the Welsh Office. Responsibility for those will be devolved to the administrations when they are established. However, we have yet to agree precisely how it will be passed on to the devolved administrations. Responsibility for

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delivery and meeting those targets will rest with the United Kingdom Government, and the devolved administrations will play their part in meeting them.
The noble Lord, Lord Middleton, raised the constitutional issue of subsidiarity, also referred to by the noble Baroness. The Government would have preferred the directive to have set goals for reductions in, for example, methane emissions and left to the discretion of member states, within reason, decisions as to how to meet those goals. However, it is also arguable that compliance with the goals set can be met only through tough and challenging targets, and that is what we have. Therefore, we can combine a European level of target with subsidiarity as to how to meet those targets.
The noble Baroness referred in her opening remarks to the matter of tyres. The Government support the general principle of recovery being preferable to disposal for all waste, including tyres. The noble Baroness will be aware that tyres are dealt with separately in the report. We have set up the working group to examine the options for increasing recovery of old tyres from the present level of around 75 per cent. to that which will be needed to comply with the ban on landfilling with tyres. The intention is that that working group will report by the end of the year.
I have dealt with many but by no means all the points raised this evening. I commend all the speeches to other noble Lords who are interested in the environmental debate. As regards the directive, the final text should now closely resemble the text of the common position and we expect it to be adopted some time next year. We shall have two years after that in which to transpose it into UK law, so we have not seen the last of it.
The directive makes environmental sense. It will fill a long-standing gap in European waste legislation. I am confident that it can make a positive contribution to the management of waste in the UK. The success of reaching agreement on the directive is in significant part due to the work of the committee chaired by my noble friend Lady Hilton. Perhaps I may once again echo the expressions of gratitude to her from all around the House for the report and for all her work on the committee.
Baroness Hilton of Eggardon: My Lords, I thank the Minister for that comprehensive response to the debate. I also thank everyone who has taken part. I am always astonished at the variety of speeches made on a single topic in the House.
As reminiscences seem to be the order of the day, I should say that my chief memory of Dundee, apart from the mud underfoot, was getting compost in my hair.
On Question, Motion agreed to.

Work and the Family
9.51 p.m.
Lord Ponsonby of Shulbrede Lord Ponsonby of Shulbrede rose to ask Her Majesty's Government what steps they are taking to promote family- friendly working practices to enable people to balance the responsibilities of family life with the demands of paid work.
The noble Lord said: My Lords, most people have jobs and most people pay too high a price for their jobs. Seventy per cent. of women work and 78 per cent. of men. Britain has the longest working week in Europe and that, together with an increasingly insecure job market, is taking its toll on every aspect of our lives, particularly our family life.
In report after report the message is the same. People, particularly women, want to work but they want to work flexibly so that they can meet their responsibilities as parents and carers. Some six out of 10 two-parent families have two parents in paid work. This is not a minority issue; it affects the majority of families in Britain today.
I should declare an interest in that my partner is a chief executive of the charity Parents At Work, which campaigns for a better balance between work and family life.
I wish to thank noble Lords who will contribute to tonight's debate. I am particularly pleased that there will be no fewer than four maiden speeches, and it says something about the importance and topicality of the issue that so many Peers have decided to make a contribution so late at night and particularly that four noble Baronesses have chosen to make their maiden speeches on this subject. I asked the Library to make a computer search for the last time that four noble Baronesses made a maiden speech in one debate. So far as the computer is concerned, it has never happened before, so I think we can say that this is an historic occasion.
I also think that we should make some collective acknowledgement of hypocrisy in that here we are, at an hour that is not family-friendly, promoting practices which are light years away from those of this House. I have the vain hope that the massive debate about the future of this House later this week will include calls for reasonable working hours for the House.
In my contribution I wish to make several points. One is about the business case for family-friendly working practices. I should like to talk briefly about the Government's approach and also about the problems faced by low-paid families and those with disabled children. The business case for introducing family-friendly working practices is being increasingly accepted by employers who are aware of the case. It can be shown that there are higher staff and client retention rates with companies that provide flexible working patterns and child care support.
There are also other less tangible benefits such as an enhanced psychological contract, if I can put it like that, between the employer and the employee. I believe that increases motivation and commitment among staff.

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Here, I believe, that the Government could play a greater role by sponsoring research to investigate this sort of less tangible element of the business case for flexible working. I know that the Government are sympathetic to these ends as the DfEE has endorsed Parents at Works' annual Family-Friendly Employer of the Year Award, where Margaret Hodge is to present the awards.
I mention one particular area of the business community and that is the small and medium-sized enterprises. Many SMEs see employment rights as a burden with which they have to cope. In addition, they lack the time—and many lack the inclination—to investigate flexible working patterns for their staff. A route for helping SMEs to cope is to introduce a "just-in-time advice" service, available when they need it and directly relevant to the situation that they face. Many SMEs have little knowledge of maternity legislation and the legal implications of part-time working and fear getting caught out by this lack of knowledge. It is not surprising, therefore, that many are hostile to parental leave and flexible working arrangements. Here, too, I believe that the Government could play a role by co-ordinating or supporting such an advice service.
I now move on to the Government's approach. Under the banner of promoting family-friendly policies, the DTI has responsibility for the parental leave directive. The DfEE has responsibility for promoting family-friendly policies. The women's unit has a particular interest in the topic in so far as it relates to women. There is a danger that with these different responsibilities there will be a lack of co-ordination across government on this issue and departments may shunt around responsibility for driving forward the promotion of family-friendly working policies. I hope that the Minister will be able to reassure me on these points. It may be more interesting if he can tell us how easy it was to get a brief together which was well rounded and consistent.
The White Paper Fairness at Work contains a welcome section on family-friendly policies. This outlines the directive on parental leave and the working time directive, which will help parents to meet their responsibilities to their paid work and to their children. The parental leave directive provides for three months' leave for each parent after the birth of the child and is designed to enable both mothers and fathers to spend more time with their children without giving up their employment. Since parental leave has the potential to improve children's welfare and to support families, it would be extremely unfortunate if the majority of parents were unable to afford to take it up.
The proposed right to unpaid leave, while a major step forward, is likely to go beyond the financial means of many parents, particularly low-paid families. It is likely that many fathers, who remain the main breadwinners, will be unable to take unpaid leave. To maximise the effectiveness of parental leave, I urge the Government to consider introducing paid leave paid for from National Insurance. Payment by employers could increase resistance to employing women of childbearing age and therefore should be avoided. If a scheme of paid
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parental leave is not possible, some system to provide benefits at least at income support levels should be introduced for low-income families.
In addition, at present fathers do not have a statutory right to time off work around the time of the birth of the child. That right needs to be addressed urgently. It is essential that either the parental leave legislation enables fathers to have time off around the time of the birth of their child or that this is given as a right to statutory paternity leave.
I move on to disability childcare, which is a narrower subject, but a very important one. The Green Paper on childcare, Meeting the Childcare Challenge, represents a major step forward in the development of a national childcare strategy and should provide an excellent basis for the development of a modern childcare system. It is very encouraging to see the needs of disabled children and their families recognised in many aspects of the strategy. This group has been overlooked for too long in relation to childcare, and the Green Paper has made a good start towards putting it right.
There are, however, some areas where the strategy does not meet the needs of this vulnerable group. Without modification, the proposed child care tax credit is unlikely to help many low income families with disabled children, including those with children who have special needs. There are three problems. First, the age limit for eligibility is set too low. While other children gradually become capable of looking after themselves while their parents work, this is often not the case with disabled children. Although many children with physical disabilities may be emotionally mature and may not require supervision, they may need specific physical assistance. Many children with severe learning difficulties will continue to require supervision when they are teenagers.
