Lords Sitting of 14 April 1999

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

Cross-Channel Alcohol Smuggling
Lord Islwyn Lord Islwyn asked Her Majesty's Government:
What new measures they are taking to combat cross-Channel smuggling of alcohol.
Lord McIntosh of Haringey: My Lords, following the thorough alcohol and tobacco fraud review, the recommendations resulted in the Comprehensive Spending Review in July 1998 allocating Customs £35 million to tackle evasion of alcohol and tobacco duties. This has enabled it to employ more than 100 extra front-line staff, who have been operationally effective since 1st April.
Lord Islwyn: My Lords, does the Minister appreciate that whereas these measures may be worth while, nevertheless they tend to deal with the symptoms and not the cause of the problem? The real issue is the duty differential. For example, beer in France has 5p a pint excise duty compared to 33p a pint in Britain. Meanwhile, the Treasury is losing out because 15 per cent. of French beer sales is drunk in Britain. Organised crime is muscling in on this illicit trade and Kent police are having a job to cope with the situation. Surely fresh thought is needed on this important problem.
Lord McIntosh of Haringey: My Lords, we should get the figures into perspective. Yes, of course it is true that it is a serious problem; I do not wish to underestimate it. The loss through cross-Channel smuggling of alcohol is put at £220 million, which is 2 per cent. of UK alcohol receipts. On the other hand, if we were to bring our alcohol duty levels down to those of France and our tobacco duties down to those of Belgium, we would be losing £9.5 billion in revenue. That is the balance which should be considered.
Lord Skelmersdale: My Lords, the Minister spoke about the new Customs and Excise officers being "operationally effective". Does he mean that they are working or does he mean that they have caught smugglers?
Lord McIntosh of Haringey: Both, my Lords. They have been recruited and in training since July of last year when the money was allocated. They are now all on duty—some were on duty well before 1st April—and they are all contributing to the work of Customs and Excise in combating smuggling.
Lord Berkeley: My Lords, would the Minister care to comment on how much smuggling there might be of
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tobacco and drink between France and Belgium? Perhaps I may suggest to him that if there were some harmonisation between rates of duty and taxes within the Community—up as well as down, bearing in mind what the Minister has just said—that might eliminate the problem.
Lord McIntosh of Haringey: My Lords, my noble friend knows that the land frontier between France and Belgium is pretty well 100 per cent. open. I have no idea what degree of smuggling there is. I do not think anybody could possibly know such a figure.
The Earl of Northesk: My Lords, can the Minister confirm the recent announcement that 1.000 Customs and Excise jobs are to be cut in the south of England?
Lord McIntosh of Haringey: No, I cannot, my Lords. I will investigate and write to the noble Earl.
Lord Stoddart of Swindon: My Lords, does my noble friend not agree that the higher the disparity between the taxes on alcohol and tobacco in this country and other countries, the more incentive there is for criminality? Does that not in itself worry the Government, because they are having to employ more officials to prevent this criminality from taking place and growing? Would it not be far better to have more reasonable taxes on these two items than continually to increase them above the cost of living and make things even more difficult as time goes on?
Lord McIntosh of Haringey: My Lords, I am not surprised at the question. My noble friend is of course right; great disparities in excise duty rates result in smuggling. I have already given the difference between the cost to the Revenue of smuggling and the cost to the Revenue if we were to harmonise the rates fully. However, I am surprised that the question should come from him and that my noble friend Lord Stoddart of Swindon, of all people, should be arguing for tax harmonisation within the European Union.
Lord Stoddart of Swindon: My Lords, my noble friend is quite wrong. I was not arguing for tax harmonisation; I was arguing for the Treasury and Parliament in this country to reduce the taxes on those particular items. That is not harmonisation.
Lord Islwyn: My Lords, will the Minister recognise that young people can obtain supplies of alcohol more easily from illicit dealers, whereas with off-licences at least there is a measure of control? Will he also recognise that the licensing trade employs many thousands of people throughout the country and that eventually these smuggling activities will have a knock-on effect on jobs?
Lord McIntosh of Haringey: My Lords, I do not know that I can confirm that this is likely to increase sales of alcohol to children. Unfortunately, a great deal of smuggled alcohol and tobacco goes through legitimate or semi-legitimate retail outlets. As to job

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losses, it should be borne in mind that a large proportion of the alcohol smuggled into this country is manufactured in this country, sent out to hypermarkets in Calais and Boulogne and then brought back again. So there are job losses in the retail trade but not in the brewing industry.
Baroness Trumpington: My Lords, in view of what the Minister has just said, would he care to comment on the losses suffered by Kentish pubs and breweries?
Lord McIntosh of Haringey: My Lords, I hoped that I had answered that question. Yes, of course the loss to Kentish pubs is very serious. That is why we are putting the extra effort into anti-smuggling activity. But the loss to breweries is probably not that great as it is British beer that is being brought back into the country.
Lord Ironside: My Lords, does the noble Lord agree that there is another differential to consider; namely, the difference between the strength of export spirits and that of spirits obtained on the home market? Is not the lure to smuggle the ability to be able to buy export strength spirits, for example gin and whisky, at 47 per cent. by volume, as opposed to spirits sold in the domestic markets at 40 per cent. by volume? Does the noble Lord therefore consider that there is good reason to harmonise the rates of alcohol content in order to avoid and reduce smuggling?
Lord McIntosh of Haringey: My Lords, harmonising rates of alcohol strength would be a step that would take us far in the direction of a "united states of Europe" in which this Government do not wish to go. I do not know that extra high-strength spirits form a significant proportion of the goods brought back into this country. A significant proportion of the beer that is brought back into this country is high-strength. It has no market in other European countries; it is manufactured in this country, sent over to Calais and Boulogne and then returned here.

European Single Currency
2.45 p.m.
Lord Peyton of Yeovil Lord Peyton of Yeovil asked Her Majesty's Government:
Whether they will issue a White Paper setting out the political and economic reasons for and against the United Kingdom joining the European single currency and identifying the questions which need to be answered before a decision is reached.
Lord McIntosh of Haringey: My Lords, the Government have already spelt out clearly their policy on membership of the single currency. The key factor underpinning any government decision will be whether the economic benefits to the United Kingdom are clear and unambiguous. If they are, the Government believe that there is no constitutional bar to British membership.
Lord Peyton of Yeovil: My Lords, I wonder whether the noble Lord would be good enough to read the
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Question on the Order Paper and then attempt to answer it. So far, he has not done so. Does he remember the way in which my right honourable friend the recent Prime Minister was drenched in ridicule for not having forecast, years ahead, the attitude of the Government to the single currency? Now that the single currency is in existence, the Government ought to be capable of setting out in a White Paper the reasons, both economic and political, in favour of and against our joining it. So far, they have failed miserably.
Lord McIntosh of Haringey: My Lords, I reject that accusation. As I said in my Answer, the Government have already clearly spelt out their policy. In doing so, they have spelt out the economic factors and the political considerations. The Chancellor did so in his Statement in October 1997, as did the Prime Minister when he spoke on the subject earlier this year.
Lord Bruce of Donington: My Lords, is the noble Lord aware that at some time in the not too far distant future the people of our country are to be invited to make a decision of the utmost importance? Would it not therefore be in the public interest for the Government to cause to be published the quantified factors in the economic sphere that have enabled them to arrive at their decision? Surely the decision of the people, when it is made, ought to be an informed decision. In the interests of transparency, as well as the future of our country, will the Government reconsider the whole matter of providing proper information?
Lord McIntosh of Haringey: My Lords, my noble friend is right to remind the House that the Government have undertaken that when they have formed the view that it is appropriate to do so a decision will be taken on entry into the single currency. That decision will be taken first by the Government, then by Parliament, then by the people in a referendum. My noble friend is right to say that it must be a fully informed decision—and it will be.
Lord Hooson: My Lords, the Minister said that the Government will be guided by the economic advantages of entering or not entering the single currency. Is he referring to the short term or the long term, or both? Do the political advantages come into the equation at all?
Lord McIntosh of Haringey: My Lords, of course the economic advantages must be the long-term economic advantages. There will be short-term advantages too, but those are not the primary considerations that we should have in mind for such a crucially important step.
Lord Marsh: My Lords, does the Minister agree that the performance of the euro since its launch has certainly not as yet produced anything on which to base a long-term definitive view? Will he, however, confess to any marginal disappointment with its performance in terms of both its stability and its strength against the

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dollar? Does that lead the Minister to assume any potential dangers in UK entry to EMU? If so, what are they?
Lord McIntosh of Haringey: My Lords, I agree with the first part of the noble Lord's question. He is right to say that it would be quite wrong to draw conclusions about the stability of the euro and its success or otherwise over a period of scarcely more than three months. That leads me to disagree with the second part of his question.
Lord Renton: My Lords, bearing in mind that the Government have a duty to protect the economic interests of this country, can the noble Lord say how the Government can perform that duty if they lose their ability to control the value of our currency?
Lord McIntosh of Haringey: My Lords, the noble Lord is looking a good way ahead. If we joined the European single currency, we should be participating in a larger and more widely held currency and presumably, therefore, in many ways a stronger currency. I think that the noble Lord is oversimplifying this when he says that we should lose control.
Viscount Bridgeman: My Lords, does the Minister not agree that the political consequences of entering the euro zone are at least as important as the economic consequences? Does he not agree that the Government owe it to the electorate to spell out in detail the political costs and benefits of joining?
Lord McIntosh of Haringey: My Lords, I have already said in earlier answers that the economic benefits are the most important consideration. They have to be clear and unambiguous. Subject to that, there is no constitutional bar to British membership. But the noble Viscount is right that the constitutional and political considerations are of great importance. Before any decision is taken, the Government will spell out all these issues. We want a genuine choice. A White Paper of the kind asked for by the noble Lord, Lord Peyton, is appropriate only when a decision one way or the other is imminent. At any other time, it would not be a genuine and realistic choice.
Lord Grenfell: My Lords, does the Minister not agree that the decision of the European Central Bank to reduce its interest rates by half a percentage point shows that it is not hell-bent on deflation, as so many Eurosceptics would have us believe, and that it takes very seriously the issue of growth? Is he prepared to give us an assurance that Her Majesty's Government will press in the Council for a speeding up of the reform of labour markets (which is necessary in many countries of Europe) so that there is a better assurance that there will be the kind of growth which is attractive to us in the longer term?
Lord McIntosh of Haringey: My Lords, I do not think that it would be appropriate for Her Majesty's Government to comment on the decisions of the
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European Central Bank on interest rates in recent weeks. As my noble friend knows, when the European Central Bank was set up, under the British presidency, we argued for greater transparency in its workings, but that does not mean that we take a view on its current decisions.

Piracy and Robbery at Sea
2.55 p.m.
Lord Clinton-Davis Lord Clinton-Davis asked Her Majesty's Government
What success they have had in increasing diplomatic pressure on countries that provide safe havens for suspected pirates or armed robbers at sea.
The Parliamentary Under-Secretary of State., Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, we urge all states to take action to counter the menace of piracy and armed robbery at sea and bring the perpetrators to justice. Last year we supported action by the United. Nations General Assembly and the International Maritime Organisation; with EU colleagues we raised the matter at the Regional Forum of the Association of South East Asian Nations; and in countries where attacks affected British shipping we took bilateral action with the states concerned. International pressure is having an effect, but piracy remains a grave threat to crews, security of navigation and international trade.
Lord Clinton-Davis: My Lords, I thank my noble friend for that most helpful Answer, which shows that the Government are giving the matter high priority. Is she aware that there were no fewer than 467 incidents of violence to seafarers last year alone, resulting in 67 deaths and involving at least six British registered, British crewed or British flagged vessels? Is it not unfortunate that, in the light of this serious situation, our own shipowners have so far declined to allow for increased crewing in vulnerable areas of this kind in order to permit proper watch-keeping, and have also declined to introduce closed circuit television, which might well help to mitigate this tremendously difficult problem?
Baroness Symons of Vernham Dean: My Lords, it is because the Government are aware of the statistics which my noble friend details to the House that we took the action last year which I described. This year we shall have to follow up that action in the United Nations. The recently issued M notice, which was a matter of consultation with both the seafarers' union, NUMAST, and the Chamber of Shipping, makes clear in paragraph 11 that:
"Shipowners should ensure that security watches are enhanced if their vessel is in waters or at anchor off ports where attacks occur".

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I believe that the advice to shipowners is very clear indeed. On other issues that are covered, a number of specific points of advice are given. It is also made clear that a constant radio watch should be maintained with shore or naval authorities in areas of danger.
Lord Moynihan: My Lords, as a birthday present to the noble Baroness, perhaps I may ask her a simple and helpful question, to which I am sure I shall receive a characteristically clear and unequivocal reply. Will the Government undertake to study carefully the co-operation between Indonesia, Malaysia and Singapore, which together have succeeded in reducing the attacks in one of the world's worst affected areas, the Malacca Straits, from 32 in 1991 to none in 1997 as a result of co-ordinated patrols which it was agreed should begin there in 1992? When they have studied that excellent co-operation, will they encourage other high-risk areas to emulate it?
Baroness Symons of Vernham Dean: My Lords, that was a very nice birthday present, although perhaps not quite as nice as some of the other presents I have received today. It happens to be a question on which I have been briefed.
The Government believe that regional co-operation is the most effective way to tackle the problem. We have encouraged this through European Union participation in the ASEAN Regional Forum. Co-operation between regional states is, in the view of the Government, an enormously important part of dealing with this difficulty.
Difficulties in co-ordination mean that attacks are sometimes not investigated and that criminals go free. The example which the noble Lord cites of the Malacca Straits is indeed one which the Government would like to see emulated in other parts of the world.
Baroness Williams of Crosby: My Lords, perhaps we may add our congratulations, though perhaps in less elegant terms, to the noble Baroness. Can she say whether consideration has been given by Interpol to the use of alarm systems to enable a more precise identification of those ships which have been attacked and of the location of pirate groups which attack ships, particularly in the Malacca Straits but also elsewhere?
Baroness Symons of Vernham Dean: My Lords, I thank the noble Baroness for her good wishes. A number of issues have been tackled in the International Maritime Organisation discussions. As I indicated a moment ago, the Government are encouraging regional co-operation. The noble Baronesses raises a specific point about Interpol, on which I shall have to write to her. The Government, through the Department of the Environment, Transport and the Regions, last year sent out some 17,000 copies of the advice to seafarers in this country which goes into great detail on ways in which seafarers and shipowners can prepare for attacks which
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may be made on them. I advise all seafarers and shipowners to look carefully at the M notice which was issued.
Viscount Waverley: My Lords, what are the Government doing to assist the International Maritime Organisation in its activities? What success has the Metropolitan Police had in previous missions to target countries?
Baroness Symons of Vernham Dean: My Lords, we helped to finance the ongoing series of missions and seminars of the International Maritime Organisation for the affected regions. These focused on the need for some states to put in place effective plans to investigate the attacks which occur and to prosecute those involved. In addition, we have funded the participation of two international crime experts from Scotland Yard who have been able to give practical advice and who are helping to develop piracy response plans in parts of the world most severely affected by these difficulties.

Hotels and Guest-houses: Grading Scheme
2.59 p.m.
Lord Dormand of Easington Lord Dormand of Easington asked Her Majesty's Government
What priority they intend to give to introducing a new grading scheme for all hotels and guest-houses as proposed in the policy document Tomorrow's Tourism.
Lord McIntosh of Haringey: My Lords, raising the quality of all serviced accommodation in England is a high priority, as Tomorrow's Tourism made clear. Inspections by the English Tourist Board, the AA and the RAC under the new harmonised accommodation rating schemes began in January 1998. When the schemes are launched to consumers in September of this year we think that they will welcome the greater emphasis on quality and find the combined rating of facilities and quality much easier to understand.
Lord Dormand of Easington: My Lords, in thanking my noble friend for that helpful reply, I declare an interest as vice-president of the Northumbria Tourist Board and vice-chairman of the All-Party Tourism Group. Can my noble friend tell the House what is being done to define the standards to which he referred? For example, what consultations are being held on the proposed standards? Will the scheme be a statutory one? Further, does my noble friend agree that such a scheme is long overdue and that all other tourist countries have had such a scheme in operation for a long time?
Lord McIntosh of Haringey: My Lords, the standards themselves are enormously complicated. Although I shall not read them out, there are 51 pages of standards for hotels and a further 26 pages of quality standards for guest-houses. These have been agreed after detailed consultation and are being used by the

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inspectors of the English Tourist Board, the AA and the RAC. There is no present intention to make it a statutory scheme but we would not rule that out if it became necessary. However, the reception of the inspection process that has been going on for more than a year has been very good indeed. I agree with my noble friend's last point that this is long overdue.
Lord Inglewood: My Lords, does the Minister agree that it is unfortunate that there is not a single harmonised scheme operated by all the tourist boards across the United Kingdom? Does he agree that that would be very advantageous to the industry as a whole, bearing in mind that the divisions between the home countries are not easily recognised by those beyond our shores?
Lord McIntosh of Haringey: My Lords, I agree entirely with the noble Lord. We would have wished to reach agreement with the tourist boards of all three countries. However, the harmonised scheme that is available in England through the AA, RAC and the English Tourist Board is available in Scotland, Wales, the Channel Islands, the Isle of Man and Northern Ireland under the auspices of the AA and the RAC. Therefore, although it may not be as simple as it should be tourists can have access to the same standards everywhere.
Lord Strabolgi: My Lords, is my noble friend aware that a very successful grading scheme has been operated in France for many years and it is probably easier to understand than all of the various descriptions promised by the Government?
Lord McIntosh of Haringey: My Lords, I entirely agree with my noble friend. I am a great devotee of the nomenclature nationale. It is a little regimental and requires registration by the prefect of the particular department, and classification is integrated with registration. It is a bit conformist, if I may put it in that way.
Lord Naseby: My Lords, is the Minister aware that Tomorrow's Tourism contains a number of other recommendations, not least the one about lay-bys for tourists going to and from these registered hotels and guest-houses? Can that also be given some priority?
Lord McIntosh of Haringey: My Lords, I believe that the noble Lord tempts me into a lay-by that is quite a way from the original Question, which is concerned with the classification of tourist accommodation. Clearly, all of the proposals in Tomorrow's Tourism are being pursued very actively not just by the Government but by the tourist trade itself.
Baroness David: My Lords, does my noble friend agree that in his effort to harmonise these matters everything will be exactly the same? When one wanders round the capitals of Europe, or further afield, it is depressing to find that many hotels are exactly the same and have no character of their own.
Lord McIntosh of Haringey: My Lords, I shall gladly lend my noble friend the details of the standard
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classifications. I do not believe that in all cases they require identical provision but comparable provision, and that is what tourists want.
Baroness Anelay of St. Johns: My Lords, on more than one occasion today the noble Lord has made reference to the English Tourist Board, which will be monitoring the new system. The noble Lord gives me some encouragement. Does the noble Lord mean by his statements on the English Tourist Board that the Government have gone back on their decision in Tomorrow's Tourism to rename our national tourist board? Can he reassure the House that "England" or "English" will remain in the title?
Lord McIntosh of Haringey: My Lords, I was referring to the English Tourist Board as having been responsible historically for the harmonised scheme. The report on the implementation of the scheme to establish a new national body for tourism in England has been produced after very considerable consultation. That is now with Ministers. We hope to make their conclusions public very shortly. I confirm that the recommended name for the new body includes "England".
Lord Dormand of Easington: My Lords, does my noble friend agree that education and training are crucially important if standards in the tourism industry are to be raised? What encouragement are the Government giving to education and training in the industry?
Lord McIntosh of Haringey: My Lords, we are giving huge encouragement, A major section of Tomorrow's Tourism is concerned with education and training. It is our view that the tourism industry in this country can be helped only if we treat it as a serious and responsible profession. To that extent both the skills training proposals and the introduction of the minimum wage are essential.

