Lords Sitting of 27 March 2000

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

The Lord Chancellor: Leave of Absence
The Lord Chancellor (Lord Irvine of Lairg): My Lords, before business begins, I take the opportunity to inform the House that I am to host a lunch in honour of the Speaker of the Hungarian Parliament on Wednesday, 29th March, when the House will sit. Accordingly, I trust that the House will grant me leave of absence.

UN Millennium NGO Forum
Lord Archer of Sandwellasked Her Majesty's Government:
What action they are taking to ensure the success of the forthcoming United Nations Millennium NGO Forum.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Scotland of Asthal): My Lords, the Government believe that the millennium forum should make an important contribution to the deliberations of the United Nations' role in the 21st century. We have offered the forum financial assistance and have contributed to the United Kingdom preparatory event. We also support plans for the forum to be represented at the intergovernmental millennium summit in September.
Lord Archer of Sandwell: My Lords, as ever, I thank my noble friend for that encouraging Answer and in particular for the reference to financial assistance. Will she confirm that the Government have taken a commendable lead in encouraging the United Nations to summon the millennium assembly and the millennium summit to discuss its future role in promoting peace, security and development?
But does she agree that unless the bones are to remain dry, it is essential to involve civil society in those discussions and that that is the purpose of the forum? Given that it is due to take place in May of this year and that many delegates from less privileged areas are relying on financial assistance to pay their fares, how much money are the Government proposing to contribute; when is it likely to be available; and who else has made any contribution?
Baroness Scotland of Asthal: My Lords, first, I say straightaway that I endorse wholeheartedly what my noble and learned friend said in relation to the importance of the summit. The Government strongly
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support the idea of the millennium forum. It is a unique occasion for global civil society to consider the challenges facing the United Nations in the 21st century and to propose initiatives to tackle them.
The Government are to make a contribution. We have, in principle, offered to contribute towards the costs of securing developing country representation at the forum to ensure that it is truly representative of the global civil society. We also provided £15,000 to the United Kingdom United Nations Association to help fund the national preparatory event in February which sought to frame the national civil society input to the forum. Unfortunately, I cannot tell my noble and learned friend the precise nature of the further contribution but we are hopeful that it will be substantial.
Baroness Gardner of Parkes: My Lords, will the Minister tell the House where the forum is to be held? I was involved in the World Conference of Women and I remember clearly the NGO forum there. Will the Minister tell me also whether the NGOs will be adequately housed in one huge area? In the past, the problem has always been that there has not been adequate space for all the representatives to be together. Their value is greatly diminished if they have to be separated.
Baroness Scotland of Asthal: My Lords, I can tell the noble Baroness that the forum is to be held in New York. I cannot give her the precise location in New York but I am sure that I can write to her with that information if that is what she requires. We believe that the forum will be extremely important and that accommodation will be available for those who attend. I hope that that is a full answer to the noble Baroness's question. I can certainly take forward those matters and if I am able to cull further details from the information available, I shall write to the noble Baroness in relation to it and make available a copy of that letter to other Members of the House.
Baroness Whitaker: My Lords, does my noble friend agree that since the UN Charter refers to "We, the peoples" of the United Nations and not "We, the governments", and since this country has one of the largest proportions of NGOs among the UN members, it is entirely appropriate that this Government should give a lead in supporting the forum?
Baroness Scotland of Asthal: My Lords, I respectfully agree with my noble friend. It is extremely important that civil society plays its full part in that regard. We are most encouraged that the forum is to take place and are very hopeful that there will be a full and frank exchange and that there will be opportunity at the summit for the results of the deliberations to be communicated more broadly.
Baroness Rawlings: My Lords, does the Minister not agree that this is an ideal opportunity for this Government to pledge greater financial and other

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support, beyond that which the Minister mentioned, to our two outstanding British export successes—the BBC World Service and the British Council—both of which could and would make a major contribution to ensuring the success of that NGO forum?
Baroness Scotland of Asthal: My Lords, as the noble Baroness will know, we already give extensive support to both the British Council and the BBC World Service. They have worked extremely hard and well with Her Majesty's Government, as they have with previous governments. We shall certainly continue to be supportive in the links that we have and in the partnerships and working together which we believe will evolve over a period of time.
Lord Jenkins of Putney: My Lords, I am sure that my noble friend has welcomed the universal support that the project has received in the House. Will she give the House some idea of the extent to which other countries are participating?
Baroness Scotland of Asthal: My Lords, other countries are participating in the event. We are hoping that our partners in Europe also will make a contribution. I am not able to tell noble Lords the precise nature of their contribution, but I am aware that they are deliberating as to financial and other participation. The forum is being welcomed by a number of our partners.