The second problem is that the cost of care for many children with disabilities is much higher than the norm, since special equipment such as hoists or specialist toys may be needed. Higher staffing ratios and specifically trained staff may be required, and there may be other additional costs—for example, higher laundry bills. If this group of parents is to be able to work, they need to be able to pay the market rate for childcare.
The third difficulty arises because many children with disabilities require care in their own home and this type of care is not eligible for registration. At present it appears that it would not be covered by the childcare tax credit. The number of children falling into this group is very small, but ensuring that they are eligible for the credit would have a great impact on them and on their families.
I have talked in some detail about several aspects of the move towards greater flexibility in our working patterns. I have spoken about the particular concerns of small and medium-sized enterprises. I have talked about low paid families, about disabled children, about paternity leave and about the Government's general approach. However, the central point I want to make is that this is not a minority issue. It affects the vast majority of people today. We are in the middle of a revolution in the way we work. I believe that the

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Government have a role to lead this change so that we can all achieve a better balance between our working lives and our family responsibilities.
At last employers are recognising that small changes in working patterns can make a big difference to a family's happiness and that it pays to be family friendly. Several of our national newspapers are running family-friendly campaigns. The Government are pursuing several routes to promote family-friendly life, and there is a growing acceptance that everyone can benefit from flexible working patterns. My hope is that tonight's debate will reinforce the message that the future is flexible and that the future has arrived.
10.3 p.m.
Baroness Miller of Chilthorne Domer: My Lords, first, I should like to take this opportunity to thank very many of your Lordships for making my first week in this House so warm and welcoming. It is a much less terrifying experience this evening than I thought it would be, mainly because people have been so kind and encouraging.
I am very grateful to the noble Lord, Lord Ponsonby of Shulbrede, for putting down this Question. I do not think it is a coincidence that there are four Baronesses who wish to speak on this Question tonight for their maiden speech. The subject is of particular concern to me, so I am pleased to be able to start my life in your Lordships' House with this speech. I am sure all Members of this House are aware of the need for family friendly practices, and I do not intend to dwell on that aspect. Rather, I really wish to address one particular area of concern connected with the promotion of such practices. The noble Lord, Lord Ponsonby, touched on this in his speech, so I think we probably share this area of concern.
I come from the south west, where we have a higher proportion of part-time workers than any other region in the United Kingdom. We also have the lowest proportion of three and four year-olds in schools in England—some 44 per cent. as opposed to 60 per cent. nationally. We have a much higher than national average number of self-employed people. It builds into a picture of a not-very-regular working pattern.
Since last week, when I began to prepare this speech, we have heard the news that Xerox in the Forest of Dean will lay off 500 workers, the Rural Development Commission in Salisbury is going to make 80 people redundant, and 530 will go with the closure of Nortel, which is a semiconductor assembly plant in Torbay. These represent very heavy losses in a region that does not have large employers and it makes my final statistic this evening even more important. This last statistic is especially important because small business—that is, those employing fewer than 10 people, referred to as SMEs—account for over 85 per cent. of the businesses in our region in the south west. I believe that any government promotion of family-friendly working practices such as jobshare, flexitime, home working or term time-only working must take this into account. Government must look beyond selling the idea to the
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large companies with the personnel and expertise to absorb the implications and deliver the package. Promotion that is based simply on large companies will do little to change the picture in regions like the south west, but a real government initiative adapted where necessary and aimed at small businesses could make a big difference.
I should be interested to learn from the Minister what surveys have been conducted to determine the attitude of small and medium-sized enterprises to, say, jobshare or flexitime working. Jobshare is ultimately one of the ways to enable a person to combine the demands of family life with the job suited to his qualifications and abilities, and I believe that it is an area which merits considerable effort on the part of the Government. To do that one must bring in the thousands of enterprises that make up the job market. We need those enterprises because we require a pool of opportunity both for those who are looking for work and those who employ them. All too often, people—according to recent research, usually women—are stuck in low paid, insecure jobs throughout the years when they are bringing up children. There is the general feeling that once children are five or six parents can return to the full time job market. Like many others, I find that the demands made on parents increase once children become teenagers. The Crime and Disorder Act recognises that parents continue to have a statutory obligation throughout the teenage years.
Large sums of public money are committed to the training and enterprise councils to enable them to improve workforce skills while the current skills of many are squandered because there is no widespread commitment to a system that matches supply and demand. The medium-sized enterprises that make up a vast part of the economic base of the south west must be convinced of the need to subscribe to such a match. Particularly in rural areas, access to a jobshare register should mean an IT link from home, the local library or the post office. We should not enter the 21st century with the necessity to make a two-and-a-half hour round trip on a bus at a cost of up to £5—which is not exceptional in an area like mine—to get to the nearest Jobcentre to look at the job register.
I believe that one of the most effective ways of promoting family-friendly working practices is to lead by example. I understand that this House already has in place a number of family-friendly working practices for its staff. I am very pleased to hear it. I hope that we are exemplary and that we shall continue to build on that.
10.7 p.m.
The Lord Bishop of Norwich: My Lords, it is a particular pleasure to congratulate the noble Baroness Lady Miller on her maiden speech for two reasons. First, as a former Bishop of Taunton it is wonderful to have this opportunity to congratulate someone who has included in her title one of the beautiful Somerset names: Chilthorne Domer. That is an easy name to pronounce unlike the names of some Somerset villages. If it had been Nempnett Thrubwell the Reading Clerk might have had trouble with the Introduction. It was said that there was an Archdeacon of Wells who could never

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pronounce Nempnett Thrubwell without his false teeth coming out. But it is a particular pleasure to congratulate the noble Baroness, because to make her maiden speech first wicket down is not easy. She has done it with great skill and confidence and her speech is one that we shall remember. We look forward to many more speeches like that in this House. It is also a great pleasure for us on these Benches. We are always delighted to face the Liberal Democrat Benches, but her presence on them will enhance that pleasure of looking across the valley.
All preachers have three points and I am no exception, but my points will be much briefer than the average sermon. (Noble Lords must not waste my time by laughing.) We are all very grateful to the noble Lord, Lord Ponsonby of Shulbrede, for tabling this Question. However, I should like to go behind it and make three very brief points. First, there is much talk of "the family", but seldom any clear definition of what the word means. That vagueness is often deliberate in order to embrace a variety of patterns of relationships. I believe that vagueness to be unhelpful. The Judeo-Christian tradition, on which this society and all of Europe's is built, is quite clear on the matter. Families are rooted in the relationship of men and women who are married to each other, with the intention that the relationship is for life. To say that is not to condemn those who believe that it is acceptable or necessary to live in another style. It is not to criticise those who are forced by circumstances to live another way. It is not to devalue the single life. It is a common fault of our age to think that in commending one thing we are automatically condemning another. That is not the case. But marriage is the norm for our society. It is not just a good thing; it is not just desirable; it is the norm.
Unless that reality is at the heart of our thinking and our legislation, we are bound to continue in the muddle that exists at present. Work friendliness apart, it is certainly more tax friendly for many couples to live together rather than to make the commitment of marriage. This Government have said over and over again that they wish to support the family. That pledge would have more content for many of us if they spoke and acted more about supporting marriage.
Secondly, the purpose of the biblical Sabbath was humane, not religious in a narrow sense. It was a sensible law to ensure a rhythm between work and leisure that is essential to any person's mental, physical and spiritual health. In debates in this House and elsewhere about Sunday trading we have repeated this simple truth ad nauseum. The fact that Parliament chose to ignore that message and its accompanying warnings does not in any way invalidate its truth. The whole direction of legislation in Europe and in this country, together with the imperative that economic forces should dictate what makes for the common good, continues to undermine the health of individuals, the stability of family life and hence the stability of society itself.