Pollution Prevention and Control Bill [H.L.]
3.6 p.m.
Lord Carter: My Lords, on behalf of my noble friend Lord Whitty, I beg to move the Motion standing in his name on the Order Paper.
Moved, That it be an instruction to the Committee of the Whole House to whom the Bill has been re-committed that they consider the Bill in the following order:

Clause 1,

Schedule 1,

Clauses 2 and 3,

Schedules 2 and 3,

Clause 4.—(Lord Carter.)

On Question, Motion agreed to.

Taxation and Public Expenditure
3.7 p.m.
Lord Skidelsky Lord Skidelsky rose to call attention to current levels of taxation and public expenditure and their consequences; and to move for Papers.
The noble Lord said: My Lords, these debates on Wednesday afternoon are a bit of a luxury, especially for busy people. They are not directly connected with legislation, but they give the House the opportunity to consider broad questions of policy in a relatively non-contentious way. I very much hope that this Wednesday slot will survive the reforms of our House, whatever shape they take. The debate this afternoon is really our substitute for a Budget debate. Therefore, I should like to thank in advance those noble Lords who have agreed to take part.
Economic writers have always known that excessive government spending can undermine an economy. Government revenues are derived from taxes and borrowing. If rising taxation destroys the incentives and finances of producers, the economy declines. We have also always known that there comes a point, difficult though it is to define, when tax evasion, tax avoidance, smuggling and other economic crimes become endemic and cause government revenues to collapse. In other words, the truths underlying the famous (or infamous) Laffer curve have been known for centuries. I give the following quotation:
"Attacks on people's property remove the incentive to acquire and gain property… When the incentive to acquire and obtain property is gone, people no longer make efforts to acquire any. When attacks on property are extensive and general… business inactivity, too, becomes general… People scatter everywhere… to places outside the jurisdiction of their present government… The population of a region becomes light. The settlements there become empty. The cities lie in ruins".
Those words were written by the Arab scholar Ibn Khaldun in 1377 and have been repeated by most economists over the ensuing centuries. They are particularly apposite to the subject of the proposition before us today.
Taxation is driven by public spending. This century public spending has risen dramatically as a share of national income in all developed countries. To take just our own country, in 1900 the British Government spent 10 per cent. of national income, roughly the level it had been since the Napoleonic Wars, out of which they also repaid a large part of the national debt incurred during those wars. By 1976, the share had risen from 10 per cent. to 50 per cent.
I should like to draw your Lordships' attention to two features of that record which seem of particular interest. First, our most successful period of post-war growth from the late 1940s to the early 1960s coincided with a downward trend of public spending in national income, from 35 per cent. in 1948 to 28 per cent. in 1960. Secondly, we reversed the upward ratchet which started in the early 1960s, earlier than most European countries. Our public spending share peaked at 50 per cent. in 1976 and has fallen fairly steadily ever since—despite the blip in the early 1990s—down to under 40 per cent. today. The European Union share, by contrast, went on
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rising through the 1980s and has only recently stabilised at a much higher level than our own—at about 50 per cent. of national income.
For much of this second period, the UK growth rate has been higher than that of our European partners. They have stagnated; we have discovered a fresh dynamism. Of course there have been other factors in that turnaround, including the supply side reforms of the 1980s. But the main conclusion I draw is that, within fairly wide limits, it is not so much the level of taxation which influences economic performance as the expectation people have of what the tax burden will be—in other words, the expected trend of taxes. If they expect the burden to go up, their efforts will slacken; if they expect it to go down their efforts will quicken.
That is very relevant to the present situation. Between 1981 and 1997 the tax burden fell from 39 per cent. to 36 per cent. of GDP. Since 1997 it has started to creep up again as a result of what we call stealth taxes—excise duties, tobacco tax escalators, windfall taxes, reductions of allowances, and so on. It is projected to go up to 37 per cent. by the year 2001—a very small amount, I concede, but one which could have large effects if that is expected to set a trend of rising taxation.
That is the first point to which I wish to draw attention. It is not just the level of taxes which determines economic performance, but the expectation of whether taxes will go up or down.
My second point is the close connection between the level of taxation and fiscal rules. The reason is that a budget which is balanced to any large extent by borrowing leads to debt accumulation which has to be financed by higher taxes. If one has no budget rules but simply allows borrowing to plug any shortfall of normal taxes, one gets into an unsustainable debt situation which means one then has to raise taxes. So there is a quite close connection between the level and trend of taxation and budget rules. A balanced budget in the normal sense was achieved only once in our country between 1945 and 1988—from 1968–70 when the noble Lord, Lord Jenkins of Hillhead, was Chancellor. I am glad to pay tribute to him for that achievement.
Lord McIntosh of Haringey: My Lords, the noble Lord should pay tribute to the member of his Treasury team who is present with us today.
Lord Skidelsky: My Lords, I am very glad to add the noble Lord, Lord Taverne, to my tribute. That surplus was achieved only once. However, the budget deficits in the period of the 1950s and 1960s were very moderate—only about 2 to 3 per cent. of national income. As a result of the mass privatisations of the 1980s, the rationale for large scale borrowing for capital spending has largely disappeared. Too often that capital borrowing was simply a euphemism for subsidies. But what do we find now? There are one or two disturbing straws in the wind. Should the Government have put £200 million of the taxpayers' money into the plant at Longbridge, into a private car manufacturer? Is this the first small sign of the revival of the subsidy culture which we thought we had left behind us? I shall be interested to know.

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The Chancellor of the Exchequer has proclaimed his allegiance to the golden rule: the doctrine that government borrowing should not exceed government investment. Some rule is certainly better than no rule, but I have to point out that this rule is full of holes. Let me explain. The success of an investment in the private sector is measured by the rate of return. So for the capital/current distinction to be useful in the public sector, shadow returns must be calculated for all types of capital spending. Is it really meaningful to identify a shadow return for capital spending to build a prison or school? Is it clear that the return is higher than current spending on an extra prison officer or teacher? Unless an identifiable income stream results from the spending, the analogy between public sector and private sector borrowing breaks down. So we must monitor the golden rule of our prudent Chancellor with great care to make sure it does not become a cover for all kinds of forbidden tricks.
Another aspect of fiscal practice which gives rise to concern is the habit of all governments—I do not exclude Conservative governments—of raising taxes to satisfy populist spending pressures and then reducing the effect of those on the tax burden, especially for the middle classes, through tax reliefs and allowances. The danger is that the abolition or reduction of those allowances, justified though it may be on grounds of simplicity, equity and so on, allows the Chancellor to increase the tax burden without raising tax rates. That has started, and we need to watch it carefully.
I wish to turn in my conclusion from these rather dry technical matters to issues of basic philosophy. The difference between our party and the party on the Benches opposite is—I put as neutrally as I can—that we instinctively favour lower taxes for the sake of freedom and efficiency while it instinctively favours higher public spending for the sake of (let me call it) social justice. Our contention is that lower taxes, by making the economy more productive, will at the same time improve the position of the least well off, especially if the tax-cutting programme pays attention to raising tax thresholds as well as cutting standard and higher rates.
Across the board tax cuts benefit everyone. In particular they get us away from that dreadful and divisive game of counting winners and losers. We need to point out that a tax cut of 3 per cent. increases teachers' pay just as much as a pay rise of 3 per cent., and leaves the community more contented because it is across the board.
So in arguing for this route to social and economic improvement, we draw not only on the logic of Ibn Khaldun and his successors with whom I began, but on the historical experience of all successful societies, including our own. I beg to move for Papers.
3.20 p.m.
Lord Haskel: My Lords, the noble Lord, Lord Skidelsky, draws our attention to current levels of taxation and public expenditure. I am not an economist and personally I find the argument over the numbers rather pointless. The noble Lord spoke about
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expectation, but, after all, the numbers are a matter of record. Taxes are laid out in the Budget Red Book. The same applies to the categorisation of the Government's income and expenditure.
The noble Lord spoke about the expected return on government expenditure on supporting industry. I must point out to him that traditional accounting takes no account of social benefits. Often the expenditure is precisely for that purpose. Categorisation depends on how you view the world. The Treasury has one view of the tax burden and official statisticians have another. Every economist will have his own view about, for instance, whether the working families' tax credit should be accounted for as public spending or as negative taxation. Frankly, I find the argument academic.
The noble Lord spoke about the percentage of GDP taken in taxation. Surely, the significant point is that the level of taxation depends on the rise or fall of economic activity. And so the argument over whether the percentage of GDP taken by the Government is 37 per cent. or 36 per cent. depends on the domestic product. That is what is important.
However, the noble Lord, Lord Skidelsky, calls our attention to the consequences of the current levels of taxation and public expenditure. Now this is much more interesting territory. I would hope that the consequence of our level of taxation and public expenditure is a thriving and competitive economy and a fair and decent society. That is the kind of country I want to live in. Indeed, I congratulate the Government on having stated that as their objective.
Let me take a look at some of the areas of our taxation and public spending to see whether they are directed towards achieving those purposes. Let us take business. Business taxes are complex and there are lots of them. A thriving and competitive economy is not created just by reducing taxes to encourage consumption. Businesses should be taxed in such a way that they are encouraged to invest, to be enterprising, competitive and innovative. We particularly want to encourage small and medium-sized enterprises. A low level of corporation tax does precisely that. Introducing a new 10 per cent. rate for the smallest companies and 20 per cent. for the other SMEs certainly encourages enterprise and productivity.
In spite of what the noble Lord says, businessmen.. especially those operating smaller businesses, are encouraged by tax allowances. And the Government are slowly doing that by introducing a new tax credit on research and development for SMEs from next year by extending the 40 per cent. first year capital allowance for SMEs and by the proposal for all employee share ownership schemes.
Small businesses will also receive some additional benefit, assistance and encouragement from their taxes from the new Small Business Service and its enterprise fund providing loan guarantees. Tax allowances will also be available to encourage the wider use of computers. So there is plenty of opportunity for firms to reduce their tax base by being enterprising and competitive. The whole point of allowances is that firms are enabled to reduce their tax base.

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However, businessmen, large and small, are also much influenced by what they receive in return for their taxes. If they see a bloated and wasteful public sector, a disastrous roller-coaster economy, a poorly educated workforce and highly fragmented and unequal consumers, they will be unhappy with any level of taxation. Where they see that government finances are under control, that the economy is steady, that the public sector is fairly stable and that the quality of the workforce is improving, they are encouraged by the resulting low inflation and low interest rates and feel that they are getting reasonable value for their taxes. That is one response to the noble Lord's point about expectations. He appears to believe that what is happening is a consequence of the current level of taxation and public spending. I do not believe that it is.
Personal taxation, like business tax, is complex. Much depends on the individual's tax base, his allowances, and, most importantly, their relationship with the benefit system. For years, the tax and benefit systems have been out of step. This created the unemployment trap and the poverty trap which proved not only a disincentive to work but also resulted in more and more children living in poverty.
Since 1979, the wealth of the nation has steadily increased, but so has the number of children living in poverty. That has been largely due to the taxation system. Poor people were paying marginal rates of tax of 70 per cent. Thankfully, the Government have at last begun the integration of the tax and benefit systems in order to spring the dependency trap. Surely, one of the better consequences of the working families' tax credit is the gradual elimination of the poverty and unemployment traps. It must contribute to a fairer society if work pays better than benefits.
Reform of national insurance charges will also increase the work incentive for lower paid people. It makes sense to align national insurance charges with income tax personal allowances. It also makes sense to reduce national insurance for low paid people and to increase it for higher paid people by charging national insurance against benefits in kind and increasing the rate for higher paid self employed people.
It must also be right for our society and for the economy to help families and children. The new children's tax credit and the working families' tax credit do precisely that; the tax allowance on mortgages does not. Pensioners, too, will be guaranteed a minimum income and child benefit will rise to record levels. All those changes must contribute towards a fairer society and help to close the gaps in society. Surely, that is a welcome result of the level of taxation and public spending.
Turning to the environment, I believe that it is quite legitimate for the Government to reduce the tax burden on good things such as payment for work and enterprise and to put the burden on bad things such as pollution. Climate change is recognised by all as a significant environmental threat. Using the tax system to encourage the efficient use of energy and the introduction of renewable sources of energy can only be right.
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I am most grateful to the noble Lord, Lord Skidelsky, for introducing the debate. I confess that I am a little disappointed by what he had to say. It was as though he was reading from an old script. Indeed, he went back to the 14th century and requoted the old mantras. The world has moved on and so has thinking about taxation. I believe that I have shown that the Government are aware of that, and I hope that the noble Lord, Lord Skidelsky, will not be left behind.
3.30 p.m.
Baroness Hogg: My Lords, I congratulate my noble friend Lord Skidelsky on the wording of the Motion, because it is particularly well chosen. It is indeed important to
"call attention to … levels of taxation and … expenditure",
because they are so deeply buried in the Government's lovely new shiny publications.
My text today is, of course, the monumental, wrist-straining document in which the Chancellor presented his latest Budget. I took the trouble recently to compare this remarkable production, written and edited at the taxpayers' expense, with the equivalent document issued on the 1979 Budget. Those of your Lordships who recall the radical changes made in that once-in-a-generation Budget may also recall that the Treasury managed to describe it simply and straightforwardly in a little red Budget book just 31 pages long.
To describe his latest Budget, however, the Chancellor seems to have needed 190 full pages—A4 size. There can surely be only one of two explanations. One is that his tinkering has so massively over-complicated the tax system that it really does require over 50,000 words to explain what on earth he is trying to do. The alternative is that in every sense of the word this really is a bit thick—that rather a lot of this so-called Budget book consists of a load of wool that the Chancellor wishes to spin over our eyes.
I would like to be both optimistic and charitable and assume that the second explanation is the correct one, because, after all, a waste of paper and Civil Service time would be much less damaging to the economy than making a complicated mess of the taxation system.
I am afraid, however, that there are aspects of Mr. Brown's Budget that plainly are a bit of a muddle, of which the most obvious is his plan for married couples' taxation. At a stroke, he has reneged on the hard-won principle of separate taxation for women, by proposing to make a mother's tax bill dependent on what her husband is earning. The only silver lining is that, since this is one of the many Budget announcements that the Chancellor does not actually intend to do anything about for two years, the Treasury has some time to sort him out.
One will certainly look in vain for a full explanation of such an important policy change in the Budget book. It is not that which is filling up the pages. In Chapter 5, after two sketchy sentences, we are promised "further detail" later in the book—presumably in the hope that

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we will simply lose interest, because if one turns to the place where it is promised, it just is not there. So what are we being offered in this massive tome?
After wading through the first 94 pages of this document, I finally reached the heading "Financial Statement and Budget Report". Now, that is what it used to say on page 1! What that tells me is rather serious: that the 94 pages in advance are the spin-doctors' preserve, and that the only part of this document to which the Treasury is prepared to give this traditional imprimatur is buried at the back of the book.
And, of course, the Chancellor must be hoping nobody gets quite that far. For example, on page 14 we are told that taxes are being cut this year by £1 billion. It is not until page 120 that we discover that the Chancellor is meanwhile putting taxes up this year by nearly £4 billion. He highlights the cut in the starting rate of income tax on pages 9, 11, 13, 49, 59, 60, 71 and 72—and I am sure that I have missed plenty—but he does not identify until page 97 the fact that he has meanwhile paid for most of this by raising the 20p rate.
This document is riddled with the repetition of claims that are not clearly defined, illustrated by somewhat randomly associated figures, laced together with buzz words. On page 70 there is a dinky little chart purporting to show what will happen to families' living standards, which ignores everything to do with spending taxes, and is only a guess at the position in 2001 anyway. Yet the Government somehow seem to have failed to find space on any of these 190 pages for the traditional tables showing the overall impact of all tax changes on individuals this year.
I have to say that I think it is fortunate that the Treasury is not a private pension provider, because I do not think this would meet the regulator's CAT standards.
I have done time in Whitehall. I have taken my turn at brisking up boring old Treasury announcements. So I am not inclined to be too prissy about presentation. But this is not some trivial hand-out on a Minister's speech. The annual Budget report is an important document of record. It circulates widely. There is a serious public interest in ensuring that the Budget report is balanced, clear and straightforward, factual and unbiased—and, preferably, brief and to the point. Whitehall guidance, admirably re-issued by this Government, is that all such material
"should be objective and explanatory, not tendentious or polemical".
All I can say is that someone seems to have nodded off at times between pages 1 and 94. For my part, having read them too, I cannot say that I altogether blame them.
Fortunately, the Chancellor has been rumbled. To quote the Economist:
"New Labour has raised the art of obfuscating and spinning official information and statistics to new heights. Or should that be lows?".
I think he was rumbled partly because of a rather puzzling attempt by some to deny the basic fact that taxation is going up. This led the Institute for Fiscal Studies—on whose Council I have the honour to sit—to dig a bit deeper, and examine the extent to which, in the Economist's words, the numbers have been
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"flattered by reclassification'". If one gets far enough into the good bit of the Budget book one can, however, find the answer to the tax question. This shows clearly that current Government receipts will go up by over £10 billion this year, and, just to make the point, that these receipts are planned to increase—only modestly, but steadily—as a share of national income. One may have to get to page 154 to find a comprehensive, undistorted answer, but it is there. The Government are planning to raise taxes this year, next year and the year after. I am sure no one in this House would be so misleading, or should I say "misled", as to suggest otherwise.
3.37 p.m.
Baroness Sharp of Guildford: My Lords, perhaps I may join others in thanking the noble Lord, Lord Skidelsky, for raising this interesting topic and giving us the opportunity to debate it.
I should like to respond immediately to three of the points that the noble Lord made. The first was that the degree of taxation in society has a considerable effect on incentives. That is only partially true. An enormous amount of work has been done by economists over the years to try to identify how big an incentive effect taxation has. I think the conclusions are that very high rates of taxation create a considerable disincentive effect.
Let us look at times when we have had very high rates of taxation, such as during the Labour administration of the 1974–79 era, and at the compounding of means testing and the poverty trap, a point raised by the noble Lord, Lord Haskel. This is an issue that we should be very much aware of—that the marginal rates of taxation faced by those at the bottom of the income scale, not at the top, are frequently well over 100 per cent. and have probably provided a major disincentive to working.
Secondly, the noble Lord, Lord Skidelsky, raised the issue of investment. Since some time in the 1960s the Government have made no distinction between capital and current expenditure in their accounts. I happened to be working in the Treasury in the early 1960s when we made that distinction. One result of the change is that the capital side of public accounts, of expenditure, has over the course of time been neglected, because current expenditure is always more pressing. There are always incomes to be met, salaries to be paid. Therefore, time and time again when economies have to be made they have been made from the capital side of expenditure. The result, I believe, is that this state has neglected its responsibilities over the years; it has run down the social infrastructure to a point where we are in danger of not being able to meet essential needs.
I give as an example the area in which I work. the economics of basic science, where we are in danger of not being able to meet the needs of modern industrialisation, of new technologies, because in this country we are not putting enough money into research and development.
The third point that the noble Lord made is that, provided we cut taxes and growth increases, we do not have to worry about the poor because they will benefit