Data Protection Codes: Revision
2.42 p.m.
Viscount Astorasked Her Majesty's Government:
When they will bring forward a revised Data Protection (Designated Codes of Practice) Order to comply with the Press Complaints Commission's revised code.
The Parliamentary Under-Secretary of State, Home Office (Lord Bassam of Brighton): My Lords, we are checking whether there are proposals to amend any of the other codes designated under Section 32 of the Data Protection Act 1998. We shall bring forward a draft order shortly after Easter in the light of those checks and after consulting the Data Protection Commissioner.
Viscount Astor: My Lords, will the Minister apologise to the House for bringing forward an order on 7th February which referred to a code that was out of date? The changes of which he was not aware then, but he is now, were made on 20th January. Does that not show that the consultation promised by the Minister did not take place? Will he assure the House that it will take place in the future? Does he agree that the changes are important because they relate to the identification of juvenile victims and juvenile witnesses to crime?
Lord Bassam of Brighton: My Lords, it is most regrettable that we were unable to designate the appropriate code. That must be common ground. I regret that there was a temporary breakdown in communication. Such things happen from time to time. We need to ensure that we get consultation absolutely right so that we designate the appropriate order. The changes reflected in the order are minor in extent but they are important. They reflect important changes in other aspects of public policy, partly in reaction to the Thompson and Venables case.
Lord Campbell of Alloway: My Lords, will the code of practice take account of the use of the new form of the electoral register for commercial purposes under Section 9 of the Representation of the People Act without the consent of the person registered, in context with the provisions of Article 8 of the European Convention on Human Rights? Also, will the order be subject to affirmative resolution?
Lord Bassam of Brighton: My Lords, the code of practice to which the Question relates does not bear any resemblance to the noble Lord's question. I am more than happy to consider the issue raised in his second point and to communicate with the noble Lord to clarify any issues of concern.
Viscount Astor: My Lords, will the Minister confirm that the Data Protection Commissioner has been notified that the code designated was out of date? Will he say what steps are being taken to inform journalists who, looking at the present code published by the Press Complaints Commission, might believe that it was the one with which they should comply? In fact, they should be complying with a code that dates from three years earlier. What steps are the Government taking to help such journalists, who may be put in a position where they might unintentionally break the law due to the error made by the Government?
Lord Bassam of Brighton: My Lords, we are in contact with the data protection registrar on those matters. In response to the noble Viscount's second point, we take the view that journalists could rely on the current code in any event, simply and primarily because there is no major difference between the two codes on privacy matters, which are obviously the issues of primacy concern. We are safe on those terms. As I said earlier, we intend to bring forward an amended order shortly after Easter so that we may deal with those matters. I believe that that will put the matter to rest.