Thirdly and lastly—it is the most difficult—is the issue of the place of women in the home. It is a minefield of course, but one that it is necessary to pass through in order to discover what future shape society should have. Here I hesitate to provide answers. There
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are no easy ones. But there are questions that are not always seriously addressed. Of course everyone in their right minds welcomes the progress we have made towards enabling women to take their proper place in society. I rejoice, as do the vast majority of my brother prelates, in the way in which the Church of England has been enriched by the ordination of women to the priesthood.
At the same time, has the process of change in all spheres of our life led to a devaluation of the role of a woman as a wife and mother? Do we honour the wife and mother as we honour the woman at work? The woman at home has traditionally exercised a subtle but very real leadership role. Is that leadership role in danger of being abdicated? I do not argue that the clock should be turned back, but I sometimes wonder whether the clock's pendulum has swung too far.
It is a minefield. But it is not one that we can walk around if we wish to take seriously the important question posed by the noble Lord, Lord Ponsonby.
10.13 p.m.
Baroness Goudie: My Lords, I should like to thank all noble Lords and officers for the kind welcome they have given me since my introduction.
The Government's aim is to enhance Britain's prosperity and to enable that greater prosperity to spread throughout all communities. But to achieve such prosperity, Britain must be competitive at home and in world markets. That depends on the country making the best use of the talents of all our people, and ensuring that those who wish to work should have the chance to do so wherever possible.
I know both as a mother and from my experience as a councillor for Roundwood Ward in the London Borough of Brent that work and parenthood can create conflicting pressures. Parents, both fathers and mothers, need time with their children, and time to create and sustain a supportive home in which their children can thrive. And parents need to have confidence that while they are at work their children are being well cared for. Only then can they concentrate on the job in hand.
Assisting employees to combine work and family life satisfactorily is not just good for parents and children, but it is also good for business. The relationship between the family and work is changing. The number of workers who combine employment with family care responsibilities and who must reconcile work and family life is growing throughout Europe.
All the member states of the European Union have developed policies to combine employment and family care. The EU itself has undertaken a number of initiatives in order to ensure minimum standards, including funding a project by Children in Scotland which promotes public sector action to take account of children and families in the structure, organisation and environment of the workplace. But the project found that different member states offer very different levels of public support for employees with caring responsibilities, and that influences the provision which employers make.

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The project also found that there were three major ways in which employees can be helped to combine their employment and family care responsibilities. First, flexible working hours; secondly, the provision of childcare; and, thirdly, leave to care for sick children.
The Government have already taken action to make it less difficult for parents to balance work and family life. The implementation in the UK of the EU Working Time Directive will make us better able to balance better our work and home lives by providing for minimum daily and weekly rest periods; rest breaks; annual paid holidays; a limit of 48 hours a week on the average time which employees can be required to work; and restrictions on hours worked at night. I look forward to further measures to influence a change in the workplace culture and to reflect a new relationship between work and family life.
It is often said that a change of culture cannot be brought about by a change in the framework of law. But a change in law can reflect a new culture; it can enhance its understanding and support its development. For instance, in Britain, as everywhere else, much greater emphasis is being placed on the importance of parenthood and the rights of mothers and fathers to spend time with their new-born children. With the implementation of the 1996 EU parental leave directive by December 1999, the Government have taken the opportunity to try to develop a "coherent package of rights". The proposed new rights are: the extension of statutory maternity leave from 14 to 18 weeks; the statutory "right to return" to work by employees after a year's continuous service, where at present two years' service is required; the right to parental leave for employees after one year's continuous service; the continuation of contracts of employment during any period of maternity or parental leave; the right to return to one's own job, or a suitable equivalent, following a period of parental leave; the right to three months' leave for adoptive parents; the right to reasonable time off for family emergencies; and the right not to be dismissed or victimised as a result of having exercised a right to take parental leave.
The UK must be at the forefront of the practical development of family-friendly working practices at national and local level. I am confident that it will be and I welcome the chapter on family-friendly policies in the Fairness at Work White Paper.
10.18 p.m.
Earl Russell: My Lords, on behalf of the whole House, it is both my privilege and my pleasure to congratulate the noble Baroness, Lady Goudie, on a notable maiden speech. The only thing I regretted about it was its shortness. I look forward to hearing her at greater length on many occasions.
It is my pleasure because the noble Baroness has been my friend for a long time. I will not forget the first time I ever set eyes on her. She was working as secretary to my lawyer, who has since become her husband. He was working in Harlesden, an area where inequalities of power create many needs for lawyers. He was fighting
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so many injustices he was becoming the legal equivalent of the old woman who lived in a shoe. She was the only person who knew exactly what was going on and where everything was. Listening to her tonight I hear that nothing has changed. I am delighted to hear it and I look forward to her next speech, which I hope will be soon.
I can understand that when businesses and employers hear a debate like this they occasionally feel a certain annoyance. When I was in America my electricity company put out a statement saying, "Americans used to live in their houses. Now they only sleep in them". I see their problem. I see the argument arising from costs and convenience. I understand it and I sympathise with it. But employers have to consider what is the alternative. We are not going to stop the trend towards more two-earner couples unless we can destroy the aspirations of half the human race and halve house prices. The second is possibly the more difficult of the two. Both together seem unlikely.
So, if something like what this Question is asking for does not happen, some women will give up the struggle to be "Superwoman" and some others—indeed many others—will give up any decision to have children. Our birthrate is already well below the replacement rate. Therefore, if employers do not come to terms with what the Question is asking them for, they will have fewer employees in this generation and many fewer employees in the next. Employers should consider that this Question may, from their point of view, represent the lesser of two evils.
When we talk about families, I much prefer to use the plural. I am allergic to the definite article. The word "the" is a nasty little word. It is a monopolist. If the right reverend Prelate will forgive me, I would much prefer, in describing a family, to use St. Augustine's definition of a state—"an assemblage of reasonable beings bound together by a common agreement as to the objects of their life". What we want here is choice. I do not think it is our business to tell society which way it ought to go. It is our business to make it easier for people to choose for themselves. That must apply to both sexes. If we are to have, as the right reverend Prelate and I would both like, a world where women may, if they wish, choose to be housewives, we must equally have a world in which men can, if they wish, choose to be househusbands. In both cases, to work or not to work are rights and should be recognised as such.
I shall take just one way in which I think we need cultural change. I refer to the application of the "actively seeking work" rules. The Citizens Advice Bureaux recently found a case of a man who was regularly required to sign on at precisely the moment he had to collect his children from school. No flexibility was allowed. He was found not to be actively seeking work and was deprived of benefit. A cultural change is needed here. In such cases, there will always be mistakes; and because there will always be mistakes, it is particularly vital, while readjustment is going on, that people caught under the actively seeking work rules should not lose benefit pending appeal.
10.23 p.m.
Baroness Uddin: My Lords, I rise with the usual ambivalence about attending school for the first few days. Many of my noble friends tell me that this is merely a ceremonial necessity and has nothing to do with my age. As such, I am pleased to say that I was not left alone to become used to the place, and the overwhelming kindness shown to me by your Lordships, and indeed everyone, has meant that not only do I feel at ease but I also feel ready to play my full part. I thank the noble Lord, Lord Ponsonby, for bringing the debate before the House and I hope the noble Earl, Lord Russell, will forgive me if in my maiden speech I use the word "the" on a number of occasions.
I have a degree of experience of the attempt to balance what is a difficult task—that of complementing family life with paid work. But, if you have chosen politics as part of that life, then the expectation of any kind of balance goes out of the window. However, the time commitment notwithstanding, it is of course the greatest honour to be invited to join your Lordships' House.