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from faster growth. There is a degree to which the noble Lord is obviously right. He pointed out correctly that in the period from 1950 to the end of the 1960s, when we had the fastest growth rate in this country which we have ever experienced consistently, the poor did very well. But that was also a period in which we introduced major redistributive schemes for the poor.
There is no evidence at all that in the period of the 1980s, at a time when taxation was cut substantially, there was any benefit to the poor. On the contrary, we have seen the distinction between the rich and poor becoming wider than ever before. The trickle-down effect did not work. That is why we are left with a considerable problem in relation to the poor and the issue of poverty.
Lord Skidelsky: My Lords, I thank the noble
Baroness for giving way. Perhaps she will recall that in my speech I said that as part of any tax-cutting programme tax thresholds should be raised. That was my preferred method for tackling the poverty programme. It is not the only way but it is my preferred method of arranging the tax system.
Baroness Sharp of Guildford: My Lords, I am delighted that the noble Lord made that point because it is a point which the Liberal Democrats have been making for a long time.
From these Benches, there is a different proposition which I wish to put to the House. The noble Lord, Lord Skidelsky, suggested that taxation is increasing and should be diminished. As is well known, we believe the opposite; that on the contrary, in certain areas, public expenditure should increase more quickly and that there is considerable justification for raising taxation to meet that increase in public expenditure.
The reason for putting forward that argument is that taxation can be divided into three main areas. One can be justified in terms of public goods. A traditional public good is something like street lighting. You cannot prevent people from benefiting from street lighting. If you ask people whether they will pay for street lighting, they will say that they will not because they know that if muggins next door will pay, there is no reason why they should pay anything towards it. It is called the free-rider problem, and the easiest way out of that dilemma is for the state to raise general taxation to pay for it. Many areas—public lighting, the environment, safety, health, defence, prisons and so on—can be justified on the ground of being public goods.
Secondly, there is redistribution and the noble Lord, Lord Haskel, spoke at considerable length about that. Traditionally, it has been a highly political issue which has divided right from left. I am not sure that that is so any longer. Something like 30 per cent. of UK public expenditure—£100 billion per year—now goes on the social security budget, which is the redistribution budget. All sides struggle to keep it down. It is led largely by issues of old age, illness and unemployment. As the debate that took place here on Monday showed very clearly, it is an area which is extremely difficult to control.
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The final area of major public expenditure in this country is interesting: it is health and education expenditure. It amounts to about 25 per cent. of public expenditure. In this country we are spending 5.7 of GDP on health and 5 per cent. of GDP on education. We are spending less on health than any other advanced industrialised country. The United States in total spends 12.5 per cent. on health, but even the public sector in the United States, which provides a minimal health service, spends 6.5 per cent.
As regards education, we are spending about the same, on average, as our European partners and the United States. Nevertheless, in terms of education, as we know, one in four in this country is now functionally illiterate.
We are now a globalised economy. Capital is extremely mobile; technology is mobile. A multinational can set up business where it wants to. We cannot compete in this country in terms of low wages. We must compete not in terms of brawn but in terms of brain. We shall create jobs in this country only if we can attract those multinationals and provide them with the labour which is capable of meeting their modern-day technological requirements. Unless we invest in education, we shall not be capable of doing that. That is why, on these Benches, year after year, we have said that there must be more investment in education. It is an investment that we cannot afford not to make.
I know that those on the Government Front Bench will tell me that they have put more money into education. But it is a paltry amount compared with what is required. It is by no means enough to meet the needs of a modern industrialised country when there is currently such a crisis.
It may be argued, too, that we do not need to put in more money; that we can create efficiency savings, which we have been doing in the education and health sectors for a considerable period of time. The problem is that 80 per cent. of the budgets in those sectors are people budgets. Why do people spend money on private education? It is because they want smaller classes. We cannot have smaller classes in our primary schools nor proper nursery education unless we are prepared to spend money on those issues.
We are not a highly taxed country. By OECD comparisons, 36 per cent. of the GDP in the UK goes on tax. In the United States and Japan it is about 29 per cent.; in Germany it is at 38 per cent.; in France it is at 45 per cent.; and in Scandinavia it is over 50 per cent. In European terms we are towards the bottom of the league tables. In world terms we are at the lower end of the middle of the league tables. We are a rich country.
We must bear in mind the importance of an increase in expenditure on education and the aspirations of our people in relation to health. We cannot meet the aspirations for a better quality health service unless we are prepared to spend money and put more people into the service. We cannot meet those aspirations unless we increase public expenditure in those two areas.
Unless there are other areas of public expenditure which can provide for the increase necessary in those two areas, we must increase taxation. We cannot afford

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not to invest in education. We must put more money into the National Health Service in order to meet the aspirations of the voters in this country. In both those spheres, we are justified in increasing taxation.
3.38 p.m.
Lord Marlesford: My Lords, I shall not endorse the interesting speech which we have just heard from the noble Baroness, Lady Sharp. However, I shall comment on personal tax levels in this country.
We owe a debt of gratitude to my noble friend Lord Skidelsky for giving us the opportunity to have this debate. I was particularly struck when he referred to the changes in personal taxation as having been one of the major features of the period of Conservative rule. Indeed, there was a revolution in direct taxation under three remarkable Chancellors—one of whom is in the Chamber this afternoon, the other two being my noble and learned friend Lord Howe and my noble friend Lord Lawson—from the time that the government of my noble friend Lady Thatcher were elected. At that time noble Lords will remember that we had a top personal rate of taxation of 98 per cent. It had not fallen below 90 per cent. for some 20 years. Very able people were leaving this country in large numbers in order to avoid the consequences of that tax regime.
I want to talk a little about our present direct tax regime. Before I do so I should like to pay two tributes. First, I should like to say how glad I am that the present Chancellor of the Exchequer has, in three successive Budgets, not significantly changed the structure and pattern of direct taxation in this country. I know that New Labour was elected on a pledge that it would more or less retain the extremely popular and economically successful tax structure which it had inherited. It undertook to retain it, not least, I suspect, because it saw that as an important way of ensuring a useful majority in another place. At any rate, we have had three Budgets in which the tax structure has largely survived.
My second tribute is a more personal one. It is to the noble Lord, Lord McIntosh, who has patiently provided a number of Written Answers to questions I have been asking him on tax levels in Europe. It is the implications of those answers to which I should like to draw your Lordships' attention. He is now fumbling for his papers. Maybe he has taken with him copies of the answers he gave me.
Lord McIntosh of Haringey: My Lords, on the contrary, I was merely thinking, with pleasure, how all that work has now come to fruition and that we shall hear the conclusions which the noble Lord is drawing.
Lord Marlesford: My Lords, I want to emphasise to your Lordships the extremely favourable tax structure we have in terms of personal taxation in this country in comparison with other members of the EU. I should like to quote a few figures. First, as regards income tax, the top rate, as we know, is 40 per cent. It was reduced to that level by my noble friend Lord Lawson in 1988. It comes into effect at a taxable income of about £32,000 per year. In France the top rate is 54 per cent., which comes into effect at a higher level of £88,000. In
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Germany it is 56 per cent., as it is in Sweden and Spain. In the Netherlands it is no less than 60 per cent. and comes into effect at £40,000. In Belgium and Denmark it is about 57 to 58 per cent. Even Italy has a rate of about 45 per cent.
Therefore, as regards direct personal taxation, we have, with Portugal, the lowest top rate. That gives the right incentive to those people who create economic wealth in this country.
Secondly, I should like to refer to capital taxation. Six countries in the EU have an annual wealth tax. I well remember in the mid-1970s a previous Chancellor of the Exchequer, the noble Lord, Lord Healey, attempting to introduce a wealth tax in this country. At least he produced a Green Paper proposing it. A House of Commons Select Committee spent a great deal of time examining it, the results of which we published in the Economist when my noble friend Lady Hogg and I were working there together. That leak dismayed the Select Committee and I was hauled in front of the Privileges Committee for leaking it. Nowadays, Select Committees are glad of any publicity for their reports. The wealth tax was abandoned. No one could find a satisfactory manner to avoid it raiding the cash flow of small companies. That represents quite an important difference between us and some of the other countries. In France, for example, the wealth tax has been a significant piece of political baggage that they have so far been unable to throw overboard, but I think that will come.
Capital gains tax in this country is generally viewed as income, as it is in other countries. That seems to me to be perfectly fair and I have no complaints. As regards inheritance tax, this Is the one country where it is not calculated on a family heirs basis as it is in most continental countries. However, significant and sensible changes were made to the structure of inheritance tax in this country by my noble friend Lord Lamont when he was Chancellor of the Exchequer. The top rate is 40 per cent. but there are lower levels for business assets. Other countries have very high rates, particularly for non-familial inheritance. In Belgium it is still 80 per cent., in the Netherlands 68 per cent. and in France 60 per cent., with a threshold of only £1,000 for people who are not direct relations of the deceased person. Here, I believe it is £225,000.
I turn to the VAT: at 17½ per cent., this country is among the lowest rates. One of the boldest things to be done in the 1979 Budget by my noble and learned friend Lord Howe was to make a dramatic change to simplify and increase the rate of VAT so as to shift from direct to indirect taxation. In Denmark and Sweden it is 25 per cent. and in France 20 per cent.
Another particular aspect of our VAT regime which I believe is extremely important is the threshold below which a small business person, small trader or craftsman does not need to register and thus charge VAT.

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Interestingly, only France and Britain have what I would regard as a sensible level of threshold, which in each case is about £52,000 of annual turnover.
Lord McIntosh of Haringey: My Lords, the noble Lord will of course realise that the French threshold rose from 125,000 francs to 500,000 francs as recently as 1st January this year.
Lord Marlesford: My Lords, I welcome the way in which certain aspects of the British system have been followed. I said a little earlier that some countries will have to continue to learn from the British experience in economic management. Privatisation is another obvious example.
I believe that this VAT threshold is most important. It encourages people who decide to make a go of a business. It gives them a direct advantage in being able to provide their services free of VAT, often on a small scale, and gives them independence. They are the small entrepreneurs so crucial to the country. It is not just large businesses which are important, but small businesses also. Italy, Belgium, Sweden and the Netherlands have no exemption threshold. That may, of course, have something to do with the disinclination to conform to taxation rules in those countries.
A few months ago I spoke to a senior director of the Ministry of Finance in France. He was complaining to me. He said, "You know, there are now 20,000 Frenchmen living in Kent. We have to get them back. It's your tax system which does it. We must have a level playing field". I am extremely anxious that Her Majesty's Government do not yield to pressure for a level playing field if it would mean losing the extremely favourable tax regime we now have in this country.
Nowadays, one does not hear of entrepreneurs, scientists or academics going abroad because they would be better paid. Such people are coming to this country. This country is becoming a place where the successful, the enterprising, the skilled and the talented can flourish.
I have one final point. I do not think I meet the noble Baroness, Lady Sharp, on this point but perhaps philosophically I have some sympathy with her. I believe that a quid pro quo for a low taxation, for leaving money in the hands of the people who have it, is charitable giving. I do not believe that the charitable giving in this country is anything like as generous as it should be. This week the Sunday Times published its list of the rich. It also had a list of the charitable contributions made by certain wealthy families, and in many cases they were remarkably generous. The lack of comparable giving by other wealthy families suggests there is much more scope in this country for charitable giving.
I have one more figure, thanks to the noble Lord, Lord McIntosh. The 137,000 best-off taxpayers, each of whom has a taxable income greater than £100,000, among them have a gross taxable income in excess of £17 billion. That is around 2 per cent. of GDP. That is a lot of money and even if they were to give
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only 1 per cent. of their income to charity, that would amount to a £170 million direct donation. Of course, the Government would be sharing in the cost because charitable donations are deductible. I suggest that with the generous personal tax regime we have in this country, people should be considering charitable giving at roughly the levels that wealthy countries are encouraged to set for their international aid programmes.
4 p.m.
Lord Higgins: My Lords, I welcome, as does my noble friend Lord Skidelsky, the opportunity to have this debate, rather unusually in your Lordships' House, on public expenditure and taxation. I wish basically to follow the theme set out by my noble friend Lady Hogg with regard to the presentation of matters of taxation and public expenditure. I believe, as she implied, that standards in this respect have been falling. That ought to give us cause for concern. In an age of spin doctors there is far too much, as the Americans would say, "smoke and mirrors" in relation to presentation. Indeed, the noble Lord, Lord Haskel, almost gave the game away when he said that the Treasury has one view of taxation and official statisticians another. There has been some divergence of opinion in that respect.
My noble friend's Motion covers public expenditure and tax. They are now embodied in what is called a unified budget; the two sides have been brought together. However, I must express a disappointment. When we were told that there was to be a unified budget, one's reaction was to say that it would be possible to balance the effect of an increase in public expenditure and the implications of that for taxation, a point made a moment ago by the noble Baroness. But despite having brought the two sides of the equation together, it is still the case in the other place that only the executive can really take a decision about the balance. The House of Commons can vote for reducing public expenditure or taxation, but it is still unable, despite the fact that we have a unified budget, to say it would like to spend more, for example, on education or health, and as a result of that put up taxes. So in that respect it is not a truly unified budget where the two sides can be balanced. All that we and the other place can do is comment on the decisions which the Government have made with regard to the balance between the two when in reality it might be the case that the House of Commons would prefer to deal with it in a different manner.
My noble friend's Motion relates to both public expenditure and taxation. I want to concentrate on taxation. I make only one point on public expenditure, which was very much at the heart of the Government's proposals ahead of the election. They said that they would cut expenditure on social security in order to divert resources into expenditure on health and education. In that respect they have clearly failed. The increase in the social security budget has been very great and will be so over the next three years. The reallocation of resources which they said they were going to carry out has not taken place. The noble Baroness, Lady Sharp

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of Guildford, was right to point out the importance of the balance between those major items of public expenditure.
I turn to taxation. I take up only one point made by my noble friend Lord Marlesford with regard to the VAT threshold. It has always been a difficult issue. One has to balance the advantage to those below the threshold in relation to the competition of those just above the threshold, and it is a fine balance. I reflect for a moment—it is a long while ago—that when I was considering where the dividing line should come and subsequently legislating on it, the threshold was £7,000. I am therefore slightly horrified to discover where it has now got to as a result of the various economic developments in the intervening time. I should perhaps add that at that time VAT was only at the standard rate of 10 per cent. and there were major items of zero rating, including complete zero rating in relation to fuel.
I want to turn to the issue of whether the presentation of the Government has been adequate in relation to these matters, in particular the question of whether or not there has been a cut in taxation. That was a major item of dispute at the time of the Budget debates and indeed subsequently. I notice with interest a piece by Mr. Anatole Kaletsky who seems recently to have been producing articles of outstanding merit and often of considerable complexity. He had carried out research into the immediate reaction to the Government's Budget. At one point he said,
"'Everyone's a winner - guaranteed prize for every reader', gushed The Sun headline yesterday morning. 'Apologies for Brown-nosing, but this is brilliant - he's helped every one of us' was the considered view on The Mirror's front-page".
The reality of course is that that is not the case. Indeed, when challenged in the House of Commons by the Leader of the Opposition who repeatedly said that there had been an increase in taxes in the first three Budgets and that the Government had not cut taxes but had raised them, the Prime Minister insisted time and again that they had been cut. As Mr. Kaletsky rightly points out, that is simply false.
There are real problems in presentation. My noble friend Lady Hogg referred to the Red Book. We rely a great deal for our understanding of these matters on the Red Book which, as she rightly pointed out, a little over 20 years ago was an exceedingly slim volume. But it was an objective volume. One could rely absolutely on what it said whereas the present extremely glossy and heavy volume contains a great deal of opinion rather than fact. That is something which gives us cause for concern.
The other documents on which we rely increasingly in addition to the Red Book are the series of press releases which are issued at the same time. Those again were an innovation of the early 1970s. I believe that they were a good innovation and that people outside rely heavily on them for factual information. For those in business who need to react rapidly to what the Chancellor has said, the press releases are extremely valuable. But it is important that they should be impartial, and I do not believe that that is now the case.
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I give one example of a Treasury press release dated 9th March with regard to income tax. There was a paragraph on the new lop rate of income tax which was widely welcomed, and a second paragraph referring to the cut in the basic rate of income tax to 22p. But there was no mention at all of the 20p band of income tax having been abolished. One would have thought at the very least that that was worth mentioning. It is a specific item which I believe to be important. Similarly, if one is going to put forward a comprehensive and balanced picture, it is true that there are cash flow savings for the small employer covered by Inland Revenue Notice 22 with regard to specific changes. But there is no mention of the effect which the introduction of the working families' tax credit would be likely to have on the cash flow of small companies. Indeed, the Government, on a Second Reading earlier this week, made it absolutely clear that they did not propose to give way on that particular matter. So there are real problems here in that respect.
I turn now to a rather more specific point and one which I believe to be important; namely, the exchanges which took place yesterday during Question Time with regard to the Government's press releases. Noble Lords will recall that the noble Lord, Lord Rix, asked what had happened with regard to the Government's press release which stated that pensioners who suffered as a result of the abolition of the bereavement allowance, which is due to happen in April 2000, would be more than compensated as a result of the proposed new bereavement payment. As the Minister recognised yesterday, the statement made in the press release was untrue. It is not the case that that change will more than compensate pensioners. One must acknowledge that the noble Baroness, Lady Hollis, apologised most clearly yesterday for what was a mistake. Indeed, I would be in the forefront of those who accept the apology which was made. However, it does not bring us to the end of the matter.
As I pointed out when quoting from reports in the popular press a few moments ago, we were all under the impression that everyone would gain. However, as a result of the change, we now find that that is not the case. Although the noble Baroness has apologised, the question remains as to whether those affected who were misled at the time feel that this is adequate. At all events, I believe that we are entitled to know who was responsible for the mistake and what action has been taken as a result. More particularly, we need to know whether the Government propose to do anything to help those who will be adversely affected by the change. I have in mind especially widows aged 60 to 64 who do not get the higher tax allowances and who are, therefore, more adversely affected. It is most important that such matters should be checked and that the presentation which is put forward should be such that we can rely on the statements which the Government and the Chancellor of the Exchequer make. I believe that there are important issues involved as regards presentation which need to be considered further.
I have spoken for longer than I intended. I have but one further point to make in relation to public expenditure and taxation. The whole basis of our