Football: Proposed Regulator
2.47 p.m.
Lord Davies of Coityasked Her Majesty's Government:
What steps, if any, they are taking to appoint a football regulator.
Lord McIntosh of Haringey: My Lords, the majority report of the football task force's report, Football: Commercial issues, proposed an independent regulator for foot ball—the football audit commission. The Government are considering their response to that proposal and to the football authorities' alternative proposal for an independent scrutiny panel. Ministers have had a number of useful discussions with the football authorities and other interested parties over recent weeks and the Government will respond to the report shortly.
Lord Davies of Coity: My Lords, I am extremely encouraged by my noble friend's response. However, I should like to draw to his attention and to ask for his views about the current negotiations taking place with the television companies, which are likely to produce over £1 billion in funding over the next five years—a 20 per cent increase. Is he aware that on the last occasion that a deal was struck with the television companies, all the increased income went into the pockets of players? There are now over 100 players earning £l million per year from football. At the same time, the cost to fans for admission to the grounds is soaring. The lower clubs are finding it extremely difficult in such outrageous circumstances. Does the Minister believe that the appointment of a regulator would go some way to correct those disastrous circumstances?
Lord McIntosh of Haringey: My Lords, it is important to consider those parts of the report of the football task force upon which there is agreement rather than the single issue of the nature of the regulator, upon which there is disagreement. All members of the football task force recognise the seriousness of the points raised by my noble friend concerning the needs of the less rich clubs and the need for affordat le access to football. That is linked to the television agreements, which are still to be concluded.
Lord Lyell: My Lords, can the Minister advise me to whom he believes the regulator should report? Will it be the noble Lord, the Government, the football authorities or the fans, like myself, who paid £7 to stand in freezing conditions on Saturday with little in the way of facilities?
Lord McIntosh of Haringey: My Lords, it sounds as though the regulator should report to the noble Lord, Lord Lyell! That would do the trick. If there is to be a single regulator, rather than an independent scrutiny panel, it is important that that position is set up by the Government rather than the football authorities. The exact terms of reference would still be a matter for discussion.
Lord Faulkner of Worcester: My Lords, I declare an interest as vice-chairman of the football task force and as a signatory to the majority report to which my noble friend referred. Is he aware that a number of us who were majority signatories, including supporters'
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representatives, met his colleagues, the Secretary of State and the Minister for Sport, last Thursday? We were gratified to learn that the football authorities have made considerable progress on their own plans on matters such as consumer representation, financial compliance and the independence of the regulatory body. We believe there is now some prospect of an agreed solution being presented to my noble friend and his ministerial colleagues which will satisfy the expectations of supporters and substantially take the game forward.
Lord McIntosh of Haringey: My Lords, I am glad to be able to confirm the meeting at which my noble friend was present. I confirm too that a meeting took place with the authorities on 16th March which was also constructive and had the benefit of a detailed presentation from the football authorities. All that underlines the importance of making progress on those parts of the report of the football task force which are agreed without waiting for a final decision on the nature of the regulatory person or body.
Lord Clinton-Davis: My Lords, can the noble Lord confirm that the ordinary fans will have a say in the matter; that the football regulator will formally or informally consult the ordinary fans?
Lord McIntosh of Haringey: My Lords, one of the proposals contained in the report of the football task force was for a supporters' direct unit. That unit is already in place in shadow form, providing advice to fans who are interested, in particular, in taking part in the management of football by setting up trusts. That confirms the importance we attach to ensuring that fans have a voice in football.
Lord McNally: My Lords, did not the Minister read in yesterday's paper that the right honourable Jack Cunningham, MP is already lined up to be appointed as football regulator? What is the veracity of that story? Is it a "star signing" or an "own goal"?
Lord McIntosh of Haringey: My Lords, the noble Lord knows perfectly well that I am no good at sporting metaphors. However, I can inform him that there is no truth in the report to which he has referred.
Lord Brookman: My Lords, if there is to be an appointed regulator, I believe, from these Benches, that the appointment of Jack Cunningham would be a good choice. Does the Minister not agree that it is about time we, the British people, had more Davieses, Clarkes, Evanses and Joneses playing in the premier league?
Lord McIntosh of Haringey: My Lords, I thought that those with Welsh grandfathers tended to come from New Zealand.