Thankfully, many of us have lived through the times when every Act was to prove a point. I believe that no one Act any longer conveys any feminist ideals and that has, I am delighted to say, been replaced by the demand for appropriate legislation and government initiatives to support our proper place at the table, at work, home or leisure. That is especially important for me. While I am busy legislating, it is my man—not the new man but my old man—who is left holding the baby.
While I am conscious—and in fact I have been guided in no uncertain terms—that I must refrain from being controversial, as someone involved in politics, as I profess to be, that may be an impossible task, given the circumstances and changes that we are about to embark upon.
There is so much work proposed by the Government that one feels obliged to say too much but, for now, I merely wish to acknowledge my glee that this important matter is being addressed here. After a long time, a modern Government are making a serious attempt to redress many of the imbalances of the past. Further, this provides a platform for me on which to discuss the passion of my life; namely, to ensure that there is no no-go area for children and the family. I welcome the positive attitude that we display here to children. That gives me great confidence that, in making decisions to support families and balancing lives between paid work and other commitments, we shall do the right thing.
I believe that our children are the future of our society. We should betray the next generation if we were oblivious, as a Government, of our duty as decision-makers to ensure that all are committed to a balanced place to live.
As a Moslem, Asian woman, mother, wife, community worker, political leader and one who is involved in social work as a profession, I have been all too aware of the juggling which must be done each day, although I believe, as an Asian woman, that there is too little recognition of that challenging act of having to
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manage the complexities of both public and private roles. I have never felt daunted by that. Throughout the ages, most of my heroines, from both East and West, have balanced their duties with family life.
A recent newspaper article labelled me "Mother Courage". Contrast that with another city woman with a similar disposition who was labelled "Superwoman". The various descriptions of the same activities illustrate some of the varied opinions on that subject. However, all experiences are relevant in drawing up legislation. I acknowledge that we are luckier than the previous generation, who were denied any opportunity to balance their lives with paid work.
I am confident that new government initiatives will prioritise the needs of those women who are struggling on low incomes and who are receiving benefits, as well as keeping on board those women who are able to afford their own care costs.
It is critical also that family-friendly policies must address policies which keep children free from the fear of racial violence. One needs only to see the devastation of the lives of the Lawrences, and the families of Kuddus Ali and Muktar Miah to understand the destruction caused to families by racial violence.
I was born and raised in Bangladesh. I grew up in Newham and Tower Hamlets. I believe that that combination of life experience has given me the basis on which to develop my family life. I am confident that my noble friend Lord Hunt will outline the Government's plans, which will no doubt build on some of the work in which I was involved as a deputy leader of the council in Tower Hamlets and work which has been done throughout the country. However, I realise that it will be difficult to turn around decades of established opinion which says that making life comfortable for the family is not the business of government.
I propose and believe that the Government do have a role to play. I am hopeful also that when we come to examine the proposal for a renewed and representative House, we shall consider seriously the impact of your Lordships' own standard and its implications for our own families.
10.30 p.m.
Lord Alton of Liverpool: My Lords, at the beginning of the debate the noble Lord, Lord Ponsonby, promised us a series of memorable maiden speeches. We have not been disappointed. He also used the word "historic". The noble Baroness, Lady Uddin, who has just taken her seat is no stranger to history. As she said, she was the first Bangladeshi woman to be elected to a local authority in this country. Through her experience as a deputy leader of Tower Hamlets Council she understands the nature of deprived communities. From the insights that she has shown us this evening it is clear that she will make significant contributions to our debates, drawing on that experience, on the rich experience of the Asian community and on the strengths of family life which she personifies. She mentioned her "old man" looking after the baby. I believe that there are five children in her family. The strengths of that sort

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of family life and her considered use of the definite article, despite the strictures of the noble Earl who spoke before her, show that she can deftly cut through the procedures, practices and customs of this place without the need for any advice from any noble Lord present.
I felt a great deal of sympathy with much that the noble Baroness said. I was born in the area that she represented. My mother was an immigrant from the west of Ireland 45 years ago. Some of the experiences of Irish families in the East End and those of families from Asian communities are not dissimilar. Having represented an inner-city area of Liverpool following my student days, I understand particularly the points that the noble Baroness made about racial hatred and its effect on family life. The insights that she brings to your Lordships' House will enrich and enliven our debates. On behalf of the whole House, I am sure that I am right in saying that we look forward to many more contributions from her in the years to come.
The noble Lord, Lord Ponsonby, promised a debate which would concentrate our minds on the family and on the working practices that affect the family. I am sure that all of us thank him for giving us that opportunity. There are many points to make, but given the time constraints I shall mention just one; namely, the impact of the new European working time directive.
Some of the provisions of the directive are fine, but the way in which it has been stampeded through Parliament is nothing less than a national disgrace. Workers' rights and the safeguarding of employees from exploitation should be central considerations of any government.
Although there is plenty in the directive with which any reasonable person could happily agree, the section on weekly rest hours should raise our hackles. Far from being family friendly, the directive is a hostile attack on the family. The words masquerade as "protection" and "good practice" for workers, but in reality some employers will be able to force their employees to fix a 14-day working reference period. When the euphemism is sliced away, that could mean that some people will be asked to work for 12 days in a row without a break. As we heard from the noble Lord, Lord Ponsonby, Britain already has longer working hours than any other country in the European Community.
One recent poll suggested that people in this country believe themselves to be surviving rather than living because of the working pressures placed upon them. In contrast to other EC countries which implemented the directive, as we did, but incorporated safeguards for days of rest on Sundays, we have introduced the directive in a way which runs counter to the needs of families and ordinary working people. Employers are invited to apply the good practice of negotiating workers' reference periods with the people who work for them. We all know what that means! It means, "Comply, do as I tell you or find another job".
That has certainly been the experience with the Sunday Trading Act. A clause in that legislation allows workers to opt out of Sunday working. However, we know—again through bitter experience—what has
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happened when workers have negotiated with their employers. Many people, especially in retail and catering, have come under heavy pressure to toe the line. Inevitably, that means that they end up accepting, and working, hours which are family unfriendly and which destroy a family's shared time together or the opportunity to worship together, should they so wish. It is little wonder that leaders of all the main Christian denominations and of the Jewish and Moslem communities have expressed considerable concern about the additional impact of the European working time directive.
For the vulnerable, low-paid workers with few other employment options it is gratuitously offensive to tell them that they have a choice of looking for another job elsewhere or of complying. That is "gun-at-the-head" employment practice.
The directive, which was due to become law at the beginning of this month, claims that two days off in 14 is just the same as one day off in seven, but anyone having to work 12 days in a row will suffer stress at work and will bring that stress home. It is highly destructive of family life. It will increase sickness among employees and will inevitably compromise industrial safety.
The directive was rushed through our increasingly compliant Parliament with undue haste. It was laid before the other place the day before Members of Parliament went on their holidays and it was put into force on 1st October. Apart from a nominal and cursory consultation exercise this summer there has been no full-scale debate, there or here, about these changes.
This is one of the greatest changes in employment law in a decade. It will be one more nail in the coffin of family and community life. It is just another step along the road to a frenetic, 24-hour, seven-days-a-week Britain. To echo a remark of the right reverend Prelate the Bishop of Norwich, could it not be that the ancient injunction to keep one day a week for rest was based more on a civilised and humane approach to life than the approach of those who drafted and railroaded through these changes?
I am grateful to the noble Lord for the opportunity of raising these comments with Ministers tonight.
10.35 p.m.
Baroness Thornton: My Lords, before coming here tonight to make my maiden speech I did a little research into the conventions and customs prevailing in your Lordships' House on such occasions. I am glad I did. It was wonderfully reassuring to read in black and white that while I was expected to be both short and unprovocative—which is not difficult, I can assure you—I could expect in return to be listened to politely and without interruption. My time in the London Labour Party and similar experiences elsewhere have taught me that to be listened to with such attentiveness is not always granted to active politicians.