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parliamentary system of control of the executive has always been based on the control of public expenditure and taxation. I view with growing concern the possibility that these matters may increasingly be transferred to Brussels as a result of a policy of harmonisation. No doubt in some respects there may be a case for doing so. There are the present problems of smuggling, as mentioned earlier, which arise because of the big difference between our tax rates on tobacco and alcohol. Such matters give cause for concern. Perhaps there is a case for a more standard view in that respect, not least because the EU seems to be remarkably schizophrenic on, for example, the question of tobacco. Indeed, part of it argues that taxes ought to go up while other parts argue that taxes ought to remain as they are. Of course, these are matters for the future, but noble Lords are right to be concerned about the degree of parliamentary control on the two most important aspects of economic management; namely, taxation and public expenditure, to which my noble friend Lord Skidelsky has rightly drawn our attention.
4.14 p.m.
Baroness Platt of Writtle: My Lords, I, too, am most grateful to my noble friend Lord Skidelsky for initiating this important debate, although I am no tax expert and will concentrate on two points in particular. I believe in the vital importance of trade and commerce to the future prosperity of this country. The taxation system has a profound effect, often in unexpected ways, on the success of our industry and commerce. In this connection, I would also place great emphasis on the importance of manufacturing industry. That seems, in my view wrongly, to be unfashionable these days. I should declare an interest here as a non-executive director of our small family business and also—I shall return to this point later—I should say that my husband has a diesel car.
Today everyone emphasises the importance of the service sector in international trade and commerce. As a liveryman of the Worshipful Company of Engineers in the City of London, I would not wish in any way to gainsay that. May our financial services continue to take a leading place in the world and flourish root and branch forever! However, a healthy services sector depends to an important extent on a healthy national manufacturing sector who comprise, in the first place, initial customers and therefore payers for those services.
Manufacturing today depends on being ahead of the world in high technology, high added value industry—although we must not forget to encourage our bread and butter industries—may be low added value. Often one has to import simple household articles which could perfectly well be made here because shops only seem to buy from abroad, whether it be kettles, hammers, deep freezers or toasters. I would wish to see them better made in Britain, thereby providing employment and reducing our national trade deficit.
However, high technology manufacture depends on high technology well-qualified staff; and there should always be investment in good training and continued professional development, as other noble Lords have
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said this afternoon, if our industry is to keep ahead of the rest of the world. Investment in expensive new technological machinery to improve productivity is also essential. Both those fundamentals need fiscal incentives. They are a great burden on small and medium-sized enterprises long before profit arrives on the market for the new invention.
If I were Chancellor of the Exchequer—which, fortunately, is not likely to happen—I would impose a statutory duty on the Treasury not only to balance the annual budget but also to look ahead for our commercial prosperity to the next five to 10 years and to plan those fiscal incentives for our industry and commerce in close consultation with industry and commerce so that the proposals are down-to-earth and practical. Civil servants are not experts in running business, especially small business, and they must take advice in formulating proposals. If plans are well laid, industry and commerce will prosper and the Inland Revenue will rake in increased taxes in a few years' time. New ideas take time to reach markets, so returns will take time to arrive. But if our industry and commerce prospers, employment will rise and everyone will benefit, including the Treasury.
I should like to make another detailed but very important point about the last Budget, which hiked up substantially the tax on diesel fuel to the predictable fury of the road haulage industry, which depends vitally on diesel fuel. My noble friend Lord Marlesford said that not many industries were thinking of going abroad, but the latter is. I believe in the importance of the environment, sustainable development and the reduction of NOx, SO2 and CO2 in reducing global warming. I therefore use public transport whenever possible and take the very good advice given by the DETR in its new leaflet on fuel economy issued in January this year. I can tell noble Lords that it is well worth reading. However, if one looks down the list of vehicles and their fuel consumption, where are the best figures? They are to be found in relation to cars with diesel engines. Lower fuel consumption reduces CO2 production immediately, so surely we want to encourage people to buy diesel cars. Putting up the tax does not do that.
The report of our Select Committee on Science and Technology in 1995 was full of good, long-term strategies for reducing global warming from road transport in a variety of ways— gas-powered vehicles, fuel cells, and bi-powered vehicles using different fuels for urban and long distance travel. All these longer term improvements, which will have to be developed through ingenious and innovative research and development by the motor industry and its expert, well qualified engineers, need careful fiscal planning if we in this country are to be ahead of the international field in reducing global warming and selling our expertise to other countries throughout the world. Again, the Treasury needs to get together with industry in planning future fiscal strategy so that we achieve these longer term aims both for the environment and our own prosperity.
As I waited for my train today I noted with pleasure a goods train going by fully loaded with containers, probably from Felixstowe. That is fine for long distance

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travel, and to encourage it Britain may need to develop efficient terminals in London and the major cities for quick transfer of containers, perhaps by piggy back lorries. However, the majority of long journeys in this country are less than 50 miles, and they may involve short hops between supermarkets and small firms. Trains are no good for that. Even as regards longer journeys, every train journey requires a lorry journey at either end to deliver to final destinations.
All the goods we need and buy in the shops have to be delivered by lorry transport. Therefore a tax on diesel is a tax on every person in this country as prices of goods will inevitably rise to pay for that tax. That is a "stealth" tax, if ever there was one. Road haulage is the major life blood for industry and commerce travelling our national road arteries. By all means let us plan lorry deliveries efficiently to fill lorries and for goods to arrive just in time in the shops for our families. That requires less tax on fuel and vehicles to enable our road haulage companies and shops to prosper to provide employment for their staff and not to go abroad, and to keep down the cost of living for everyone. Her Majesty's Government must act now to achieve that aim with regard to the taxation system as soon as possible.
4.22 p.m.
The Earl of Northesk: My Lords, I, too, thank my noble friend Lord Skidelsky for giving us the opportunity to debate this matter.
A week or so ago Peter Kellner, writing in the Evening Standard, commented that in 2001–02 we—that is, the public—
"shall be £1.6 billion worse off, compared with the taxation and benefit policies bequeathed by the Tories. Labour, then, is taxing more, and spending more, than the Conservatives would have done. That fact should be beyond dispute … Real political debate should concern the merits of Labour's strategies (do we want lower tax or more spent on schools and hospitals?) not the facts that underpin them".
I agree with Mr. Kellner on two counts. First, whatever gloss, whatever obfuscation, is put upon the figures, it is manifestly the case that the Government, by stealth or otherwise, are,
"taxing more, and spending more, than the Conservatives would have done".
Secondly, he is entirely right that debate should focus on the "merits of Labour's strategies". This is precisely what my noble friend's Motion invites us to do.
In this I have a particular axe to grind; namely, excise duty, specifically on tobacco product. We had a reasonable run at this subject during Question Time earlier today but I make no apology for returning to it. I should perhaps also point out for those of your Lordships who are not aware of it that I am a wholly unreconstructed smoker. Excise duty is not per se one of the kaleidoscope of "stealth" taxes that the Chancellor has initiated in his Budgets to date. No, it seems to me that it is increasingly being used as the Treasury's blunt instrument. a fiscal cudgel to pummel what are perceived to he wayward social attitudes into submission. In this context it would be churlish not to admit that there are good health grounds for imposing sensible, but proportionate, duty on tobacco product.
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Few would argue with such a proposition. At the same time, of course, excise duty also raises substantial revenue.
I hope your Lordships will forgive me if I mention a few facts and figures, which I hope the Minister can confirm. The UK's tobacco industry currently contributes some £10.3 billion a year to the Exchequer of which some £8.3 billion is tobacco excise duty specifically, the highest in real terms of any country in the world. In his Budget the Chancellor raised cigarette tax by 17.5p for a packet of 20, an increase of 6.3 per cent. Since coming into office, this Government have raised cigarette tax by 57.5p. As a result, an equivalent packet of 20 cigarettes costing £2.05 in Belgium now costs £3.88 in the UK. What are the consequences of this obsessional interest of the Treasury—and, it has to be said, the health lobby—in attempting to tax tobacco product into perdition?
As we all know, smuggling of excise product—both tobacco and alcohol—is now rife because of the hugely wide differential in price that now exists between the UK and our immediate continental neighbours. In effect, this Government's policy—and that of the party of these Benches when it was in office, I make no distinction—is to incite criminal activity. This carries with it profound implications for law and order policies in general. It is not only the fact that smuggling has the potential to be such a profitable enterprise. That, of itself, explains why it is that so much of the evidence indicates that it is an enterprise that is proving increasingly attractive to highly organised criminal gangs, not least those actively involved in drug trafficking. It is also the fact that the existing resources of Customs and Excise and the operation of our criminal justice system mean that the chances of being caught and convicted are negligible and that the penalties available to the courts are not and cannot be an effective deterrent.
Here, with all due respect to the Minister—bearing in mind our exchange at Question Time—I can assure him that there was a report on Meridian TV last week which revealed plans for 1,000 Customs jobs to be cut in the south of England. The report included, not surprisingly, an expression of concern from a senior Customs officer that such an action will have a severely deleterious effect on Customs and Excise's ability to combat the menace of smuggling.
What of the health argument? I have already suggested that some level of duty on tobacco product is justifiable. I have no difficulty with that. However, the available statistics suggest that, while the regulated market has shrunk by 8 per cent., the "unregulated" market of smuggled product is on the increase. Illegal sales currently account for 80 per cent. of handrolling tobacco sold in the UK; here an association with the drug culture is manifest. The black market is estimated at 8 per cent. of the total cigarette market and is increasing at the rate of 5 per cent. per annum. The statistics suggest that the crucial group of under-age smokers, by definition an unregulated market and those for whom a propensity to smoke is most perilous, is on the increase. However else children may be obtaining their packets of cigarettes, they certainly are not doing

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so legally. It does not stretch credibility to suppose that there is a correlation between smuggled product and youth smoking. Indeed, it is worth making the point that high tobacco duty is, by its very nature, regressive. Not only does it have a detrimental impact upon the most vulnerable, it also acts disproportionately upon the poorest in our society. Where in this is that much vaunted word "fairness"? Given this, it is difficult to escape the conclusion that the consequence of the Government's excise tax policy is that their own very worthy health and social policy objectives are being seriously undermined.
Finally, what are the revenue implications of the persistent hike in tobacco duty? The noble Lord, Lord Stoddart of Swindon, in a recent Question on this matter, suggested to his noble friend the Minister that the law of diminishing returns was beginning to operate in this area. The Minister denied this categorically, stating:
"I simply do not agree with my noble friend that we have reached the point of diminishing returns".—[Official Report, 18/3/99; col. 827.]
Very gently, I suggest that that is a smidgen disingenuous. The Red Book states quite clearly that anticipated revenue from tobacco product for 1999–2000 is £7 billion, compared with its current level of £8.3 billion. At a pinch it might be possible for the Government to argue that that is an indication of the success of their policy of reducing consumption overall. Would that it were so. But it is the Chancellor's own estimate that reveal that revenue losses in this area are now running at £1.5 billion. If that is not the operation of a semblance of diminishing returns, I am a Dutchman!
In conclusion, it is no surprise that Mario Monti, the EU Commissioner with responsibility for taxation, has observed that
"Member states with high tax rates would have to recognise that tackling the smuggling problem fully may require them to reduce national rates".
I simply wish that the Treasury was prepared to recognise this.
4.31 p.m.
Lord Dahrendorf: My Lords, may I crave indulgence for a small philosophical comment on a subject of which many noble Lords, as the debate has shown, know a great deal more than I do? Taxation is a classical subject of parliamentary debate, yet something odd has happened. The Official Opposition keep on saying that the Government are raising taxes by stealth, the implication being that lower taxes are intrinsically a good thing. The Government keep on saying that they have not raised taxes and that the level of taxation is in fact 0.4 per cent. or 0.5 per cent. lower than it was on 1st May 1997. The implication is the same: that there is something intrinsically bad about taxation.
I want to argue that the level of taxation defines the boundary between what is properly in the public realm and what is not. One can take decisions about that. And different groups in given countries, and indeed different
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countries, take different decisions. Let me make three comments which are all, I hope, relevant to the main subject of our debate.
First of all, many speakers have quoted the differences in levels of taxation between different countries, including different countries in Europe. My good friend the noble Lord, Lord Skidelsky, to whom we owe this debate, referred to the fact that the total level of taxation in this country is under 40 per cent. of GDP, and on average in the rest of the European Union it is 50 per cent. or above. That is true, but I would argue that it simply indicates different attitudes to what is properly in the public realm and what is not. What is more, I would argue that these different attitudes are all viable. It is wrong to presume that those who are over 50 per cent. will have to come down to 40 per cent. just as it is wrong to presume that those who are under 40 per cent. will have to go up to 50 per cent.
There are fundamentally different attitudes, and these different attitudes have their own justification. In other words, I am genuinely and deeply against harmonisation of taxation in the countries of Europe because of the different political and economic cultures in those countries. It is a general philosophical point, which could be illustrated in a number of ways, which I shall not do at this point.
It leads me to a second and equally important issue. At the same time as seeing these differences, there are of course changes: countries redefining the limits of the public realm. It is true that in a number of continental countries there is now a tendency—I think a welcome tendency—to let the pendulum swing a little more in the private business zone direction. Equally, I believe that there is a good case for saying that in this country the pendulum should swing a little more in the public direction and that there has been a neglect in the public realm of the public space in the widest sense.
My noble friend Lady Sharp of Guildford pointed very plausibly to the various objectives of taxation and public expenditure. She talked about the public good, about redistribution and about health and education. The noble Lord, Lord Skidelsky, I believe, started with Ibn Khaldun and with the statement that excessive government spending can undermine an economy. It all depends on what you call excessive, of course, but may I suggest that if you neglect the public realm it can also undermine the economy.
One of the great subjects of European developments is locational competition of business. Countries should be able to try to attract businesses by using the instruments at their disposal. While I accept the sometimes rather vague notion of level playing fields, I think it is at least as important that differences are there and are allowed. But a sensible public realm is part of an attractive environment for business. To mention obvious examples, if the infrastructure of a country deteriorates—and I am afraid it has deteriorated in this country—and if it deteriorates beyond a certain point then it is literally impossible to attract business from other countries, together with investment, because that is one element.

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If vocational training does not work and if therefore skilled labour is not available, because that is part and parcel of an attractive location for business, it is therefore part and parcel of what needs to be done in the public realm. It may be argued that vocational training is sufficiently in the interests of business to be capable of private finance. I believe that is a mistaken argument. In another context I would be happy to make the case for publicly supported vocational training. However, it is not just vocational training. It is general education as well, starting at the nursery end and going on through the educational system. So an attractive public realm is part and parcel of a society which creates sustainable wealth over a long period and tries to attract investment from within and without.
My third point is that of course one has to think carefully about the kinds of taxation that are used. This subject has arisen by reference to a number of specific issues. They are clearly important, but it is an important question of whether we go down the route to hypothecation, for example, or whether we stick to general taxation. To me, it is a very important issue because it is so closely related to the future of representative government and, as a traditionalist in these matters, I am strongly in favour of general, rather than hypothecated, taxation. I rather regret that the popular view seems to be that taxation is acceptable only if those who pay the taxes know exactly what the money is to be spent on. I hope that in parliamentary debate we can hold against this. There is also the important question of whether we increasingly abandon direct taxation in favour of indirect taxation, or stick to a principle which is very closely related to citizenship and civic participation. Income tax is an important element of a civic society.
I should like to sum up such points, such reflections, which are more general than much of what has been said here. by making one plea: that we lift the taboo over the subject of taxation; that we discuss more seriously whether there are not issues where it is in the specific and general interests of a civilised and advanced society to be open for increases in taxation where there are clear objectives and purposes; and to discuss the pros and cons of more or fewer taxes. A more rational tax debate would be a great step forward for the political culture of this country.
4.41 p.m.
Lord Selsdon: My Lords, it has been a long time since I have dared to speak in one of these economic debates. I used to feel that it was a Wednesday debate and I was reminded of Wednesday's child being full of woe. It was always bad news: there was a balance of payments deficit, interest rates were too high, taxation was too high, there were budget deficits and so on. Now, for the first time, we have a structured economy that seems perfectly reasonable and I wonder what the future will be. My noble friend has chosen well the phraseology of this debate which applies a certain use of French words—subterfuge and camouflage, possibly to be followed by that awful word "sabotage". There is nothing wrong with the economy at the moment.
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I am interested in people's perception rather than their expectation. Here I will go back to my friend Professor Laffer. I have always liked the Laffer curve and the general concept that if one had nil taxation. one would have a breakdown of law and order; and if one had 100 per cent taxation, one would have no revenue. Somewhere between the two was the correct point, which was not an exact point but what was perceived to be fair. That might be two for the state, one for me, or three for the state, one for me. But if it was too many for the state, productivity fell.
In order to correct that imbalance, one had to reduce effective taxation quite dramatically, which we have done if we take the figure down to 40 per cent. as compared to 50 per cent. in the EU. This has contributed fairly strongly to the revitalisation of our economy. But I am concerned about what the base of that economy now is.
One of the saddest moments of my life was standing in this place when the nationalisation of the shipbuilding industry was taking place. My family have been keen on ships—I like ships and my grandfather was the last Member of Parliament for Maryhill in Glasgow. The Clyde was a place I loved and I set out to try to help save some of those shipbuilding firms. Nationalisation way back then—despite the Geddes Report and the creation of British Shipbuilders and the problems with Upper Clyde Shipbuilders—wiped out that industry.
I should like to remind your Lordships that we have successfully—either because we have been in a post-imperial society or a post-industrial society—wiped out our greatest industries. A hundred years ago, 85 per cent. of the ships of the world were built in the United Kingdom; at the start of the First World War, 50 per cent. of all the ships floating on the surface of the earth were built on the Clyde: and 74 per cent. of all steam locomotives were built on the Clyde. Now, of course, 50 per cent. of all personal computers in Europe are built in Scotland. Here we are—I am a Scot—wanting to get rid of one of the main bases of our industrial economy. Then, suddenly, today or yesterday, we have the collapse of Kvaener Govan and the destruction of the last shipbuilding enterprise in Scotland, give or take a few smaller ones.
It is interesting that after the First World War 40 per cent. of the ships of the world were built in the United Kingdom; that fell to 30 per cent.; two years ago that fell to 1 per cent.; and now it is down to nothing. We have of course Harland and Wolff. But the industry has not necessarily collapsed worldwide. We were leaders in the mining and mining equipment industry; we were leaders in long-wall mining and other mining activities. That has steadily disappeared. So, too, has the textile industry and its great machinery.
All of those industries often had very good trade associations, but their decline is not related to the United Kingdom economy alone but to the role of the United Kingdom in the world economy. We exported equipment, bought back the end products, and were in partnership with our colonies or imperial Britain. Now we could equally well be in partnership with much of

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the world because we are one of the most favoured nations in terms of partnership. That, too, has something to do with taxation, a point made by my noble friend Lord Marlesford.
We are the most favoured place in the world for a foreigner to live and work. It is pretty galling for some people to realise that when they go out and buy a meal in a restaurant they are paying far more than the foreigner who pays tax only on his UK earnings. But that has contributed to a large extent to encouraging senior management worldwide to want to come to live in England. People will say, "The Japanese want to play golf and it is cheaper to live here"—that may be one reason—but we have attracted the greatest amount of foreign investment of all the countries of the European Union. That attitude and the wish to come here continue.
But there are cracks in the paving, or should I say in the terrazzo tiles. In a short period of time we went from having a great motor car manufacturing industry, which was based entirely on the motor car or transport, to losing and wiping out that sector. Very quickly, over a period of about seven years, we returned to being a net exporter of motor cars. We were competitive, we had the modern technology, and the cars became good again. Foreigners wanted to buy them and they bought them in great numbers. All the problems of electronics and so on were ironed out and we produced good products. Now the cracks are there. There is again intervention by the state in an industry that may, for whatever reason, be declining—there is a decline in the demand for automotives—and money is going in in terms of public expenditure.
I hate the idea of declining industries and I hate the idea of them being supported falsely by governments. The base of our economy as it is today bothers me; who will pay tax in the future. I was involved in the report of a committee on manufacturing chaired by the noble Lord, Lord Aldington, some 25 years ago. We pointed out that we were concerned about what would happen to manufacturing industry when oil ran out. As my noble friend said, if we did not manufacture things, what would we service—other people's manufactures? That report—which was rubbished by my party and by everybody else—was correct, although there is no pleasure in being right after the event. We saw manufacturing industry as a percentage of GDP fall from 32 or 33 per cent.—I was discussing this with the noble Lord, Lord Stoddart of Swindon, before the debate—to 20 per cent., according to the Library.
In the meantime there are two sectors which have started to emerge and overtake. One is financial intermediation. Instead of manufacturing accounting for something like 30 per cent. of the economy, financial intermediation is up to nearly 30 per cent. The other sector is wholesaling and retailing. These are businesses where, although added value is created, it is not the same value as the added value created in other sectors. I am not objecting to those industries charging large hourly or daily rates, or to retailers and wholesalers doubling the entry price of their products before they hit the markets, but these kinds of factors are making us uncompetitive.
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We must add to that some of the taxation now being applied—whether it be on alcohol, on cigarettes or in particular on diesel fuel, which is outrageous. For a period of time we had no diesel cars because they were more expensive. But they are far better. As my noble friend pointed out, the emission is far lower and the mileage is less. Yet, suddenly, as though somebody feels that they want to force lorries off the road, the price of diesel is increased. I do not understand, when energy costs worldwide have come down in real terms to below 1974 prices, why we have this strange differential when we are an energy nation.
In the United States, five litres of fuel can be bought for the equivalent of one litre in Europe. I do not understand that. Why should we have a high-cost energy policy? It is because the Government need to tax fuel in order to have more money. Why should it be cheaper to buy a bottle of whisky in a supermarket in France than at a duty-free shop in London when these are our own products? Looking at the subject on another level, why do we suddenly find that over the past six to nine months the word has spread across the Continent of Europe that the United Kingdom is too expensive to visit and to set up projects here. Yet our labour rates are not high. It is these kinds of taxes in the economy that come through, not as stealth tax, but as adding a greater proportion of tax to the economy as a whole.
I am not particularly worried about all this. I do not think that noble Lords opposite are worried; otherwise, more of them might well have spoken. The Government have inherited, for whatever reason, a strong economy and there is a good opportunity. It has to be said that my own party made some pretty disastrous mistakes by raising interest rates so rapidly that we created a form of deflation for a while.
There is a small perception by Professor Laffer that I should like to see introduced. It is to have a generally friendly Inland Revenue. The cheapest way to get rid of your Lordships would be to bankrupt us all! It would mean that we could no longer sit in this House. The Inland Revenue in this country has always been fairer than any other revenue in Europe. Yet on the Continent of Europe there is one thing that Professor Laffer likes. In general, people in Europe think of their income as a net income, not a gross income. The British are so proud of their gross income of so many hundreds, or tens, of thousands a year that they show off; they feel socially insecure. We could perhaps shift that direction and ask: what do we actually receive? How many noble Lords know what their net income is each year? Most noble Lords probably know their gross income. I am a man for more net!
4.51 p.m.
Viscount Torrington: My Lords, I wish to add my thanks to the noble Lord, Lord Skidelsky, for introducing this debate and for his excellent tour of the development of taxation in this country. Like my noble friend Lady Platt, I am no economist. I shall stick to areas that have already been touched upon but which demand further exploration.