GM Technologies and the Developing World
2.55 p.m.
Lord Taverneasked Her Majesty's Government:
Whether, in the light of the Organisation for Economic Co-operation and Development conference in Edinburgh on genetically modified foods and health, they will promote the use of genetically modified crops in the developing world.
Baroness Amos: My Lords, we support demand-led research directed at the needs of poor farmers in developing countries using whatever technology is most appropriate, cost-effective and safe. Genetic modification (GM) technologies could produce considerable benefits if applied safely and responsibly to the crops on which the poor rely. We shall continue to support the development and dissemination of beneficial technologies which poor farmers can afford and use to create sustainable livelihoods. We shall also consider how we might help developing countries to develop the capacity they need to handle and assess GM technologies.
Lord Taverne: My Lords, are the Government aware that at the Edinburgh conference, which it was my pleasure to attend, two matters became absolutely clear? First, there was not a shred of evidence that GM foods are harmful to health. Indeed, hundreds of millions of people have now consumed them for over a decade without any apparent ill effects. Secondly, there was enormous enthusiasm among representatives from the developing world for the new technology, which they regard as essential to the fight against hunger and disease and, indeed, which was already shown to be having beneficial effects in countries such as China and South Africa. In the circumstances, is there not a moral imperative on the Government to do everything they can to encourage and promote the spread of such technology?
Baroness Amos: My Lords, the Government aim to protect public health and the environment by taking a science-based approach to GM crops and food. We are pro-safety, pro-environment and pro-choice. As regards the question raised by the noble Lord on the developing world and the new technology, we are aware that in developing countries there is a concern that the focus has been on the developed world rather than on the way in which GM technologies can be used in the developing world. We are supporting developing countries to develop their capacity in that area. We are also supporting research on rice, for example. Bearing in mind that we are pro-safety, pro-environment and pro-choice, the Government are doing all they can with regard to the issue in developing countries.
The Lord Bishop of Oxford: My Lords, there are important scientific questions to be answered about GM crops. Such questions will not all be answered negatively; they could be of great benefit to the third
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world. Does the Minister not agree that there are no less important social, economic and political questions to be answered? It would be possible for small farmers to switch to monocrops using the so-called "terminator" seeds and to find themselves totally in the hands of the large trans-national corporations.
Baroness Amos: My Lords, I agree with the right reverend Prelate; there are social, economic and political considerations. DfID is funding research which supports the safe development and testing of affordable GM technologies which have the potential to benefit poor farmers, improve food availability, human well-being and the environment. We are also funding research designed to assess the economic, environmental and social impact of GMOs on poor farmers. The concerns expressed are being taken on board by that department.
Lord Swinfen: My Lords, will the Government ensure that in areas of the world in which small farmers save their own seed for the next crop, such farmers are not supplied with a so-called "terminator seed" which could not be used for their next crop?
Baroness Amos: My Lords, the Government do not support the development of the terminator seed. The noble Lord may be aware that last year Monsanto, which had conducted the most research on this issue and was within five or 10 years of concluding that research, decided not to take it forward. We are not supporting any kind of development of any kind of terminator gene.
The Countess of Mar: My Lords, will the Minister bear in mind the lessons learned from the profusion of toxic chemicals which have been spread around the world and have caused enormous damage? Slogans such as that used by the noble Lord, Lord Taverne, regarding the absolute safety of chemicals have proved to be untrue. Would the Minister bear in mind that, with genetic modification, there is no going back? We are playing with the basic building blocks of life and must be absolutely sure of safety before we use them.
Baroness Amos: My Lords, that is why the Government's approach is science-based and money is invested in research so that we do not facilitate the use of GM crops in areas where developing countries have not put in place the basic infrastructure or legislation that will enable them to use this technology beneficially. We want to see developing countries use this technology in a way which is beneficial for them and to ensure that they have the capacity not only to develop the technology in ways that suit them but also to market it to their own advantage.
Baroness Whitaker: My Lords, does the noble Baroness agree that the alternatives to genetically modified crops tend to be pesticides which are