It is not an accident that four noble Baronesses have chosen this debate in which to make our first speeches in your Lordships' House. We are all working mothers.

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We all know how important it is for those we love best that the balance between work and home is the right balance.
My noble friends Lady Goudie and Lady Uddin and the noble Baroness, Lady Miller of Chilthorne Domer, have illustrated with eloquence some of the issues in this debate. We are discussing the steps which could and should be taken to promote family-friendly working practices to enable people to balance the responsibilities of family life with the demands of paid work.
As far as I am aware, at present this excludes consideration of the working practices of your Lordships' House. As I am discovering—without complaint—friendly though your Lordships are on all occasions, the term "family-friendly" does not instantly spring to mind when thinking of this House.
I am exceedingly fortunate that I have a husband who can be at home most of the evenings when I am here. It falls to him to listen to the delights of my daughter's violin practice and to the exertions of my son on the saxophone, and all the time ensuring that homework is completed.
Members of this House are not the only ones who work unsocial, anti-family hours. Many in the emergency services, in hospitals, in those professions which are concerned with looking after the old or the infirm, or running our transport systems similarly must sometimes find it hard to give their children all the attention they feel they need all of the time.
In the modern 24-hour-a-day working world, where the Internet and similar technologies are shrinking and dissolving the normal constraints of time on a wider and wider basis, it is pointless to pretend that we can opt out, put back the clock or hanker after a return to a time when Dad worked from nine until five and Mum was at home, everyone could work regular, predictable hours and all took their holidays together at a fixed and certain time each year.
Although we should always be looking for new ways of ensuring that people have the time to look after their children and others who need them, I suggest that we also need to look for ways of compensating people, of giving them extra time and space to spend, if I may use an awful and hackneyed phrase, "quality time" with their families. I am sure your Lordships will agree—many from personal experience—that an exhausted parent may not be much more use than an absent parent.
We must surely also consider the dilemma sometimes faced by the employer who wishes to be family-friendly. For example, an organisation with which I have a close association, NCH Action for Children, runs family centres in areas of deprivation and poverty throughout the country. They work with families and children in many ways, but to reach all the people they seek to serve, particularly working fathers, being open from nine until five is not adequate. Therefore NCH Action for Children may need to put demands of working unsocial hours on its own family centre staff. The question that organisation and many other organisations and businesses face is how to balance their duty as an employer with their duty to the people they serve. I believe the high value which this Government place
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on the importance of being a parent or a carer is the right starting point, and that flexibility and working practices must flow from that acknowledged value.
I am honoured and delighted to join your Lordships' House. I look forward to getting to know many noble Lords better than I do at present. I confess myself stunned at the galaxy of talents and experience which resides here. I shall endeavour to do my best to contribute to the work which is carried out by the House.
10.40 p.m.
Lord Haskel: My Lords, on behalf of the whole House it is my privilege to congratulate my noble friend Lady Thornton on her maiden speech. She is a well known figure in the Labour Party and, if I may say so, well liked, through her work as a past director of the Fabian Society and as Chair of the Greater London Labour Party. I am sure that it was her experience as Chair of the Greater London Labour Party which enabled her to deliver such a diplomatic and balanced speech. As my noble friend told us, she has been actively involved in many charities and organisations promoting the welfare of parents and of children and I am sure that that is why she was able to speak with so much authority this evening. We look forward to her further contributions.
Many noble Lords have mentioned pressures at work. Where do these pressures on family life come from? In a word, competition—competition leading to cost cutting, reduced staff, ever tighter deadlines, and to services and information having to be available for the 24 hours a day, seven days a week which my noble friend Lady Thornton mentioned. Combined with instant worldwide communication, it all means that people are working under much greater pressure today and it will not get better. As competition increases, so the pressure will intensify. Pressure itself is not harmful, indeed it often leads to better performance, but it is when pressure becomes stress and stress becomes burn-out that it is harmful and the family is affected.
In addition to pressure, the other aspect of work which affects the family is time spent at work. One reason for long hours is low pay requiring people to work long hours or to have two jobs in order to make ends meet. Another reason for working long hours is to meet ever shortening deadlines. I come from 30 years in the textiles industry. The way my company had to compete with low cost countries was by quick response and just in time. Operations which took a week when I started work eventually had to be done in a day, and they had to be 100 per cent. reliable. Developing the new technology was relatively easy compared with the difficulty of persuading people that it did not mean long hours at work; it meant better working practices. That is not to say that people should not work hard; what I am saying is that people should not work unnecessarily long hours.
My noble friend asks what the Government can do. A family friendly labour market policy should provide for reasonable hours, reasonable pay and reasonable job security. I think the Government have made a good start.

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My noble friend Lady Goudie reminded us that the Working Time Directive will help to limit excessive working hours. It will put some restrictions on night work and it will entitle people to three weeks' paid holiday, rising to four. The Government's childcare strategy to provide nursery places is certainly family friendly and so is the working families tax credit. The New Deal will help lone parents to escape the poverty trap. But what else can the Government do? They can certainly enforce minimum standards but, in addition, they can incorporate family-friendly policies in the best practice which the DTI encourages firms to adopt.
Perhaps the work to be done, however, lies more with companies and less with Government. It is companies that must show people how to organise their work properly in order to cope with the pressures of competition. Companies must have the support systems in place. Companies must ensure that people have the skills to cope with the work and the pressure. It is up to companies to manage in a more family-friendly way and to be flexible about starting and finishing times and family emergencies. It is up to employers not to flout the regulations as well as the Government to enforce them.
There is one other thing that the Government can do. Like my noble friend Lord Ponsonby, I think that they can put their own house in order. The house that it could start with is your Lordship's House. We know that excessive hours worked by Ministers and whips can be reduced by reforming the way the House works. Perhaps deputy chairmen can interrupt pointless and excessive speeches, so that we could all go home earlier. The Companion needs to be enforced more stringently. Family visits are not encouraged because, apart from a smoky Peers' Guest Room, there are few places for families to meet. If people with young families become working Peers, the Front Bench is hardly an attraction for them, and perhaps not even a possibility unless the way we work becomes more family-friendly. Perhaps the Minister can comment on that.
I am most grateful to my noble friend Lord Ponsonby for moving this Motion. I agree that it is not a minority issue; neither are family working practices just some politically correct fad of the 1990s. As the right reverend Prelate the Bishop of Norwich reminded us, this is a long-term, basic, generational quality-of-life issue. If we want our children and grandchildren to be brought up in secure and supportive circumstances, we must provide their parents with family-friendly working practices.
10.47 p.m.
Lord Morris of Castle Morris: My Lords, "The hospital shift system", one family-friendly nurse told me recently, "must be the most reliable form of contraception known to medical science". When she qualified she had been recently married. She was placed on permanent night shift. Her husband did not get home until 7 p.m.; she had to leave the house at 7.15 p.m. "All my children", she said, "were conceived in a series of 15-minute overlaps".
The average age of nursing students at present is 26, and many of them have children of their own. For them, a crèche is crucial. It is family-friendly. Yet in all too many
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cases where hospitals do provide crèches they are open only from 9 a.m. to 6 p.m. Forty-two per cent. of nurses are caring for children and 43 per cent. of those have pre-school-age children. Only one-third of nurses has access to crèche or nursery facilities at the work place and only 5 per cent. of nurses with pre-school-age children make use of them. Hardly surprising, when you consider the ludicrous mismatch between the crèche opening hours and a nurse's shift time and patterns. Unless our desperately needed nurses are to be recruited only from those who have taken a vow of life-long celibacy—and there are not many of those about at this time—something must be done about child care facilities.