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Some 36 years ago the Oxford Union held a debate on the redistribution of wealth. In the course of that debate, I inadvertently drew the fury of the Left upon myself by declaring that, because I drove a large old American car, I paid more tax each time I filled it up than most of my contemporaries paid in a year.
It was a cheap jibe, but it is uncomfortably close to the truth today: we Brits have just about the highest road fuel taxes in Europe. As my noble friend Lady Platt mentioned, our haulage firms are now hit by excessively high diesel fuel costs. But they are also now beset by the highest licensing charges in Europe. Many are apparently considering re-registering their vehicle fleets outside the United Kingdom. We may yet see the redoubtable Eddie Stobart setting up house next to the almost unpronounceable Mr. Norbert Dentressangle. No doubt all will be fitting their lorries with tanks that are sufficiently large that they never have to fill them up with diesel fuel in the United Kingdom when they do business here.
I agree to some extent with the noble Lord, Lord Dahrendorf, that any thinking person accepts that taxation, both direct and indirect, is a package deal, and different countries have evolved different balances and mixes of taxes to fill the public purse. But whether we like it or not, we are now engaged in the Europe-wide debate on tax harmonisation. As a Euro-fence-sitting Tory, I should nevertheless reckon myself firmly against any attempt by Brussels bureaucrats to enforce harmonisation across the board. But I do believe that the natural laws of competition demand, and should make for, a certain degree of harmonisation, particularly in matters such as excise duties. It really is not reasonable to expect a man travelling home by car to resist filling up his boot with cheap beer and wine at a continental port in order to save his business for his local wine merchant in England, who is forced to sell the same goods at much higher prices.
The inevitable consequence of that is that British retailers in the south are missing out on a massive amount of business. I appreciate that it is illegal to buy liquor in commercial quantities, duty paid, in Europe and bring it back to Britain for resale. That is the reason for the Customs initiative described earlier in response to a Starred Question. However, it seems to me that that flies in the face of the objectives of a Europe without frontiers and shows that we still have a long way to go to achieve a common market. HM Customs and Excise would say that it is losing a fair amount of revenue—I believe the figure given by the noble Lord, Lord McIntosh, was £220 million—thanks to both the legal and not so legal parts of the cross-frontier booze and baccy trade. By contrast, I would argue, like the noble Lord, Lord Stoddart, that Customs and Excise is not so much losing revenue as harbouring an unrealistic and unreasonable expectation of ever having such revenue in the first place given the imbalance of duties on either side of a mere 20 mile wide waterway in what most people now believe, perhaps erroneously, to be a customs union. The system itself has something wrong with it if moving goods from one part of a customs union—for customs purposes one country—to another part is a criminal offence.
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To return to the road haulage industry in the context of harmonisation, I recently heard an excellent argument. put forward to the effect that continental lorries entering Britain should be made to pay a toll or temporary road tax to cover the cost of the use of our motorway system. The Government, in defending themselves over their decision in the Budget to make Britain's truckers pay the highest licence charges in Europe, claim that although continental lorry licences are cheaper than those in the UK, European truckers have to pay heavy road tolls in many countries. Unfortunately, expensively registered British trucks have to pay those same tolls when engaged in international transport.
Her Majesty's Government should therefore seriously consider reducing the recent increases in licensing charges for British trucks and instituting a simple foreign commercial vehicle charge. The Swiss do that, even for private cars, as I know to my cost. Woe betide any foreign-registered vehicle, be it a car or a truck, found on a Swiss motorway without its tax sticker.
Such a charge could be payable through the purchase of a windscreen sticker which, like the Swiss version, would tear apart if removed. The stickers could be available at the port of entry and at truck stops, and be valid for a range of periods and for a range of vehicle weights. We could even offer reciprocity: allowing trucks from countries that levy no motorway tolls or road use charges on British-registered trucks to be exempt from the charge.
Returning finally to excise duties, I note that such bodies as the Brewers and Licensed Victualers Association have been uncharacteristically silent since the Budget, presumably because, for once, drink was not seriously clobbered. But could this be the beginning of harmonisation—of recognition by the Government that in a free market you simply cannot expect people to pay high prices in your shop when the guy next door is offering the same goods at a massive discount? Perhaps, as my noble friend Lord Northesk hoped, realisation is dawning, and excise duties will have to change.
4.57 p.m.
Lord Saatchi: My Lords, I am very sorry to have missed the opening remarks from the two Front Benches and some of the earlier speeches in this debate. I apologise, and look forward to reading them in Hansard tomorrow.
Perhaps I may also congratulate my noble friend Lord Skidelsky on the timing of this debate, to coincide precisely with the 200th anniversary of the introduction of income tax into Britain. I hope that some noble Lords may have seen the excellent Inland Revenue exhibition to mark that anniversary, which showed the many fascinating twists and turns in the evolution of taxation in our country.
I also declare a special interest in this debate as the co-author of a pamphlet on taxation and public expenditure policy to be published by the Centre for Policy Studies next Tuesday, which the CPS is following with a debate on the subject in May.
For many years a simple question has troubled British governments: how to spend more money on good things such as health and education without ever-increasing

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taxes. Many serious attempts have been made to address that issue in the past, but most have failed. The overall tax burden has risen from below 30 per cent. of UK GDP in the 1950s to 37 per cent. in 1998, defeating many determined efforts to reduce it.
Next Tuesday will be the 20th anniversary of when my noble friend Lady Thatcher became Prime Minister. Nobody could have wished for a more forceful and determined advocate of tax reduction; yet even my noble friend, with all her unique power, was not able to achieve that goal. According to some estimates—probably depending on which side of your Lordships' House one sits—the tax burden is heading for a record 38 per cent. in the next two years.
Judging from the plans set out in their Red Book, the new Labour Government have decided to raise tax, just as the previous Conservative Government did. These habitual responses to economic difficulty illustrate the problem. Faced with the legitimate need to maintain sound public finances, successive British governments, both Labour and Conservative, have chosen to raise the overall burden of taxation. That has been going on for 40 years.
Most British governments since the Second World War have been elected on a promise to keep taxes down: yet most left office with taxes higher than when they came to power. The tax burden has gone up, whichever party has been in government. It is not as though this steady increase has achieved a noble purpose. There has been a remorseless increase, in communities all over Britain, of the linked problems which are now commonly described as social exclusion: poor housing, poor public health, low standards of education and high rates of crime. The tax and benefits system is supposed to make things better, through the redistribution of income and wealth. Instead, it makes things worse by reinforcing the very conditions that lead to social exclusion. At the same time, we are paying more tax than at any point in our peacetime history, which in itself inhibits the economic growth and job creation which could form part of the solution to the problems of social exclusion.
At the end of the day, the terrible problem at the heart of the present system never goes away. We have all grown painfully familiar with it. Taxes always seem to be going up, yet there never seems to be enough money to spend on health and education. We saw that again in the latest NHS crisis last winter.
International economic comparisons help to explain this phenomenon. They suggest that a higher tax burden is associated with weaker economic performance and less money to spend on public services in the long run. These comparisons are indicative of a negative relationship between government size and full employment and between high tax rates and full employment.
The dynamic effect of a low tax burden on an economy is illustrated by the position in the United States. The US government taxes only 28 per cent. of national income; but, instead of finding this insufficient to meet its spending needs, the independent US
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congressional budget office expects that the US economy, from a 28 per cent. tax burden, will generate a budget surplus over the next 10 years of a staggering 2,400 billion dollars, while we struggle to avoid budget deficits with a tax burden of 38 per cent.
Calls for modernisation of the tax and benefit system are not new. The question that arises is: why has it never happened? There is one simple explanation. It is not because our political leaders are oblivious to the need. On the contrary, there is almost universal agreement about what the problems are and the urgency of tackling them. Rather, a national culture has emerged which stops political leaders taking the required action.
British politicians have become paralysed by fear of public reaction to fundamental reform of our system of tax and benefits. Every action that is proposed is always analysed in terms of winners and losers, short-term effects and precise calculations of personal financial advantage and thereby political advantage.
Unless we change our political culture, we shall never change the dependency culture which has been inadvertently created. Agreement is needed that we are on the wrong path and that we must change to a different one. Yet there is little sign of such an agreement on the horizon. On the contrary, the political position is exactly as it has been for many years. My noble friend Lord Skidelsky touched on that in his opening remarks.
The Right always said that one should cut tax, and the only way that it could think of to do that was by cutting public spending. The Left always said that tax served a moral purpose and that it would be cruel and uncaring to cut public spending. So that was it: stalemate. The tax burden went up, whoever was in office. That is why it is no longer sufficient to change politicians; we need to change to a new path. We need a bold and radical approach.
The true battleground for reform at the start of the 21st century is not the National Health Service or the education system but the tax and welfare payments system. Until the UK embraces a fundamental reform of that system, it will stagger under the weight of an ever-increasing tax burden and will struggle to make adequate resources available to public health or education. If opinion polls are any guide, there is enormous public support for the reallocation of government expenditure towards front-line healthcare and primary and secondary education. Yet this transformation has proved elusive, even for a Government with a massive parliamentary majority.
Incremental reform of the existing tax, national insurance and benefit systems over the past 30 years has created a highly complex and contradictory framework of transfer payments between government and individuals. All attempts to unravel the wasteful and unintended features of the transfer system, such as the unemployment and poverty traps, have been half-hearted and piecemeal. In 1999 the problems loom as large as ever and the human and financial costs of large-scale benefit dependency are still escalating.

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The current system of taxation and transfer payments is a horse designed by a committee which has been in standing session for 200 years. The outcome is an ungainly beast of burden. The time is ripe for fundamental reform.
5.6 p.m.
Lord Taverne: My Lords, I look forward to reading the pamphlet co-authored by the noble Lord, Lord Saatchi, which is to be published next week. On the basis of what he said today, some of the arguments might he familiar, but I am sure that they will be more persuasively presented than ever before.
I found the speech of the noble Lord, Lord Skidelsky, refreshing. It was non-partisan and philosophical in its approach. Indeed, the debate has been more illuminating than I had expected, partly because some of the most fundamental questions of politics have been raised, perhaps as a result of the tone set in the noble Lord's speech.
I too should like to approach the matter in a non-partisan fashion. Some of my remarks may not be altogether approved of by my Liberal Democrat colleagues. I wish to start with the general and look at the link between tax rates and growth. As the noble Lord, Lord Skidelsky, said, there has been much argument that high public spending and high taxes lead to lower rates of growth, although he favoured the view that it is when public spending is going down and when expectations are for lower tax that one sees the most favourable growth effect, which is an interesting thesis.
I have always been fascinated by the academic work on tax and incentives and have found it inconclusive and not totally persuasive. The academic literature suggests that there is no particular effect either way. Tax acts as a disincentive to work in one way because people prefer leisure. On the other hand, if people wish to reach a particular level of income, it acts as an incentive to work because they have to work more to achieve that income.
I found the work inconclusive and not always persuasive, partly as a gut reaction which is widely shared. I would not argue that, when I was at the Treasury in the period to which the noble Lord, Lord Skidelsky, referred, when we had a budget surplus and a rate of growth of over 4 per cent. per year, our tax system was ideal. We had a top rate of 83 per cent. and a 15 per cent. unearned income rate on top of that. I agree that one of the most important things that the Conservative government did was to reduce those rates. The noble and learned Lord, Lord Howe, and the noble Lord, Lord Lawson, when Chancellor, reduced those rates, although I believe that the noble Lord, Lord Lawson, went too far. I have never felt it necessary for the top rate of tax to be below 50 per cent. Undoubtedly the rates had been too high. I agree with the noble Lord, Lord Marlesford, and the noble Baroness, Lady Sharp, that very high tax rates seem to have a distorting effect.
I have doubts as to whether expectations of future rates determine growth. The noble Lord, Lord Saatchi, referred to the fact that the United States has very low taxes as a proportion of GDP and has recently had a high growth rate. But the comparison between
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the United States and Europe depends very much on the particular period that one takes. The fact that the economy of the United States has grown faster than that of the Continent of Europe is a fairly recent phenomenon. If one considers the post-war period, generally the European Union has achieved a faster rate of growth.
There are now particular difficulties about considering countries with high levels of public spending. The three most successful countries in Europe in terms of growth are Ireland, the Netherlands and Denmark. Denmark and the Netherlands have very high rates of tax and public spending. Perhaps there has been a recent change because of globalisation. It may well be that in the present climate there must be a reduction of taxation levels in Europe; and certainly it appears that capital taxes have an effect.
I am struck by the huge difference between the number of employees of venture capital companies represented on the American NASDAQ market (9 million) and those employed by the very few companies represented on the equivalent European market, EASDAQ (9,000). That is a new market, but it appears that the creation of jobs will depend to a considerable extent in future on venture capital. This is a field in which the euro should help to create a much deeper and more liquid capital market on the Continent. That raises the question whether capital gains tax is too high. I suspect that here I lose some of my colleagues.
I was always struck by the fact that during President Carter's administration, despite his own wishes, United States capital gains tax was reduced and there followed an explosion in small and medium-sized technological companies, particularly around the Boston hemicycle. I believe that the connection between venture capital and its enormously important role in future and the level of capital gains tax is more important than income tax.
I turn to some particular points that have been made relating to the Budget. On the whole, I much admire the general approach of the Chancellor of the Exchequer. He has made a number of important mistakes. He made a mistake in his early Budgets in taxing companies rather than consumption, particularly his taxation of pension funds. Referring to the speeches made by the noble Baroness, Lady Hogg, and the noble Lord, Lord Higgins, I believe that the charge of obfuscation in the Red Book is made out. The energy tax is mistaken, although unlike other noble Lords who have spoken I believe that the Chancellor would have been much better advised to go for a carbon tax. That would have been much more effective in its impact on the environment and, if recycled, would have done a great deal to increase the number of jobs.
However, I am impressed by the Chancellor's overall strategy. He has not repeated the mistakes of former Labour Chancellors—for example, the noble Lord, Lord Callaghan, in 1964 and the noble Lord, Lord Healey, in 1974—when public expenditure was expanded to a degree that could not be contained and in subsequent years the Labour government struggled to control excessive public expenditure. Gordon Brown has not made that mistake. What is more, the Chancellor has

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been extremely effective in the presentation of the public accounts and his whole approach to the Golden Rule, whatever the particular criticisms may be. Certainly in his Budget he has shown himself to be particularly adroit. To cut the basic rate of tax and to start to introduce a 10 per cent. tax was almost a brilliant stroke. He shot the Conservative fox.
But while it was politically adroit, I cannot say that it was a justified measure. The Chancellor has reduced the amount of money available for public services. If one looks at the proposed measures, as shown by the speeches of my noble friends Lord Dahrendorf and Lady Sharp, nowadays it is the Liberal Democrats who are the champions of public services. If one considers the needs of education, a higher level of spending on that service is required not just for the quality of society but for economic reasons. Although the economies of Germany and France are not greatly flourishing, their exports and manufacturing industries are much more successful than ours. Why? The reason is that the standard of education in those countries is much higher than ours. The proportion of unskilled labour in Germany is about 16 per cent. whereas in the United Kingdom it is 61 per cent.
One must also consider the very great needs of the National Health Service. One should not criticise the record of the Government too much. They have provided for a rise in spending on the NHS in real terms in this Parliament of 3.8 per cent., which compares with 3.1 per cent. under the previous Conservative government, which is not a bad record on the face of it. I believe that we should look at the percentages and not the billions that are trotted out, often several times, as new announcements.
One must face the fact that the standard of the National Health Service is very poor in European terms. Rationing is prevalent and will increase. The inexorable rise in cost will not be met by the present provision for National Health Service spending. I believe that in time more radical measures will have to be taken and that in the end we shall face the choice of continuing rationing, which is totally unacceptable, restricting the NHS to a basic service and recourse to reinsurance and private provision, which I also regard as wholly unacceptable, or, if we want to keep the NHS as a universal and comprehensive service, the need for charges. That is a form of hypothecation that I believe is acceptable.
The case for charges was powerfully made out in a book on the health service by Mr. John Wilman of the Financial Times. We must face the fact that we cannot pursue the aim of lower taxation and good quality public services. The quality of our public services is essential to the quality of our society and is much more important than a 1 per cent. cut for political reasons in the standard rate of income tax.
5.17 p.m.
Lord McIntosh of Haringey: My Lords, I join with other noble Lords in congratulating the noble Lord, Lord Skidelsky, on initiating this debate, which has been of very high quality. My noble friend Lord Haskel made a
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very thoughtful speech, but there have been some very high quality contributions from Opposition Benches, which is all the more remarkable in that as of yesterday morning it appeared that the debate would collapse. Clearly the Opposition Whips had to persuade people to speak at short notice because nearly all of the names were put down yesterday. Perhaps the contributions were all the better for that. I always believe that one of the curses of Wednesday debates is that people read out speeches that they have written postprandially on a Sunday afternoon. The speeches have been a good deal fresher today and I am grateful to have had the opportunity to listen to them.
This debate could have been on three alternative subjects. The noble Lord, Lord Skidelsky, described it as our version of a Budget debate, but it has not been very much that. To a considerable extent it has been a rational debate about taxation, as the noble Lord, Lord Dahrendorf, described it. It could have been a theological debate about definitions of taxation, tax credits and all those things that occupied the mind of the Treasury Select Committee of another place in its recent report. I prepared an elaborate defence of the Treasury against those criticisms and against Mr. Ruffley and the House of Commons Library. Your Lordships will be pleased to know that I do not have to use any of it because none of those criticisms has surfaced in the debate this afternoon.
What has surfaced, quite understandably, is a complaint about the presentation of the Budget figures. I do not think that we can be blamed for the way in which the Sun or the Mirror interpret the Budget, unless we have positively misled them, which I do not believe. Nevertheless, I accept the point made by the noble Baroness, Lady Hogg, that as Budgets have become more complex, and as we have moved to a Budget which covers income as well as expenditure, the Red Book is hard going. It is true that some of the important material is towards the end of the Red Book rather than in a more prominent place. For those who do not read to the end—and I wonder how many do—I can see that there could be difficulties.
The Treasury Select Committee commented on that at considerable length. I wish to make only two points about its conclusions. First, its general conclusion was that it got there in the end: that the figures in Table B9 on page 120 are comprehensive, and set out the various options for interpretation of what is meant by the tax burden.
The second point arises from what Andrew Dilnot said to the committee. It is reported at paragraph 16 of the report. He said:
"It is possible to say … [as the Chancellor did] 'changes announced in this Budget will cut the tax burden' and that can be a true statement, while it is also a true statement to say that, as a result of all the Budgets of this Parliament, taxes will be going up in April. It is also the case that the Chancellor can state that net tax and social security contributions fall between this year and next as a percentage of GDP despite the fact that tax payments are going to rise next year as a result of the Budgets we have already seen".
I congratulate any noble Lord who can read that and conclude that there is a single right way to present figures. Clearly we are all applying different criteria. Our definition involves net taxes and social security contributions. That at least has the benefit that it is