Some trusts and hospitals operate a carer's leave policy, which permits nurses to take short periods of paid leave if children or dependants are ill; but this privilege is granted totally at the discretion of those ubiquitous figures—the managers. All too often a request is met with, "You will have to take it out of your annual leave". All too often the nurse is tempted to say, not "My child is ill" but "I am ill", and it is recorded as sick leave.
The NHS should learn from commerce and industry. In my area the Midland Bank offers cràche facilities in its main office for employees in all the branches, and it also provides guaranteed career breaks. Is a bank clerk more important than a nurse? I am told that that trail-blazing firm, Kwikfit, requires its top mangers to work one week every year on the shop floor, so that they are perpetually reminded of what the company exists to do. And it works. Your Lordships will be well aware that, "You can't get better than a Kwikfit fitter". Can we not say to NHS managers: "Go and do thou likewise"?
And there is nothing "family friendly" about the stress under which nurses frequently work. One nurse estimated for me the amount of time necessary to complete the paperwork properly and legally to admit any one patient as approximately two hours. So, faced with a clash between the perfection of the paperwork and patients in pain, nurses take short cuts with the paperwork. That has risks.
The best answer I can see to this creaking crisis is to give the nurses far more flexibility and far more trust; and there may be evidence that this is forthcoming under the present Government. On 23rd February last The Times reported that a scheme to provide more flexible shift patterns, based on the Swedish system known as Timecare, is being piloted by 19 health trusts. It is an innovative computer system designed by Hakan Zetterberg, a consultant orthopaedic surgeon, which allocates shifts based on the periods when nurses are most in demand and on requests from staff for time off.
Timecare is a brilliant idea. It introduces new technology to nursing care. It can cut costs because hospitals do not have to rely on expensive agency nurses to fill the gaps. The Secretary of State, no less, has hailed the system as a breakthrough, but his department said it would be six months or so before the full results were known. That was in February. It is now October. They are late. I hope that my noble friend, when he replies, will bring us good news about Timecare in the NHS, and that he will never forget Hilaire Belloc's wise advice:
"… always keep a-hold of Nurse
For fear of finding something worse.".
10.52 p.m.
Baroness Pitkeathley: My Lords, I wish to add my congratulations to the four noble Baronesses who have made memorable maiden speeches in this debate, and say how useful all the contributions have been—although I note with regret the lack of contributions from the Benches immediately opposite, with what I know will be the notable exception of the noble Baroness on the Front Bench.
Noble Lords will not be surprised to hear that I wish to draw attention to the position not of parents in the workplace, of whom we have heard so much, but of carers in the workplace, those who provide care for elderly and disabled relatives. With the greatest respect to the right reverend Prelate, I remind him that much of that caring takes place in relationships other than marriage but where concepts of love, duty and moral imperative are extremely important.
Much progress has been made in recognising carers in recent years, but we still have stereotyped images, such as that the carer is at home all the time. If one speaks to employers, as I frequently do, and asks whether they have a childcare policy most of those in the room will put their hand up. If one asks how many have a carers policy, there will be a tentative sprinkling of hands. Yet I remind the House that one in seven of the workforce, and in some industries as many as one in five, go home from work to heavy caring responsibilities. Carers are silent in the workforce. They do not share their experience, either out of concern for the feelings of their relative or, sadly, fearing that the caring situation, if they reveal it, will somehow count against them in the workplace. Because of those attitudes, too many carers have the same experience as Laura, who was offered help to care for her mother by the local authority—on the condition that she gave up her job first. That is such a short-sighted policy. Not only does that make Laura and her mother poorer now; it builds up poverty for them for the future, not forgetting the psychological effects of keeping the social connections that are provided by working outside the home.
One of the reasons it has been so difficult to raise the awareness of employers in relation to the issue of care and responsibilities and develop practices that would help is the reluctance of families to share their situations. But there is also a factor on the employers' side; namely, fear of opening the floodgates of demand. It is one thing to give maternity leave, that is time-limited. It is one thing to have childcare policies. But caring can and does go on for ever. We must be reassuring where it is our responsibility to be reassuring to employers about it and help them understand that small changes in policy and practice can make huge changes in the lives of carers and their families.
Similarly, employers must be aware that what is achievable by way of support in local areas can make a huge difference. There is an onus on them to understand what is happening in the local area so that, for example, the hours of the local day centre can fit in with the hours of the local employment people.
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It seems to me that what we have heard tonight can be summed up in this way: first, there is a business case for supporting families and carers in the workplace. Supporting your staff can have a positive effect on productivity. Families also have marketable skills. Anyone who manages a family knows how to co-ordinate arrangements and they are very good at managing time and resources. Losing a worker costs money. Not only do you lose their experience and talent, but the added cost of replacing a staff member is huge, sometimes amounting to the cost of a year's salary. One of our big supporters, Centrica, formerly British Gas, reckons that it costs the company up to £8,000 to train a new worker if it loses one. Most good employers want to support their workforce, yet they are fearful of opening the floodgates. Research shows that most employees are much more modest in their demands than anyone expects and small changes to working practice can make a big difference.
Secondly, summing up what has been said tonight, what families want are simple requirements: they want recognition, understanding, peace of mind, flexibility and support. They want employers to link with local communities. It is good to know that the Government understand and care about the problems of working families and, moreover, understand the absolute necessity of joined up thinking in the area. It is not just a matter of education and employment, it is also about social security, about welfare-to-work programmes and pensions and, above all, it is about training in changing attitudes. However much we do in legislation, what will really make employers have family-friendly policies is a change in attitude.
I end by saying what I think we get. People never make difficult changes in attitude unless they see what they will get for them. First, as an employer you will get brownie points, which is very fashionable. Secondly, you will get pleasant surprises: most of your workforce will want less than you think or fear. You will get the best possible use of the most precious of all resources available to you, the contribution of your workforce. Lastly, you will be helping yourself, because caring responsibilities and family commitments are not things that happen to a separate group of people; they happen to all of us, as we heard clearly in the debate tonight.
I thank the noble Lord, Lord Ponsonby, for bringing the debate to your Lordships' attention and look forward to hearing my noble friend's response.
10.57 p.m.
Lord Tope: My Lords, I too thank the noble Lord, Lord Ponsonby, for bringing the debate to us tonight. We are all grateful to him and I am pleased that he began by recognising the irony that we are here tonight talking about family-friendly working practices in a debate taking place between 10 and 11.30 at night.
We have had an even greater irony, in that, as he told us, it is an historic occasion. It is the first time since computer records began—and I suspect since any records began—that we have had four noble Baronesses making their maiden speeches within an hour. In a way it emphasises the irony that we are told that all four are

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working mothers and the procedures of this House require them to be here between 10 and 11 at night to talk about family-friendly working practices.
I have to say that it has also been useful to me because I have learnt one valuable lesson that I did not expect tonight: that in future I shall have to refer to my noble friend as "an Earl Russell". I wait to hear more on that.
All of us who have spoken tonight are in our different ways concerned about the effect on family life of what I would call the cult of longer hours, of more competition at work, less job security and so on. I too obtained figures for tonight's debate. I learnt, not to my surprise, that 57 per cent. of people in Britain are likely to work on a Saturday and 37 per cent. on a Sunday. I do not want to be diverted on to the issue of Sunday trading. However, the comparable figures in Germany, which is often thought of as being a competitive nation, are 31 per cent. compared with 57 per cent. in Britain for Saturday working. For Sundays, the figure is 37 per cent. in Britain, but only 16 per cent. in Germany. We now have 1.2 million people in the United Kingdom with two jobs and many of them are women. That is double the number in 1984. Talking about that year reminded me of the novel by George Orwell of that title. I believe that we are now getting like Boxer, the horse in that novel, who seemed to think that the solution to every problem was, "I must work harder". If I recall correctly, Boxer ended up in the knacker's yard.
We have debated many times in this Chamber, particularly this year, the drive to improve standards of education for children. That is something to which all of us subscribe. I believe that all noble Lords will subscribe as well to the view that the parents are the children's most important educators. If they are to do that job properly and effectively, they need what is sometimes called "quality time" with their children. They do not need time with their children when they are exhausted, fractious and desperate. That is equally true of teachers. We need another occasion to debate the stress and strain on teachers, which affects children, both their own and those in their classes.
We have been talking about family-friendly practices. I, too, welcome the parental leave directive. However, I share the view expressed by the noble Lord, Lord Ponsonby, that, though it is important and welcome, it is likely not to have much effect on those in most need of it unless we can find some way to ensure that, at least to some extent, the leave is paid leave. There are relatively few families which can afford to take unpaid leave. I believe that my noble friend, whose name I cannot now mention, was right that what we need even more than legislation—although that will help to lead it—is a change in climate and culture. That is enormously important. We live in such a competitive age. In particular there is pressure on men at work to have careers, to be successful and to work harder and longer. We need a very important cultural change which suggests that for men and women their career prospects will not be adversely affected and that jobshare, flexi-time and term-time working is as important for men as it certainly is for women.
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Although times are changing, which is welcome, we still have a long way to go with that cultural change. We are constantly and rightly told that Britain must become more competitive, but that cannot be achieved by a workforce which is underpaid and overworked. We need a more intelligent and appropriately skilled workforce which is well paid, working efficiently and drawing on the confidence that comes from a happy and stable family life at home. More and more employers are recognising that. I hope that the Government will encourage it.
Finally, I believe that Parliament needs to take a lead by reforming its own practices so that we are no longer brought here at 11 o'clock at night to discuss family-friendly working practices.
11.3 p.m.
Baroness Blatch: My Lords, I join all other noble Lords who have thanked the noble Lord, Lord Ponsonby, for this debate. It is an important one. I agree with him that it is not a minority subject at all. All the speeches that we have heard this evening have borne that out. I am very tempted to address the bevy of Maidens who have spoken tonight. We have had a real feast of warmth, wisdom and very thoughtful speeches given with such confidence and style that I almost envy given the fear and dread that I felt when I first spoke in this House. It is a daunting task, but it has been done with great style. It is an historic occasion. The noble Baronesses have done the House proud and we look forward to the immensely important contributions that will be made in future. We are all deeply grateful that they have come through the ordeal so well.
The noble Lord, Lord Ponsonby, made a number of important points. The great enemy tonight, of course, is not just that it is late at night but that we are restricted in the time we have to debate this subject. There is indeed a business case—the noble Baroness, Lady Pitkeathley, made that point—particularly for the medium and larger-sized businesses. It does mean more to them. Family-friendly policies, as the noble Lord, Lord Ponsonby said, can be the wisest move for a company to take on board.
I know that it is not the most fashionable thing to say, but I do want to identify with much of what the right reverend Prelate the Bishop of Norwich said. Strengthening the institution of marriage is a laudable thing, and I am glad to see that the Government have made that a policy aim. I certainly believe it is right that we should do so.
I am also delighted that the subject of carers has been brought in: there are so many aspects to that subject. I am one of the vice-presidents of the Alzheimer's Disease Society and I know the world of carers. The plight of carers is a very real one and there are so many relatively modest ways in which the life of the carer can be made more bearable. It was a very important point to make, and I am particularly pleased that it was made.

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The point was made that in recent years there has been a considerable increase in employment opportunities for women. This has increased independence; it has increased self-respect and it has made a substantial contribution to the British economy, which I think was the point made by the noble Baroness, Lady Goudie. However, it must be said that a woman's responsibilities as a parent and as an employee are sometimes in conflict, and that has also been mentioned by almost all who have spoken in this debate.
One way in which many employers address this conflict for women is to offer more flexible work patterns and a more conducive working environment. The Institute of Directors conducted a national survey which gives some of the views of employers throughout the country. Perhaps I could say to the noble Baroness, Lady Miller, that she might find it worthwhile to look it up and if I can get hold of a copy I will pass it on to her. The National Opinion Survey of employers, which was published in May, revealed that a fifth of their employers in fact offered more generous terms than were offered by the statutory level for maternity pay and leave arrangements. I realise that that still leaves four-fifths who need to make more progress, but it is a fact that there is an increasing incidence of employers who are becoming much more aware of the importance of keeping a healthy workforce. Many more recognise the value of women's work and have responded by increasing flexibility, by providing health care and ensuring that the welfare concerns of women at work are met.
I was particularly moved by the speech of the noble Baroness, Lady Miller, because she introduced some of the practical issues that particularly affect the very large swathes of rural communities in this country, particularly in the south west. So one must be aware of the plethora of new burdens on business. The Department of Trade and Industry's own figure is that already £200 million per year has been added to the costs of business, and there is concern that those costs will inexorably rise further as more and more legislation comes on stream. This inevitably means that the impact on women will be greater than on men. For example, the parental leave directive relates to both parents, but it is most probable that women will tend to take advantage of this provision. For example, in Germany, in 99 per cent. of cases parental leave is taken by the mother. That could have an impact on employers regarding taking on women—granting three months' unpaid leave following the birth of the baby and arrangements up to the age of eight will add additional costs and will make business planning more difficult.
In small firms in particular, which constitute 90 per cent. of all firms, such additional costs may be unaffordable and that could mean fewer jobs, lack of competitiveness or worse, the collapse of businesses. Therefore, flexibility in the application of the directive and possible exemption for small businesses should be a consideration to limit the impact of the consequences. For many women the welfare-to-work proposals are a real concern. There is some evidence that there are
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coercive practices to force women against their will to go back into the workplace. One of the keys to addressing the point raised this evening is technology.
But the noble Baroness, Lady Miller, raises an important matter: it is a question of finding a balance and creating an understanding that if one greatly increases the burden on employers, particularly the small businessmen and women, the alternative may be no job and no business; and that is not good for women in the workplace.
11.10 p.m.
Lord Hunt of Kings Heath: My Lords, I am grateful to my noble friend Lord Ponsonby for raising a subject that I know is close to his heart. It is a subject that is close to the hearts of many noble Lords who have spoken in this evening's debate. I particularly welcome the contributions and expertise brought to your Lordships' House by my noble friends Lady Goudie, Lady Uddin and Lady Thornton and the noble Baroness, Lady Miller. They have made excellent and significant maiden speeches this evening.
This has been a very wide-ranging debate. I apologise if I do not respond to every point that has been raised. I believe that noble Lords have illustrated some of the real pressures on people to balance the responsibilities of family life with the demands of paid work. I welcome the opportunity to place on record the steps that we have already taken, and will be taking during the coming months, to fulfil our commitment to help people balance the responsibilities of family life with the demands of paid work, particularly in the context of current work pressures described so ably by my noble friend Lord Ponsonby.
As my right honourable friend the Prime Minister has made clear, the family is central to our vision of a modern Britain. Let there be no doubt that families matter to the Government. Supporting and strengthening the family is fundamental to building a decent, stable society.
It is tempting to engage with the right reverend Prelate on the definition of a family. The noble Earl, Lord Russell, has already referred to this matter. But there is no point in for ever harking back to an idealistic view of the traditional nuclear family, as the noble Baroness, Lady Thornton, pointed out. For good or ill society has changed and government policy must recognise that fact. Our main concern in family policy is for the wellbeing of children. We support marriage because for millions of people it provides a stable basis for the upbringing of children, but we must recognise that many people choose not to marry and it is not the job of the Government to force them.