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recognisable by those who are taxed. In other words, it is recognisable in terms of the net impact of all government activities on the household and companies sector.
The noble Baroness, Lady Hogg, began by praising the 1979 Red Book and suggested that our more complex presentation nowadays has an element of obfuscation in it. It is true that the Treasury issues shortened leaflets for public consumption about the Budget. I have before me a press comment on a leaflet headed A Budget for lasting prosperity containing such tendentious statements as,
"The Budget helps deliver high quality public services. The Government will spend more on the services people care most about while maintaining firm control of public spending. The Budget takes steps to achieve this by spending money to save money. The Budget helps business and enterprise. The Budget helps the environment. Recent inflation performance has been the best over half a century".
Peter Kellner of the Evening Standard—he has already been quoted—comments that,
"This material should have been financed out of party funds. To be specific, the Conservative Party should have paid for it for those quotations all come from a leaflet issued by the Treasury following Kenneth Clarke's last Budget in November 1996".
I rest my case. I think that we can now move on to rational taxation debate and to a Budget debate.
Baroness Hogg: My Lords, I am grateful to the Minister for giving way. Does the noble Lord accept that there is a difference between pamphlets—we can debate who should pay for what; it sounds as though I would he in total agreement—and the Red Book? It is important that the Red Book is kept free from such polemics. My argument related to the extent to which the Red Book had been sliding towards the pamphleteering end of publications. That is a matter about which we should be concerned.
Lord McIntosh of Haringey: My Lords, I listened to the noble Baroness's argument as closely as I read the Red Book. I find the words "sliding towards" somewhat equivocal. I do not think that she indicated satisfactorily that there was obfuscation or any misleading, either intentionally or unintentionally. She said that the real complications were set out later in the volume. I accept that. But I do not think that that is the kind of criticism which has been made, for example, by Mr. David Ruffley.
I should love to take part in a rational taxation debate. I should love to take part in a debate about Laffer curves. I agree very much with what the noble Lord, Lord Dahrendorf, said about it not being taken for granted that low taxation is good or bad, and high taxation bad or good. The question is what it is being used for.
I was also interested in the observations of the noble Lord, Lord Skidelsky, about expectations. He takes expectations over a long period. I hope he will accept that when one comes to a range of possible options between 36 per cent. and 38 or 39 per cent. of GDP, expectations do not come into it. While these are public figures in the sense that everyone is entitled to know them, they are not figures which affect people's view of
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the way in which Government approach matters. They certainly do not justify saying either that the Government are a tax and spend government in disguise or, as the Liberals wish to say, that we are not sufficiently a tax and spend government.
What comes out of the rational debate—I am not capable of taking part in it at an academic level—is that we have a perception by ordinary people, and will do so over the next year, of lower taxes being paid: a 10 per cent. starting rate now; a lower national insurance contribution for 20 million people; working families' tax credits in October of this year which will save £24 a week for 1.5 million families; and the 22 per cent. basic rate next year. That is the perception which the Government intended to give and have given. I believe that it will be reflected in public opinion in the future.
I turn now to a debate on the Budget. I shall have to cut it short. This is a Budget about economic stability. We inherited a situation of rapidly rising inflation, with unsustainable levels of public borrowing. We took tough decisions in 1997–98. We took the control of short-term monetary policy outside political control; and we set public finances on a stable footing. They are all witness, as the Treasury Select Committee agreed, to a particularly tight fiscal stance. So we have inflation under control. It is on target. We have interest rates under control. The peak over the past two years has been 7.5 per cent. compared with figures of 15 per cent. for a whole year in previous economic cycles. Long-term interest rates are now the lowest for 40 years. The mortgage rate is the lowest for 33 years.
The noble Lord, Lord Skidelsky, made great play of the Budget deficits. We inherited a Budget deficit of £28 billion. We now have a Budget surplus of £1 billion. The noble Lord, Lord Higgins, questioned our spending controls. The expectation for this Parliament is real growth of 1.5 per cent. per annum in spending compared with 2.75 per cent. in the former Parliament. We have 400,000 extra jobs since the election. Youth unemployment has declined by 57 per cent. Long-term unemployment has been cut in half.
In a situation in which a quarter of the world is in recession, we have been relatively stable in an uncertain world. I accept all that has been said by the noble Lords, Lord Higgins and Lord Selsdon, and the noble Baroness, Lady Platt, and others about manufacturing. However, manufacturing is not in recession—or if it has been it was for only a short time. There is already an improvement in business expectation surveys. The contrast we must make is with the early 1990s when manufacturing output declined by 7 per cent. and investment by 28 per cent. and 1 million jobs were lost in manufacturing.
The Budget supports the monetary policy. The Monetary Policy Committee has found it possible to loosen the policy because we have locked in the fiscal tightening. We have been able to give a £6 billion boost as the economy moves below trend and we have been able to allocate an additional £2 billion of public investment. During the next five years, we expect a

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surplus of £34 billion, compared with a £149 billion deficit under the Conservative government during the time in which they doubled the national debt.
I accept what has been said about the need for support for productivity and enterprise. We are below our American and European competitors. However, in helping investment and innovation we are reducing corporation tax by 3 pence to 30 per cent. The small company's rate will be reduced from 23 per cent. to 20 per cent. There will be a 10 per cent. starting rate for 270,000 firms. As regards innovation, we have the R&D tax credit for new and small businesses which will underwrite almost one-third of their research and development costs. The Small Business Service will provide detailed support for small businesses.
The noble Baroness, Lady Platt, was right about the need for high technology training. That is an important part of the lifelong learning programmes of the Department for Education and Employment.
I refer to the environment only because it has arisen as an issue in relation to road haulage. However, I should like to speak at length on the Kyoto targets and the plans to implement the Marshall Report. However, I cannot accept the arguments used by the hauliers about the road haulage industry. It is true that in line with our existing commitments we have increased the price of diesel fuel by 6p a litre, but we have increased the differential for ultra low sulphur diesel. The changes we have made to vehicle excise duty very much favour the vehicles which are cleaner and cause less damage to the roads. Our policies on vehicle excise duty and fuel duty are driven by business concerns, but they are also driven by environmental concerns. Anyone who examines the evidence objectively will agree that the overall tax burden, taking into account labour costs and corporation tax, is very favourable in this country compared with European countries.
As regards families, it is true that we are replacing the married couples' allowance. The noble Baroness, Lady Hogg, made that point. Of course, the allowance was made at the same rate to all married couples, including lone parents and cohabiting parents. It could be made twice to a single couple in the year that they separated. The new children's tax credit is more generous and will be better focused where it is needed for children. Under the MCA the claimant had to be a man; now the claimant can be either a man or a woman. Before leaving that matter, I should like to point out that the social security budget is not out of control. It will rise at less than half the rate of the previous government's, and it will not be spent on subsidising unemployment but on improving the conditions of life of poorer families in our society.
As I race through my speech, I turn to our provision for the elderly. There is a £1 billion pensioner package in the budget. Minimum income guarantees will be uprated in line with earnings, not with prices. The winter fuel allowance has been quintupled. Single pensioners will not pay tax below £5,720. A typical pensioner household will be better off by £240 a year.
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Of course one of the most important things is encouraging work rather than dependency. In that sphere, we are abolishing the national insurance entry fee and aligning the lower earnings limit with income tax. That is an enormously important change because it means there will be no income tax or national insurance paid on the first £87 a week. In October, we are introducing the working families' tax credit which means that families with a full-time earner will have a minimum income of £200 a week. That is £10,000 a year. There will be no taxation on earnings up to £235 a week.
I shall skip over the provisions relating to the over 50s, although I know that they are of interest to your Lordships, because I want to say a few words about public services. It is true that there is a huge need, in particular, for capital expenditure on public services. The noble Baroness, Lady Sharp, made that point very effectively. We no longer have the rule that £1 of revenue and £1 of capital equal £2. For that reason, we have been able to set up the capital modernisation fund which, among many other things, will apply to accident and emergency units and the hospital building programme, which is the largest since the war. We have allocated £0.4 billion for modern technology for the National Health Service. I could go on.
Further, as regards revenue expenditure, noble Lords do not appear to like us talking about the £19 billion provided over, three years, but that will be used to provide smaller class sizes, more nursery education, better pay for teachers, and literacy and numeracy training referred to by the noble Baroness, Lady Sharp, and for vocational training referred to by the noble Lord, Lord Dahrendorf.
Yes, I shall refer again to the £21 billion for the health service because it means, among other things, 7,000 new doctors and 15,000 more nurses, and in conditions of fair pay for nurses.
I do not apologise for this being a Budget debate rather than a taxation debate. There are one or two further points to which I must reply, but given the time I have taken I must do so in writing. However, I say to the noble Earl, Lord Northesk, that we are in no way ashamed of having increased the price of 20 cigarettes by 57.5p. When we are accused of suffering from diminishing returns I point out that there are two kinds of diminishing returns. One is losing revenue, the other is stopping people smoking. If we are doing the latter we are happy to put up with diminishing returns. I hasten to say that diminishing returns do not mean diminishing revenue.
The VAT threshold was mentioned by the noble Lord, Lord Marlesford. Customs and Excise carried out a consultation exercise last year and the conclusion was that this worked both ways. If you are just below the threshold you do not like the fact that you cannot cover the tax on your raw materials; if you are above the threshold you can recover it, but you have to charge your customers. I do not believe that there is any particular problem with the VAT threshold.
To the extent that this has been a Budget debate, the Government have been grateful for the opportunity to respond to it. To the extent that it has been a debate

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about rational taxation, I personally have been pleased to hear it although I cannot claim to have made a positive contribution. I am grateful to all noble Lords who have taken part.
5.29 p.m.
Lord Skidelsky: My Lords, I count it as something of a success for our debate to have reduced the Minister to such evident distress that he had to read out the bulk of his prepared speech. I enjoyed the first part of his remarks a great deal more than those he rushed through.
I have always preferred high quality in debate to a large quantity of speakers. We have been exceptionally fortunate today in both respects. As the noble Lord, Lord McIntosh of Haringey, said, the debate has covered philosophical, technical and special topics. All have been relevant to the Motion. All who took part have been highly knowledgeable, and I am extremely grateful for their contributions. I beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

Armenian Massacre, 1915
5.30 p.m.
Baroness Cox Baroness Cox rose to ask Her Majesty's Government whether they will reconsider their refusal to recognise as genocide the action against the Armenian people by Turkey in 1915.
The noble Baroness said: My Lords, I am very grateful to all noble Lords speaking in this debate on a topic which is tragically timely. The noble Baroness, Lady Symons, has kindly explained why she is unable to reply, and I would like to thank the noble Baroness, Lady Ramsay, for kindly taking her place.
The United Nations Convention on the Prevention and Punishment of the Crime of Genocide, adopted in 1948, is the most widely accepted definition of genocide. Article 2 specifies five criteria. Genocide means any of the following acts committed with intent to destroy, in whole or in part, a national, ethnic, racial or religious group as such; killing members of the group; causing serious bodily or mental harm to members of the group; deliberately inflicting on the group conditions of life calculated to bring about its physical destruction in whole or in part; imposing measures intended to prevent births within the group; and forcibly transferring children of one group to another group.
The massive, systematic assaults upon the Armenian people in Turkey in 1915 are widely recognised and historically irrefutable. I will mention a little later some examples of ways in which the first criteria were met. The fifth criterion was also met by the policy of taking young Armenian babies and young children and placing them in Turkish state-run orphanages, with the declared aim of Turkification.
Those who wish to defend Turkey offer diverse excuses. For example, while recognising that massacres of Armenians did occur, they suggest that these were
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not official policy. But historical evidence shows that the systematic mass killings of 1915 and 1916 were more than just massacres or atrocities. They were a premeditated state crime, involving the army, the police force, regional and local authorities and criminals specially released from prison to carry out the killings.
The genocide started with systematic ethnic "decapitation", in the form of the arrest, torture and deportation of the intellectual and political leaders of the Armenian community in Constantinople; they were deported to the interior of the country, where most were killed. Leading Armenians in provincial capitals were similarly eliminated. Other policies included the transfer of Armenians serving in the Ottoman army to unarmed so-called labour units, where many died from maltreatment and starvation in policies similar to the Nazis' method of annihilation by labour; those still surviving were subsequently killed.
Systematic deportations of remaining civilians continued from March until the autumn of 1915, with different policies for men compared with women arid children. Men were usually separated and slaughtered; women, children and elderly people were forced to undertake long marches through desolate and mountainous terrain; marches designed to kill. Those who survived and reached Aleppo were forced onwards into the deserts of Mesopotamia, where the final stages of annihilation were achieved—some dying in concentration camps, where tens of thousands were kept without food or adequate shelter, or others driven into caves containing petroleum which were ignited, burning the trapped Armenians alive.
Numerous eye-witness accounts describe in great detail the systematic suffering inflicted on the Armenians. Time permits only one reference. The German Ambassador, Wangenheim, who was well-known for his anti-Armenian sentiments, admitted in a report to the German Foreign Office in a letter of 7th July 1915 that the so-called deportations of the Armenians could not longer be justified by military necessities, but were caused by the genocidal intentions of the ruling Young Turks. He wrote:
"The very fact and the way in which the deportation is carried out prove that the Government is indeed intending to annihilate the Armenian race in the Turkish Empire".
Estimates of numbers of Armenians who died vary from conservative British estimates of 800,000 to German Embassy figures of 1.5 million. As the Germans, as Turkey's allies, had the most access to information in the Ottoman Empire, their estimates are probably the more accurate.
Many of the methods of extermination hear striking resemblances to those subsequently used in the Holocaust. They included medical experiments, usually carried out on Armenian men, generally soldiers; the first experiment with a gas chamber, disguised as a disinfection room, in the city of Trabzon to kill Armenian children; and the torture, rape and subsequent slaughter of women, often en masse. In many towns, bands were engaged by the authorities to play music louder than the screams of victims in torture chambers.
Another striking parallel with the subsequent Holocaust was the transport of many victims in wagons designed for animals. Armenians from Central Anatolia were forced into wagons designed for sheep, which allowed only a stooping position.
Numerous reports confirm the details of the horrors associated with the genocide of the Armenians. They include contemporary diplomatic sources of France, Austria-Hungary and Britain, as well as eye-witness accounts of humanitarian mission organisations in Turkey. There are also innumerable gruesome, first-hand accounts by those Armenians who managed to survive. And perhaps especially significant are accounts by courageous Turkish scholars who protest against the official Turkish crime of silence and demand Turkey's recognition of this genocide.
Many national and international bodies have recognised the genocide, often despite massive Turkish protests. They include the General Assembly of the Council of Churches, in 1983; the UN Human Rights Commission, which, despite Turkish protest, adopted in 1985 a revised study on the prevention and punishment of genocide crimes of this century, mentioning Armenia as one of these genocides; and the European Parliament, which adopted a Resolution on the Political Solution of the Armenian Question in 1987. The resolution maintains that Turkey can become a member of the European Community only under two conditions: recognition of the historical fact of the Armenian genocide and observation of the human rights of minority groups in Turkey, particularly the Kurds.
Many parliamentary bodies have also acknowledged the Armenian genocide, including such bodies in Argentina; the Russian Federation—the State Duma; the Republic of Cyprus; Greece; and Belgium; and the French National Assembly—although the French Senate refused to put the motion on its agenda following threats by Turkey to cancel large commercial contracts.
Some people argue that it is neither important nor helpful to dwell on the past; that it is better just to look ahead. I believe this argument is fundamentally misconceived. It is of the utmost importance that this genocide be recognised—important for the Armenians, for the Turks themselves and for Britain.
First, for the Armenians: a nation which suffered the first genocide of this century has also had to suffer the hurt and insult of the denial of the enormity of its agony, denied both by Turkey and by too many members of the international community. Moreover, Armenia's fight for recognition and the energy which has had to be used to counter Turkey's attempts to rewrite history dissipate energy and resources from imminent priorities. And there can be no basis for forgiveness and reconciliation without Turkey's willingness to admit this historical reality.
It is also important for Turkey to recognise the genocide. Taner Adcam, the first Turkish scholar to approach historical truth, rightly said that the Turkish republic is built on the corpses of murdered Armenians. The taboo which prevents mention of this crime is a hindrance to the healthy development of Turkish
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domestic and foreign policies. To free itself from the curse of the past and to grow in democracy, Turkey must acknowledge the Armenian genocide.
In foreign relations, that would bring international respect and confidence-building measures of enormous benefit to Turkey and its neighbours. I have already mentioned that conditions for Turkish entry to the European Union stipulate this recognition. Recognition would also encourage trust, co-operation and political stability with neighbouring countries. For example, Armenians in Armenia and Nagorno-Karabakh might be reassured that they are less likely to become victims of renewed Turkish-Azeri policies of aggressive pan-Turkism.
It must be in the interests of all who live in the region to seek economic co-operation and political stability. These cannot be achieved while Turks continue to live a lie and while Armenians continue to suffer an unresolved hurt.
Turkey should also understand the damage to many of its own people by continuing denial of historical truth. Some years ago I had the pleasure of visiting Turkey to give a series of lectures on nursing and healthcare. I found many of my colleagues, who became great friends, were fully aware of the genocide, freely admitted it and expressed their wish that their government would do so, so that they could live honestly with themselves as Turkish citizens and build good relations based on reconciliation with their Armenian neighbours. Until the truth is recognised, many decent, honest and principled people in Turkey have to endure a schizophrenic existence to their own discomfort and at the cost of international peace and justice.
It is very important for the Government of the UK to recognise this genocide, as this would prove that the Government are honouring their commitment to human rights and to an ethically-based foreign policy. Also, the Government would be following the good example of those who have already recognised the genocide. Otherwise, the UK remains stigmatised in the shameful category of those who consistently and over many years have allowed other interests to distort commitment to truth and justice.
This has been the century of genocides, starting with German war crimes in south-west Africa and culminating in Rwanda and the Balkans, with Kosovo presenting a hideous contemporary example. If nations are allowed to commit genocide with impunity, to hide their guilt in a camouflage of lies and denials, there is a real danger that other brutal regimes will be encouraged to attempt genocides. During the recent debate on Azerbaijan's attempted ethnic cleansing of the Armenians from their historic land of Nagorno-Karabakh, I referred to Hitler's monstrous rhetorical question before he embarked upon his genocidal policies against Jews and Poles in Poland:
"Who speaks today about the Armenians?"
Unless we speak today of the Armenian genocide and unless the Government recognise this historical fact, we shall leave this century of unprecedented genocides with this blot on our conscience; we will embark upon the