Our primary focus therefore in supporting families is how best to meet the needs of children and give them the best possible start in life by helping and supporting those who look after them. That must be done in the context of a multi-racial society. That point was put forcefully by my noble friend Lady Uddin. The right reverend Prelate asked about the encouragement of women to look after children at home. Parents will always have primary responsibility for the care and

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wellbeing of their children and many stay at home to look after them. But the issue here is about choice. By developing a national childcare strategy we are not discouraging parents from looking after children themselves but ensuring that the option of affordable, accessible childcare is open to them.
My noble friend Lord Ponsonby asked whether the briefing that I had received was well rounded. I suspect that your Lordships will be the better judge of that when I have finished speaking, but I make no apology for reminding this House that the Government are committed to joined-up policy-making. The promotion of family-friendly working practices is a true cross-government initiative. The Department for Education and Employment is in the lead, but it is working with a number of other government departments: the Department of Trade and Industry, the Home Office, the Department of Health and the Cabinet Office, including the Women's Unit. Their aim is to ensure that the concept of "family-friendly" permeates the development of policies across government. This is essential to the realisation of our wider objectives of a fair and effective modern labour market and welfare reform. Later this month, my right honourable friend the Home Secretary hopes to publish the first ever government paper on the family. Your Lordships will appreciate that it would be inappropriate for me to go into any great detail on the paper at this stage. However, I can reveal that it will include practical ways in which the Government will be looking to support parents and families. This will include family-friendly employment policies and the establishment of a National Family and Parenting Institute.
The Government are also taking action in relation to childcare. The national childcare strategy brings together a wide range of programmes across government. Childcare matters to us all: to our children who deserve the best start in life; to the many parents, especially mothers, who are unable to take up job or training opportunities because childcare is not available; and to businesses which suffer when skilled and talented people are unable to take up work.
The Green Paper Meeting the Childcare Challenge launched on 19th May set out our proposals. Examples of areas in which we shall be taking action include on quality, seeking to improve the way early education and day-care providers are regulated and inspected; on affordability, the introduction of the working families tax credit, which will include a childcare tax credit to help families pay for childcare; and on accessibility. Over the next five years, out of school childcare will become available for every community in Britain which needs it, helping up to 1 million children.
Our Fairness at Work White Paper, on which the DTI is leading, draws together an agenda of current and future legislative proposals which will all have an important impact on workplace culture. Taken together those measures will set a new baseline of rights and opportunities for many employees on which we hope employers will build. It incorporates proposals for a cohesive package of family-friendly rights. These include an entitlement to three months' parental leave
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for both parents when they have a baby or adopt a child; reasonable time off for a family emergency; and simplified and improved maternity rights.
The noble Lord, Lord Tope, and the noble Lord, Lord Ponsonby, questioned whether unpaid leave to employees in that situation is as great an advantage as might be. I believe that the introduction of a right to unpaid parental leave will set a decent minimum standard guaranteeing employees security at work when they need to take leave to look after a child. It also allows a little more flexibility for parents. They will not have to choose between taking the time off and keeping their job. They will be able to do both.
The issue as regards men was mentioned. The noble Baroness, Lady Uddin, referred to the "old man" holding the baby. I believe that the introduction of parental leave for both men and women is an important signal which may start to help to change the workplace culture by recognising that men as well as women can take time off to look after their children. I was particularly pleased that when I was Director of the National Association of Health Authorities and Trusts I introduced paid paternity leave for all our employees. Little did I know then that as a result of the delightful surprise of a fourth child I should be the first member of staff to take advantage of the provision!
The noble Baroness, Lady Goudie, referred to the working time directive. Clearly this will provide a basic entitlement to paid annual leave. Prior to its introduction on 1st October, 8 per cent. of employees had no holiday entitlement, while among working women with dependent children the proportion was 15 per cent. I believe that the directive will help to tackle the long hours culture, described by the noble Lord, Lord Tope, by limiting the average working week to 48 hours.
In response to the noble Lord, Lord Alton, I think that for the first time workers in this country are protected by law from having to work unlimited hours. This directive puts a limit on hours workers can be expected to work and will bring benefits to a number of workers. We shall of course keep it under review as the directive unfolds.
The noble Lord, Lord Morris of Castle Morris, made some pertinent points about the National Health Service, in particular the conditions under which nurses are employed. As a former manager in the NHS, he made me feel guilty. I am glad to tell the noble Lord that the Government are well aware of the issue he raises. The Minister of State for Health has made clear his commitment to ensuring that every part of the health service reaps maximum benefits from becoming a best practice family friendly employer. A new human resources framework has been set out which, among other things, seeks to improve recruitment and retention in the NHS. It includes a centrally supported drive to put in place universal family-friendly working practices by April 1999.
I listened carefully to the excellent contribution of my noble friend Lady Pitkeathley, which was very much underpinned by the remarks of the noble Baroness, Lady Blatch, on the role of carers. I want to make it absolutely clear that family-friendly is not just about

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parents and parenting. The Government value the vital role that carers play. They are an important part of our society. Caring is something that touches us all. Most of us will have had some experience, either in our own family or through friends or colleagues, of illness and disability. That is why we are undertaking a government-wide review of measures to help carers. On 10th June my right honourable friend the Prime Minister announced a National Strategy for Carers which he has asked the Department of Health to lead.
The noble Baroness, Lady Miller, had some important points to make on the issue of low paid workers. It is vital that the development of family friendly working practices reflects the reality of the modern labour market. That means recognising that the rise in women's employment has led to the need for parental responsibilities to be shared between men and women and, importantly, it also means that women are making a significant and, for many low paid working families, vital contribution to household income. It is for those families especially that we need to ensure that family-friendly becomes a reality.
Of course, it is all about winning hearts and minds. The macho culture, which almost rejoices in the relentless pressure to stay late at the office, is all too readily apparent in many places of work. We are clear that all the government initiatives I have described need to be underpinned by a sustained and coherent awareness-raising strategy. Over the coming months we will be seeking to raise the profile of family friendly employment policies and to convince employers that adopting policies which enable their employees to balance home and family life can actually make their business more competitive. That must be the best response to those businesses concerned about additional costs. There is evidence that employing such policies
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can reduce staff turnover and recruitment costs, it can reduce absenteeism and it can provide keener competition for jobs and high calibre recruits, particularly in areas where there are skills shortages. The noble Baroness, Lady Goudie, spoke forcefully about the UK's competitiveness in relation to that. The noble Lord, Lord Haskel, referred to the ever-shortening deadlines, the just-in-time working and the stress on staff. I very much agreed with all the points he made about the key responsibilities on government.
The noble Lord, Lord Ponsonby, and the noble Baroness, Lady Miller, asked about advice and support to small and medium-sized employers. As part of our strategy, the Department for Education and Employment is looking with employer representatives at the barriers to introducing family-friendly policies. We are concerned to find ways of persuading small and medium-sized employers that family-friendly policies can be beneficial to them, too. I recognise that there is some way to go before family-friendly becomes a reality in your Lordships' House, but I certainly warm to the noble Lord, Lord Haskel, in his concern about the long hours worked by Whips.
Society is changing and the nature of the workforce is changing too. The pressure on people to balance work and family responsibilities has never been greater. This is well understood by the Government. But the initiatives I have described amount to a formidable agenda of government action to promote family-friendly working practices. I believe that this important debate has helped to focus attention on the challenges ahead and the issues to be tackled. One thing is certain. On getting the balance right depends the well-being of our nation for the future.
House adjourned at twenty-four minutes past eleven o'clock.