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new millennium with a blemish on our national honour and integrity; and with tacit encouragement for other genocides in years to come. We therefore owe it to our own nation, to the Armenians, to the Turkish people, and to future generations, to recognise this genocide, and I hope the Government give us this assurance tonight.
5.51 p.m.
The Earl of Shannon: My Lords, I must first declare my interest as chairman of the British-Armenian parliamentary group. I intend to speak briefly. I have a slight variation on the Question raised by the noble Baroness, Lady Cox.
In an admirable speech, the noble Baroness set out the details of the horrors of 1915–18. No doubt we shall hear more about them from other noble Lords. Therefore, I shall not take time dealing with that aspect. I merely state that it is an historical fact supported by the most massive amount of evidence. There can be no argument whatever about that.
As the noble Baroness, Lady Cox, said, what took place in 1915 is similar to what is now taking place in Kosovo except that in 1915 it was taking place on a much larger scale. The real crux of the Question we are discussing is that Her Majesty's Government have for so long and so obstinately refused to acknowledge that historical fact. Perhaps it is just a matter of etymology, of the word "genocide". I concede that the word was evidently not known in 1915–18 and therefore was not applied to the circumstances at the time. However, as the noble Baroness explained, after World War II, the United Nations, in 1948, drew up a precise definition of what "genocide" meant. It is absolutely clear. Very simply, it is the intention to destroy a people and their culture.
What happened in 1915–18 fits fairly and squarely into that definition. There can be no argument about that whatever. The word is now in common usage to describe such a crime. I draw another point from the speech made by the noble Baroness. In describing the present situation in Kosovo, our own Foreign Secretary recently, in a press article, referred to that matter. Adolf Hitler, to whom the noble Baroness referred, must be and will for ever be the greatest authority on genocide. He realised that what he was going to do was exactly what had been done to the Armenians. Who are Her Majesty's Government to ignore such an authority?
We have now reached the time at which we should stop ducking and weaving about this matter. We must grasp the nettle firmly. We must stop using descriptions such as "unfortunate massacres". It was clearly genocide. What happened was clear; the definition is clear; and they both fit together exactly.
Let us not have the theory advanced sometimes that it was not the Ottoman Turkish Government who caused it; that it was the activities of a small political party. When it happened, the military, the police, paramilitaries and irregulars, mainly Kurds—who are now whingeing about what the Turks are doing to them but it is what they were made to do by the Turks to the Armenians in those days—all simultaneously took
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action. It did not occur gradually. That shows that it can only have been organised by a central government authority.
We should never have accepted at Nuremberg that the holocaust of World War II or the concentration camps and so on were the activities of a few breakaway Nazis. Most of the nation and certainly the government were involved. The same is true in this regard. There is proof. The Ottoman Turkish Government started to notify American life insurance companies that their policyholders were now dead and that payments under the policies should be made to the Turkish state. What reason do Her Majesty's Government have for defying that logic, fact and history?
5.57 p.m.
Lord Pearson of Rannoch: My Lords, I was not certain that I should be able to be here for the start of the debate, so I removed my name from the list. I wrote to the noble Lord, Lord Monson, in those terms. It may be that I shall wish to detain your Lordships for a couple of minutes in the gap. But since I withdrew my name, that means noble Lords have a few more minutes each, and I wish them luck.
5.58 p.m.
Lord Monson: My Lords, I thank the noble Lord, Lord Pearson, for explaining that. I am afraid that I did not receive his letter but I do now have a little more time.
I apologise for speaking at short notice and, I fear, with minimal preparation, as will no doubt become all too obvious. I arrived back from the Alentejo late on Monday night in order to participate in yesterday's important debate. It was only when I happened late last night, accidentally, to glance at the provisional List of Speakers for this debate that I realised that there was a possible danger of this afternoon's debate being just a trifle one-sided. I say that as one who has always admired enormously the noble Baroness, Lady Cox, and, indeed, other speakers who generally take her point of view on this matter.
At the risk of over-simplification in the time available, perhaps I may try to set the scene. By the standards of most of the past 600 years, although not, of course, by the standards of the last half of the twentieth century, the Ottoman empire was generally pluralist and reasonably tolerant, more so than most of Christian Europe during most of that time.
Sephardic Jews expelled from Spain in 1492 by Ferdinand and Isabella were welcomed to the Ottoman empire in their tens of thousands. They settled in Constantinople, Salonika, and elsewhere, where they prospered hugely. Although, to some extent, in that empire non-Moslems were second class citizens (like Arabs in Israel, Jews in pre-war Poland, Roman Catholics in Ireland at one time and Protestants in Franco's Spain) they were not third or fourth-class citizens, with very few exceptions. Indeed, provided that they obeyed the rules and did not rock the boat, the Armenians and other Christians could rise to senior and well-paid positions in Government as well as making money commercially.

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In the first decade of this century, came the young Turks, who were ironically styled "progressives". Their philosophy included the idea of ethnic and cultural purity, which could clearly be achieved only by population transfers by one means or another. At the same time, the Armenians were gripped by the nationalist ideologies which were then sweeping through the world.
Then, of course, came World War II. Things went badly for the Ottoman empire. As always, scapegoats were sought. Fifth columnists were suspected everywhere—just look at what happened to bewildered Italian waiters in London in 1940 or to the unfortunate Japanese-Americans in California in 1942. Consequently, accusing fingers were pointed, above all, at the Armenians.
We all know broadly what happened next, though I must admit that I did not know things were quite as bad as have been described by the noble Baroness. What happened was indeed terrible. I do not seek to minimise the sufferings of the Armenians. However, I submit that it is not genocide as most people understand the word. It was not, for instance, comparable to the Chinese attempt totally to exterminate Tibetan identity and culture. Still less is it comparable to the Nazi attempt from 1942 onwards to exterminate the Jewish race the world over.
Perhaps I may enumerate a few of the differences. The Jews had always been good German citizens and fought bravely for Germany during World War I; indeed, many won Iron Crosses, whereas some, although not all, Armenians were indeed subversives. That was, no doubt, for understandable reasons. The Jews never retaliated against German civilians, whereas on the rare occasions when the Armenians had the upper hand—for example, following the Russian invasion of eastern Turkey towards the end of the First World War—they (again, perhaps, understandably) took reprisals upon Moslem civilians.
Most importantly, the Jews were hunted down and murdered everywhere in Germany and on the German occupied continent, even during the last days of the war in Europe, whereas atrocities against Armenians were confined largely to eastern and central Anatolia. The substantial Armenian community in and around Constantinople survived reasonably intact. I certainly had one Armenian friend whose parents lived in Constantinople through World War I.
Moreover, while the policy of the Ottoman government of forcibly deporting Armenians away from Russian frontier regions to Syria undoubtedly involved an enormous amount of suffering (in the same way as the Japanese forced marches of prisoners of war and European and Asian civilians during World War II led to terrible suffering), the deaths involved were incidental rather than the prime purpose of those marches.
Meanwhile, the murder of many thousands of Armenians by Kurdish and other civilians was not organised by the government even if—and that I concede—the government may have lost little sleep over it. Those massacres were partly fuelled by the sort of religious hatreds we have seen in the Balkans over the
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past 150 years or more—remember that orthodox Christians and catholic Christians murdered one another in Yugoslavia for making the sign of the cross in the wrong way—and partly fuelled by resentment against economically successful groups, comparable to the hatred vented periodically against the Chinese minority in those parts of south-east Asia where Moslems predominate.
Despite the fact that what happened in 1915 is not and cannot be the fault of anyone alive in Turkey today, and despite the fact that the blame is not entirely on one side, I, too, wish that Turkish friends and acquaintances would express some sympathy with the Armenian innocents—if I may put it in that way—in public as many of them already do in private. I also wish that they would stop pretending that the Armenians were recent immigrants to Anatolia in the same way, ironically, as the Serbs pretend that the Albanians are recent immigrants to Kosovo.
However, as somebody who has been to Turkey quite a few times over the past 45 years, I can assure the House that we will never get a proud people like the Turks to modify their views by wagging an accusing finger at them, still less by branding their recent ancestors as the equivalent of Pol Pot or Hitler.
6.5 p.m.
The Earl of Carlisle: My Lords, I thank the noble Baroness, Lady Cox, for introducing this Unstarred Question. The fact that we are having the debate nearly three quarters of a century after these terrible events took place is testimony first to the fact that these islands deplore very strongly indeed the act of genocide. Secondly, it is testimony to the strong fellowship that has long existed between the British and Armenian people and our defence of them when dreadful events have happened to them. It is also a tribute to the courage and persistence of the noble Baroness and the noble Earl, Lord Shannon, who have worked tirelessly on their behalf.
I begin by stating that I admire the good qualities of the Turkish people at their best, as our worthy opponents on the Gallipoli peninsula in 1915, the year these atrocities took place; as our allies in Korea when we fought side by side with them under the UN flag; and as our partners in NATO, in which I have been proud to serve.
I should like to tell a true anecdote of the Korean war. American servicemen, British servicemen and Turkish servicemen were captured in some numbers by the Chinese. They were held in degrading and dreadful conditions. Some of them were tortured by the Chinese, their oppressors. At the end of 19 months' captivity, longer for some, they were released. Some were nervous and physical wrecks for the rest of their lives.
It was a matter of interest that the allies discovered that the Turks survived rather better than the Americans and the British. The question was asked of the Turks: why? What did they have that the British and the Americans lacked? The Turks said, "We have been better treated by the Chinese than by our own people." That, I suggest, is an example of the Turkish psyche.

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However, I certainly did not admire the conduct of some of the leaders and officials of the Turks in 1974 in Cyprus when they invaded that island, although it was not my role then to criticise them since I, too, was a serving soldier under the UN flag. Neither do I admire their recent record on human rights. We will, I trust, hear more about that from my noble friend and kinsman Lord Avebury.
I deeply respect the Armenian people. As we enter another millennium we might recall that in the third century Armenia was the first state in the world to adopt Christianity. The Armenian people are survivors. Although incorporated into the Ottoman and Soviet empires they survived, yet again, to become a free and independent nation on 21st September 1991. Let them remain so; they richly deserve it.
As the noble Baroness, Lady Cox, reminded us, the term "genocide" was coined in 1948. In that year the UN convention on the prevention of genocide came into force. I shall not ask your Lordships to recall that as we have just heard the terms. I prefer to define "genocide" as murder on a grand scale. I use the word "grand" with the deepest irony and distaste when we consider that 600,000 people, all civilians, lost their lives in 1915.
Some have argued that there was a war going on at the time and that these events, as we see yet again today, are inevitable in a war. But the events of 1915 occurred and they were genocide. Let us recognise that. Others argue that it was the first genocide of this century and it is important that we admit that we do not condone and will never forget it. But I suggest that this nation came near to practising genocide before 1915 during this century. I remind your Lordships that from February 1901 onwards, 4,000 Boer women and 16,000 children perished in 8,000 block houses (named concentration camps) in South Africa during the second Boer war. That is a stain on our record; we admit it.
The British Government of the time must share some of the responsibility for those events which were carried out by their officials in their name. It prompted the leader of my party, Sir Henry Campbell-Bannerman, to speak out and pose the question, "When is a war not a war?" He provided his own answer: "When it is carried out by methods of barbarism."
I hope that the Turkish Government, Her Majesty's Government and others recognise the events in Armenia during 1915 as genocide, even if they cannot bring themselves to say so publicly. But, as I told the Minister earlier, I prefer to look forward, not back, as we enter the new millennium and I am sure the noble Baroness will wish to do so too when she comes to the Dispatch Box.
Population statistics are sometimes a useful guide. Today 3.7 million Armenians are living in freedom in their homeland; 5.3 million Armenians, part of the diaspora, live abroad, all in freedom. We are fortunate that 10,000 of those 5.3 million live and work in our homeland in freedom in London, Manchester and elsewhere. They serve our community as doctors, lawyers and businessmen. We are grateful for all that they do and I ask the Minister, now that Armenia is free
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and independent again, to return the compliment that those 10,000 pay us by doing more for the people of Armenia.
I put forward some proposals the noble Baroness may wish to consider. First, will we consider carefully and act promptly in response to any request from the Armenian Government to assist them in remaining independent and in enhancing their recently re-acquired democratic system? We will then show their neighbours that we will not tolerate the events that took place earlier this century ever happening again.
Secondly, will Her Majesty's Government use their influence through the OSCE to seek a just and lasting peace over the dispute involving Nagorno-Karabakh which has festered and made that region insecure? Thirdly, cannot we immediately establish a British Council office in Yerevan? Why has it taken eight years to do that? Fourthly, to mark the millennium, will the Government consider assisting Friends of Armenia in Britain who wish to establish a chair of Armenian studies at the LSE or the School of Oriental and African Studies at London University?
Finally, we have sent £7 million worth of goods to Armenia and received a certain amount back. We are shortly to enter a new millennium. The noble Baroness may not wish to reconsider the Government's refusal to accept as genocide the action by Turkey against the Armenian people in 1915. If so, I regret that. However, the Minister and the Foreign Office may wish to be reminded of a famous story in the Bible. It concerns a woman caught in adultery. Christ was invited to censure her for her conduct—or should I say misconduct? Instead he told her to go away and sin no more. I hope that when the Minister comes to the Dispatch Box this evening, she will say loudly and clearly to the Turkish Government and other nations who persecute or have committed genocide against their neighbours—for example, the former Soviet Union in the Baltic states, Estonia, Latvia and Lithuania—"Never do that again"!
6.14 p.m.
Viscount Waverley: My Lords, put simply, I would not encourage the Government to entertain such a measure. Where would recognition of past ill-doing in the world end? There was widespread suffering of cataclysmic proportions borne by all sides during those war years.
Of course, I recognise that Armenians suffered. But official recognition would establish a less than useful and controversial precedent, serving only to exacerbate an already volatile situation. We should remember, in addition, that history is generally invariably interpreted in a partisan manner and is therefore unreliable arid inconsistent.
The world is a far different place now, but a world nevertheless still in turmoil. Armenia needs friends and this measure would serve only to alienate neighbours. Mercifully, we are moving to an era of regionalism; that of shared resources and shared responsibilities. Therein lies the best hope for the future.
A more relevant question, to my mind, could include when we are going to have clear guidelines on the contradiction between the perceived right to

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self-determination and territorial integrity and the contentious issue of intervention. That, I submit, is an issue we should be tackling in a new world order.
6.16 p.m.
Lord Biffen: My Lords, like the noble Earl, Lord Shannon, I am a member of the Anglo-Armenian Association and am pleased to be so because of the deep affection I have for the Armenian people, their history and their witness to Christian values. In that context I was delighted by the nature of the speech of my noble friend Lady Cox. She set out a catalogue of the suffering of the Armenian people in the first war which was compelling and which must be a reminder to consciences the world over.
I should like to use the short period that I have available not to recapitulate the arguments about the suffering of the Armenian people but to say that in this Chamber we live with the echoes of the past. We live with a deep British concern about the authority and the rapaciousness of the competing nations in the Balkan countries. We live with Gladstone, the Midlothian campaign, the Bashi Bazouks and the deep anxiety about the nature of Turkish domination in the south-east Europe of that age. This is an occasion just to remind ourselves of that, because if we do not live with our history, if we are not fuelled by a sense of the methods it provides, then we are lacking in a major contribution that should be made to the public debate.
The truth is that genocide, mass slaughter or savagery are characteristic of this part of Europe and Asia and have been for decades. I do not say that in any complacent sense but as a recognition of the anger and concern that Gladstone and his generation felt about that part of the world. It was not just about British access to the routes to India. In fact, it is a timely message, when we are considering a moral capacity in foreign policy and in the action that has to sustain that foreign policy, that at the end of the day all those who practise ethnic cleansing or genocide have to be recognised in a world of realpolitik, because we cannot live in a world of perpetual revolution, reconciliation and argument.
There is realpolitik at the end of this and I am delighted that this debate indicates an understanding of the Turkish position as well as that of Armenia—Armenian ex-patriot that I am. I say that because, in this day and age, we know that sooner or later in the disputes now raging in the Balkan countries some kind of modus vivendi will have to be reached; and it is not one that will be reached using almost Crusader zeal. At the end of the day, whatever may be the halitosis from which our neighbours suffer, we will have to sit down and consider the matter in the belief that there is something better than aerial bombardment.
6.20 p.m.
Lord Pearson of Rannoch: My Lords, as threatened, I wish to take just a few minutes of your Lordships' time in the gap. I have to say that I was very impressed, as usual, by the history of this tragedy given by my noble friend Lady Cox. I thought it was generous of the
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noble Lord, Lord Monson, when he said he did not regard the Armenian genocide as "genocide" in the sense of the word that most people understand, that he was good enough to admit he was not aware of all the facts outlined by my noble friend Lady Cox.
I was a little more perplexed by the line taken by the noble Viscount, Lord Waverley, when he asked: where would recognition of past evil-doing finish if the UK Government were to recognise the truth of the Armenian genocide? I have to say to the noble Viscount that I have friends in commerce in Turkey. I cannot think of any one of them who would not prefer his government to come clean on this dreadful event. So I have to ask him, and indeed the Minister who is to reply for the Government, what is wrong with confession? Is it not always cleansing? If that were to happen, and if the Government were to encourage it, it would be a thoroughly healthy thing for the whole area.
6.22 p.m.
Lord Avebury: My Lords, the question is not whether the events of 1915–16 took place, but whether they are to be described as "genocide". We have heard a variety of answers to that question this evening, just as, in correspondence and following questions with Ministers, we have been given a variety of answers. For example, the Minister in another place, Joyce Quin, said that it is not the job of today's Government to review past events with a view to pronouncing on them according to today's values and attitudes. I beg to disagree with her. She forgets Santayana's dictum that:
"Those who cannot remember the past are condemned to repeat it".
She also forgets that the genocide convention, the terms of which the noble Baroness has already outlined to your Lordships,
"recognises that at all periods of history genocide has inflicted great losses on humanity".
It is partly because we ignore or gloss over the past that I suggest we still have no effective means of stopping the genocidalists of today.
The noble Baroness, Lady Cox, and the noble Earl, Lord Shannon, quoted Hitler's infamous remark.
"Who talks nowadays about the destruction of the Armenians"—
I emphasise the word "destruction". Hitler undoubtedly knew about the Armenian genocide and used it as a model. So it is our business to pronounce on those crimes today.
In correspondence, the noble Baroness, Lady Symons, takes a rather different line. She says that, in the absence of evidence to show that the Turkish Government took a specific decision to eliminate the Armenians under their control at the time, the British Government have never recognised the events of those years as a genocide. Well, no one had any doubts about it at the time. In the well-known government Blue Book of 1916, Viscount Bryce described the events in question as,
"an effort to exterminate a whole nation, without distinction of age or sex, whose misfortune it was to be the subjects of a Government devoid of scruples or pity".

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The Turks dismiss that evidence as war propaganda, but the largest part of it carne from neutrals, some from the citizens of Turkey's allies, including the Germans, and most of the remainder from the survivors. The testimonies of the Blue Book were confirmed and amplified after the war by many sources, including the material that was collected for the war crimes trials that were to be held after the allied victory in 1918.
Unfortunately, Britain was partly responsible for the holocausts of 1915, as Mr. Lloyd George acknowledged in his memoirs, using that phrase. Britain procured the withdrawal of Russian troops from Turkey's Armenian provinces in the 1878 Treaty of Berlin. The European powers had a duty of superintending the application of measures to guarantee the security of the Armenians in those provinces, but, when it came to the test—the Sassoun massacre in 1894 and the numerous pogroms which followed over the next two years—we turned our backs.
If the noble Lord, Lord Monson, wants to look into the history of the matter, he should not start with 1915; he should examine the precursors of the genocide which took place over many years before that time. The Sultan, Abdulhamid, was the Milosevic of his time, adept at playing off the western powers against each other and seeing just how far he could go. Sassoun was, if you like, the test of European will, like Srebrenica a century later. Most of the population of 24 villages were totally exterminated. In Geligüzan young men were bound together and burned alive, while in another village 60 women were herded into a church, gang-raped and massacred.
If one looks at the whole of the two years of the Abdulhamid massacres, it will be seen that some 200,000 Armenians were killed and that the Ottoman authorities discovered that Europeans contented themselves with expressions of indignation which never approached the threshold of intervention. The massacres of 1894–96 were therefore a dress rehearsal for the genocide of two decades later, just as the atrocities in Bosnia led inexorably to the genocide that we are seeing in Kosovo today. Both the noble Baroness and the noble Earl, Lord Shannon, mentioned the parallel with Kosovo.
When the Ittihadists took over in 1908, the pogroms continued. In the Adana massacre of 1909, 25,000 Armenians were killed. The new government then reactivated the Special Organisation —a paramilitary outfit led by regular officers—which was charged with the duty of surveillance and neutralisation of internal enemies. They began collecting secret files on the Armenian leaders who were to be murdered. As has been said, the outbreak of war provided the Ittihadists with the opportunity to implement their plans for genocide. The Germans knew what was going on, but the Kaiser gave orders to all military and diplomatic personnel to keep silent so as to avoid harming the war effort. Yet the German Ambassador Wangenheim, who has already been quoted by the noble Baroness, Lady Cox, said that,
"the destruction of the Armenians, which has been carried out on a large scale, resulting from a policy of extermination",
arose from internationally promoted attempts at reform.
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The Allies were in no doubt about who was responsible. On 24th May 1915 they issued a joint declaration condemning the,
"connivance and often assistance of Ottoman authorities",
in the massacres, and the statement continued:
"In view of these new crimes of Turkey against humanity and civilisation, the Allied governments announce publicly that they will hold personally responsible all members of the Ottoman government and those of their agents who are implicated in these massacres".
When the arrests of Armenian leaders began in April 1915, that was an act of the state. In May 1915 the Interior Ministry issued a Temporary Law of Deportation, which led to the removal from their homes of virtually the whole of the Armenian population of the Ottoman empire, not just those living in eastern Anatolia, as the noble Lord, Lord Monson thinks. That, too, was an act of the state. Armenian men of military age were all conscripted into the army. After being used in labour battalions for a while they were almost all murdered, some being compelled to dig their own graves. That too was an act of the state and of the leaders of the state.
After the war the Allies considered how the laws IA humanity and the dictates of public conscience could be applied to crimes against civilian populations in wartime, and a tribunal was created to try those offences. The British arrested 118 alleged war criminals but in the meanwhile the French and Italians, who were hoping to get in on the ground floor with the Kemalists, sabotaged that international judicial process.
However, the Ittihadist leaders were tried by the Turks themselves and were condemned to death in absentia. In the key verdict, and the verdicts of tribunals sitting around the country under the control of Istanbul, the common element was the finding that the real purpose of the deportations was the extermination of the whole Armenian population of the Ottoman empire.
Your Lordships may have seen in the Observer magazine on Easter Sunday a remarkable account of the life of Thomas Buergenthal. He survived both Auschwitz and Sachsenhausen to become a distinguished lawyer in the United States. He said that giving people back their lives is not just a matter of punishing the guilty. He said,
"A nation has to confront its past by acknowledging the wrongs that have been committed in its name".
The failure to confront its past by modern Turkey not only affects the lives of the genocide survivors' grandchildren and great-grandchildren; it is one of the major problems confronting Turkey if it wants to be part of Europe and to live in peace and trust with the state of Armenia, all that is left to the Armenian people of their historic territories. By our continuing refusal to speak the whole truth of what we know about that appalling crime, and to give that crime its proper name, we ensure that its evil feeds down the generations.
Lord Monson: My Lords, the revelations of the noble Lord, Lord Avebury, are extremely interesting and of course I cannot possibly dispute them. However, does he not agree that all these events occurred under the Ottoman empire and not under the Turkish Republic

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which we now have? Would he expect the present-day Austrian Government to apologise for an atrocity committed by Croatian irregulars 85 years ago?
Lord Avebury: My Lords, I invite the noble Lord to consider the parallel of modern German governments who acknowledge the evils that were perpetrated by Hitler even though they are not responsible for them.
6.32 p.m.
Lord Moynihan: My Lords, I congratulate my noble friend Lady Cox on securing this debate tonight. Her commitment and dedication to the important causes which she espouses have few parallels. As my noble friend has said, today's debate is tragically timely. A debate over whether a crime warrants the heinous definition of genocide will always be a matter of the utmost gravity in your Lordships' House. But current events emphasise its importance all the more. In the twilight of the 20th century we are witnesses to atrocities, massacres, suffering and grief barely dissimilar to those which scarred its opening years. We continue to be plagued by the same question: have the intervening eight decades which have seen the loss of so many innocent lives really taught us very little, and are we nearer to bringing about an end to man's inhumanity to man? For when we look at what is happening in Kosovo this year it seems that few lessons have been learnt to ensure that past crimes against humanity can serve to prevent future ones.
Wide-ranging discussions and constructive debate on this issue are so important. As Armenians across the world prepare to observe the annual Armenian Remembrance Day no one should deny that—as my noble friend Lord Biffen said—the Armenian people suffered a tragedy of epic proportions in the years from 1915 to 1923. There is no doubt that the events which began in the spring of 1915 represent a crime against humanity by any standards, when, in the city of Constantinople, more than 200 Armenian civic, political and intellectual leaders were arrested, deported and subsequently executed. The senseless deportations and the slaughter of untold thousands of Armenians in the Ottoman empire which followed still today mark one of this century's darkest chapters. As we have heard, estimates of those Armenians who died in the massacres range from between 600,000 to one and a half million.
However, to decide the case for recognition by the British Government of these events as genocide, three key questions must be answered. First, is there evidence that the Armenian massacres constituted what we today would understand as genocide? Secondly, were the deaths of the Armenians part of a systematic and officially sanctioned policy of the Ottoman rulers? Thirdly, to what extent should the British Government in 1999 take steps to reassess events of 1915, and what practical purpose would be served by such a step?
My noble friend Lady Cox has referred to the most widely accepted definition of genocide, that which is contained in Article H of the Convention on the Prevention and Punishment of the Crime of Genocide approved by the General Assembly of the United
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Nations on 9th December 1948. Under the genocide convention not only genocide but also conspiracy to commit genocide, direct and public incitement to commit genocide, attempt to commit genocide and complicity in genocide are punishable. As my noble friend said, in this convention genocide means any of the following: killing members of a national, ethnic, racial or religious group; causing serious bodily or mental harm to members of such a group; deliberately inflicting on such a group conditions of life calculated to bring about its physical destruction in whole or in part; imposing measures intended to prevent births within such a group; and forcibly transferring children of the group to another group with intent to destroy, in whole or in part, such a group. It is this definition which is used in the 1969 Genocide Act. It is therefore important to pose the question to the Government of whether the Armenian massacres would be deemed genocide today under the 1969 Act.
My noble friend Lady Cox has described the deeply disturbing events of 1915 and the violent and inhumane treatment of so many Armenian victims in deportations, in death marches without food or shelter, in concentration camps, when it is estimated that perhaps half the Armenian population were forcibly deported from their homelands in the north east of the Ottoman empire. My noble friend put her case for the recognition of the action against the Armenian people in 1915 as genocide with all her customary eloquence and sincerity. No stranger to persuasive arguments, she and other noble Lords referred to the number of international and national bodies which have done so, including in particular the European Parliament, the General Assembly of the Council of Churches, and a number of other parliamentary bodies. My noble friend was well aware of the position of the previous government. It is appropriate now that the present Government should be required to explain and justify their policy.
The position taken by my predecessors echoed that of past British governments which have always condemned the 1915 massacres. We have always taken pride in our close ties with the Armenian people, a bond which was forged when Gladstone took up their cause during the massacres of the 1890s and which was strengthened when the British government in 1916 issued in a Blue Book the data available for a "full and authentic record" of what had occurred in 1915.
However, in preparing for this debate I have noted that past British government decisions not to recognise the events of 1915 as a genocide have rested on the absence of evidence that the Turkish government of the day took a specific decision to eliminate the Armenians under their control. Indeed we have heard from the noble Lord, Lord Avebury, that this remains the view of the noble Baroness, Lady Symons. Can the Minister therefore confirm that it would require new evidence to come to light in order to change this position?
From these Benches we are of course sympathetic to the symbolism that international recognition of this eight decade old tragedy as genocide would constitute for the Armenian people. But all governments have a duty to assess carefully events of the past to determine what today requires official action. Britain's credentials as the

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strongest denouncer of genocide and war crimes in the international community are second to none. From these Benches we fully endorse the words of the General Assembly in 1951 that genocide,
"shocks the conscience of mankind, results in great losses to humanity…and is contrary to moral law and to the spirit and aims of the United Nations",
words which were reiterated by the International Court of Justice in its judgment in May 1993 on the case concerning the application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia-Herzegovina v. Yugoslavia (Serbia and Montenegro)).
In this country successive governments have supported the establishment of the International War Crimes Tribunal in The Hague to bring to justice war criminals front the Bosnian conflict. We have taken a leading role to assist in the training of the prosecutors and judges for the tribunal set up in Rwanda to bring to justice the perpetrators of the Rwandan genocide. And most recently President Milosevic and his colleagues have been warned that they will be personally held responsible for the crimes associated with ethnic cleansing in Kosovo.
I believe that it would be of considerable benefit, therefore, to learn the extent to which the Minister accepts the argument posed by a number of your Lordships tonight, that there can be no basis for complete forgiveness and reconciliation between Armenia and Turkey without a recognition of the massacre as state-sponsored genocide from Turkey, on the basis that Turkey is living a lie and that Armenia still suffers an unresolved hurt.
What assessment has the Minister made of fears that if the Government acceded to requests to declare the activities of the Moslem Ottoman government against the Christian Armenians to have been genocide, while perhaps an accurate description of what was done and a proper use of the word, it would open the sores of an old wound and bring to life an 84 year-old tragedy. If so, what consequences do the Government believe would take place in those circumstances? The people concerned were denied their dream of independence in 1923, sacrificed on an altar of realpolitik and expediency. Nevertheless, over the decades of this century Armenians from across the globe have kept alive the vision of an independent Armenia and, in 1991, that vision became a reality. Today Armenia is a free and sovereign state, a living monument to the memory of those who died 84 years ago and a lasting pledge that such a tragedy will never again occur.
I seek an assurance from the Minister this evening that the United Kingdom will continue to place the highest priority upon efforts to preserve the historic establishment of a free Armenia, by redoubling our commitment to peace and stability in the Caucasus region and by playing our full part, together with the international community, in the quest for a just and lasting resolution to the conflict between Azerbaijan and Armenia over Nagorno-Karabakh, to which we have returned on a number of occasions over the past few years.
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For it is incumbent on the international community to support reform, democracy, economic development and integration in the Caucasus region, to strengthen modern political and economic institutions and to assist in energy development, in the creation of an east-west transport corridor, and, most importantly, to help in conflict resolution in this still volatile region. Therefore the legacy of this tragedy, and a fitting monument to those who died in 1915, must be our recognition that crimes against humanity must not be tolerated and that evil must never be allowed to conquer.
6.43 p.m.
Baroness Ramsay of Cartvale: My Lords, I thank the noble Baroness, Lady Cox, for initiating this debate, and I echo the sentiments of the noble Lord, Lord Moynihan, and other noble Lords tonight who have spoken in praise of her vigour in pursuing the causes she believes in. The noble Baroness is well known, both in this House and beyond, as a tireless campaigner for several causes and not least that of the Armenian people.
With others of your Lordships who have spoken tonight, I heard her speak passionately in support of the Armenians of Nagorno-Karabakh in the debate of 17th March, which was introduced by the noble Viscount, Lord Waverley. She and other noble Lords, including the noble Lord, Lord Avebury, have regularly written to Ministers on the issue of the shocking killings and deportations of Armenians in eastern Anatolia during the First World War. The noble Baroness has outlined some of these grim details tonight, and they have been echoed in some of the contributions from other speakers.
The position of Her Majesty's Government, which the noble Baroness has asked us to review, is, I believe, well known and understood, but it certainly bears repeating here tonight. The British Government condemned the massacres of 1915–16 at the time and viewed the sufferings of the Armenian people then as a tragedy of historic proportions. The British Government of today, like their predecessors, in no way dissent in any form from that view. Nor do we seek to deny or to play down the extent of that tragedy. It was a gruesome, horrifying tragedy, as the noble Earl, Lord Shannon, and other noble Lords have echoed tonight. I assure them that we are in no way dissenting from that analysis of what happened, but in the absence of unequivocal evidence to show that the Ottoman administration took a specific decision to eliminate the Armenians under their control at the time, British governments have not recognised the events of 1915 and 1916 as genocide.
Many other governments—and here I have to say to your Lordships, in spite of some of the statements that have been made tonight, the vast majority of other governments—are in a similar position. Very few of them have officially attributed the name genocide to these tragic events. In our opinion that is rightly so, because we do not believe it is the business of governments today to review events of over 80 years ago with a view to pronouncing on them.
These are matters of legal and historical debate, arid the noble Lord, Lord Monson, gave an expert arid detailed exposition of a very different view of some of

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the events that took place from that presented by some of the other speakers. These events took place in a time of massive and dramatic upheaval in Europe and the former Ottoman territories in the first decades of this century. I put it to your Lordships that these should not, in countries not involved in the events concerned, be matters of political controversy today.
The noble Baroness, the noble Earl, Lord Shannon, and the noble Lords, Lord Avebury and Lord Moynihan, referred to the codification of the concept of genocide in international law, which did not happen until the Convention on the Prevention and Punishment of the Crime of Genocide of 1948, which entered into force on 12th January 1951. It has not been established whether the terms of that convention can be applied retroactively, and I would at this point say to the noble Earl, Lord Shannon, that the trials at Nuremberg were for crimes related to the Holocaust: the trials were for war crimes or crimes against humanity. It was the evidence of the Holocaust which emerged during and after the Second World War and through the work of the Nuremberg tribunal which led to the codification of genocide in international law.
However, let us look beyond the legal and historical issues. With the greatest respect to the noble Baroness, Lady Cox, I would like to put this to the House: what would be the practical outcome of a declaration by this or any other government that the events of 1915 and 1916 constituted genocide? A foreign government taking a public position on an issue as contentious and sensitive as these events of 84 years ago would severely hamper their ability, as a friend of all parties, to help the region realise its potential. And who would benefit from our taking such a position? As the noble Viscount, Lord Waverley, made clear, that is a problem. It was also referred to by the noble Lord, Lord Moynihan.
The events of 1915–16 remain a painful issue and a source of tension in relations between two states with which we enjoy excellent relations—the Republics of Armenia and of Turkey. For our part, we believe that it is better to look forward than back. We hope that these two countries will be able to overcome the historical legacy of bitterness and pursue better relations, in their own interests and in the interests of their region and the international community. We urge them to do so.
Improvement of this relationship, which I believe both sides sincerely wish, together with the resolution of the conflicts of the southern Caucasus, referred to by the noble Lord, Lord Moynihan, would transform the region, opening the way to a newly prosperous, democratic and stable area. I assure the noble Lord, Lord Moynihan, that he and the Government see this in the same light. In the debate on 17th March many noble Lords spoke of such a future for the region. As my noble friend Lady Symons made clear on that occasion, the Government want to play their part in achieving such a goal.
The noble Earl, Lord Carlisle, raised some specific points. I shall try to deal with them briefly, but I am willing to expand on them in writing. He asked about
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support for the independence of Armenia. We are firm friends of Armenia and we support its independence, working with the Armenians not least through NATO's Partnership for Peace Programme. He asked whether we would work through the OSCE to resolve the conflict in Nagorno-Karabakh. I can certainly confirm to him, as did my noble friend Lady Symons on 17th March, the Government's commitment to working through the OSCE to resolve this conflict. The noble Earl asked also about the British Council. The British Council is active in the region, including in Armenia, but opening a centre in Yerevan is dependent on the availability of resources. It is not through a lack of desire on the part of the British Council or of the Government. He asked whether we would consider supporting a Chair for Armenian Studies. I shall certainly bring that issue to the attention of the relevant Ministers.
It is not only in this Parliament that the issue of the sufferings of the Armenian people has been raised. The noble Baroness, Lady Cox, referred to the European Parliament. Perhaps I may clarify the point about EU membership. The conditions which all applicants for membership of the EU, including Turkey, must fulfil were laid down by the Copenhagen European Council in 1993. These criteria include stable institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities. In its report of November 1998 on Turkey's application for membership, the European Commission concluded that significant shortcomings remained in those areas. But the Council has not laid down any additional conditions relating to recognition of an Armenian genocide. The European Parliament would need to give its assent to Turkey's accession to the EU, but there are no set criteria on which it could base a decision to grant or withhold its consent. That would be a matter for the European Parliament at the time. I hope that I have clarified that area.
The noble Baroness, Lady Cox, referred to the example of France. I think it is worth recalling the words of M. Hubert Vedrine, the Foreign Minister of France, which, like us, enjoys good relations with both Armenia and Turkey. He recently told the French Senate of his government's fears that the adoption by the Senate of a Bill recognising the events of 1916 as a genocide would serve above all the interests of those,
"who favour isolation, authoritarian nationalism and the repudiation of progress and openness",
rather than to end conflict and overcome hatred. I know that the noble Baroness and those of a like mind who have spoken on this issue today would count themselves, along with Her Majesty's Government, among the enemies of conflict and hatred and would never knowingly support them.
I should like to refer to one point that was raised by the noble Baroness, Lady Cox, and the noble Lord, Lord Monson, and alluded to by one or two other noble Lords. The Turkish authorities have not denied that deaths took place in that period of 1915–16. The argument centres on the scale of and the responsibility

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for these killings. As I have already indicated, we hope that the Armenian and Turkish governments will overcome their difference.
Let us learn from the past, as the noble Lords, Lord Biffen and Lord Avebury, correctly urged us to do, but let us not become prisoners of the past. Let us concentrate on trying to ensure that tragedies such as this and the horrors unfolding now in Kosovo—the noble Lord, Lord Moynihan, correctly drew the parallel—do not happen again. The international community is now more active than ever before in backing up words with action. The awful events in the former Yugoslavia and Rwanda during this decade have led to the establishment by the Security Council of international criminal tribunals to bring to justice those responsible. Last year the international community took the historic decision to establish a permanent international criminal court. We are proud that Britain played a leading role in bringing that about. Our hope is that this will make those intent on crimes against humanity think twice. We shall not forget past victims but we shall focus our efforts on making sure that others do not have to suffer in the same way.
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With the greatest possible respect for the arguments sincerely and eloquently put forward by the noble Baroness, Lady Cox, the Government believe that the right approach—the constructive approach—to dealing with the historical legacy of atrocities against the Armenian people is for us to urge the peoples of the region to look to the future, a point made by the noble Viscount, Lord Waverley, the noble Earl, Lord Carlisle, and the noble Lord, Lord Biffen, and that we should join the peoples of the region in helping them to build their future.
We are not suggesting that we or they should deny the past or fail to learn its lessons. I do not believe that the peoples of Armenia and Turkey can do that. We should allow them the space to resolve between themselves the issues which divide them. We can and should support their efforts to do so and help in whatever way we can to build trust between them. But we could not play the role of supportive friend to both countries were we to take an essentially political position on an issue so sensitive for both.
House adjourned at two minutes before seven o'clock.