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ecologically damaging and expensive, in particular when they are used on marginal land, which so many poor people are reduced to farming?
Baroness Amos: My Lords, I agree with my noble friend. It is important that developing countries are included in an elective and inclusive dialogue on the risks and benefits of GMOs. However, it is also important to remember that much of the research has to date been focused on the use to be made of GMOs in the developed world by large commercial organisations. We want to see the technology used to assist developing countries in the ways that suit them best.
Lord Avebury: My Lords, did not Watson and Crick win the Nobel Prize for their research on the basic building blocks of life, and is anything wrong with that? Furthermore, does the noble Baroness agree that all the opinions so far expressed on GM crops have come from the developed world? Does she further agree that it is about time that the third world, where the benefits of GM crops may well be felt the most, should have their say as well?
Baroness Amos: My Lords, I entirely agree that a public debate is needed on this issue. We need a public debate that focuses not only on the developed world but also includes the developing countries. For that reason, DfID provided funding for some developing countries to send representatives to the Edinburgh conference so that their voices could be heard. I hope that their voices will continue to be heard.
Baroness Rawlings: My Lords, as the right reverend Prelate the Bishop of Ely has so rightly said, in the Middle Ages the Church condemned surgery because it interfered with God's handiwork, and we must follow science rather than emotions. With that in mind, does the Minister agree—taking into account all the necessary precautions that have already been mentioned, including the TRIPS agreement—and the fact that at least 30 million hectares worldwide were planted successfully with GMOs in 1998, saving many starving people in the developing world, that the Government should promote GMOs far more?
Baroness Amos: My Lords, I believe that I have already addressed many of the points raised by the noble Baroness in her question. As I said, we are funding research but we are not yet at a stage where we will fund crops in developing countries unless those countries have in place the necessary legislation and infrastructure. We will continue with this work. Furthermore, we want to involve people in developing countries by helping them to build the capacity to take this technology forward.
The Lord Bishop of Hereford: My Lords, perhaps I may take this opportunity to thank the noble Baroness for the Government's change of heart on GM technology and for demonstrating their greater awareness of public unease. I believe that the
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Government have also shown a greater awareness of the environmental dangers of this technology. Perhaps I may make two points, both of which have been touched on but have not yet, I think, been answered satisfactorily. First, some NGOs, in particular Christian Aid, have taken a very negative view of this technology and have considerably influenced developing countries against it. While I accept what the noble Lord, Lord Taverne, has said about expressions of enthusiasm for it on the part of many developing countries, can the noble Baroness say a few words on the Government's relationship with NGOs? Secondly, is there any prospect of progress on some kind of international agreement on the vexed question of intellectual property rights in GM technology? That question lies behind much of the fear and unease.
Baroness Amos: My Lords, first, perhaps I may say to the right reverend Prelate that there has been no change of heart by the Government. We have said consistently that we need to have an open debate about these matters. To enable us to have that debate, we need to gather the right information. The Government have consistently argued that some of what has been said in the press has been inaccurate and that we have tried to address that. Indeed, in the Government's response to the Science and Technology Committee's report on this matter, we expressed the concern that we needed to see greater understanding and greater probity on the part of all the players involved. As regards the attitude of NGOs, I think it is important to ensure that dialogue continues between all NGOs and the Government on this matter. We have done our best to promote that dialogue.
In response to the point made by the right reverend Prelate on international agreements, we are of course constantly discussing ways in which we might take those international agreements forward.

Business
Lord McIntosh of Haringey: My Lords, at a convenient moment after 3.30 p.m., my noble friend the Leader of the House will, with the leave of the House, repeat a Statement being made in another place on the Special European Council in Lisbon.

House of Lords' Offices: Select Committee Report
3.6 p.m.
The Chairman of Committees (Lord Boston of Faversham): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the Fourth Report from the Select Committee (HL Paper 45) be agreed to.— ( hairman of Committees.
Following is the report referred to:
1.Steps of the Throne
The Committee has considered the four categories of heirs to peerage currently allowed to sit on the Steps of the Throne:

eldest sons of Peers of Parliament;

eldest daughters or grand-daughters of such Peers when heiresses presumptive;

grandsons of such Peers when heirs apparent;

eldest sons of those who have disclaimed their peerage.

In the case of hereditary peerages, these categories all assumed that those exercising the right would eventually become Members of the House. That is no longer true, except as the result of a by-election to become one of the 90 hereditary peers who remain Members of the House. The chances of the eldest son, daughter or grandchild of a hereditary peer who had been a Member of the House being elected would be uncertain, though not impossible.
As the original rationale for the four categories no longer applies, the Committee considers that in future the privilege should be granted to the eldest child of a Peer of Parliament, without regard to gender. The Committee was, however, mindful of the need to avoid any unfairness to eldest sons who had previously exercised their right to sit on the Steps of the Throne but who have older sisters, and therefore recommends that the privilege be granted to:
"the eldest child of a Peer of Parliament (or the eldest son where the right has been previously exercised)."
2. Black Rod
The Committee agreed to an extension of the appointment of Sir Edward Jones for one final year to 8 May 2001.
3. Staff of the House
The Committee was informed of the following new posts:

—an additional Assistant Archivist / Records Manager in the Record Office;

— an additional personal secretary in the Committee Office;

— four Legal Assistants to the Law Lords, the posts to be held for up to one year at a time, with effect from September 2000.

4. Private Bill fees
The Committee agreed to the following increases in fees, broadly in line with inflation over the period 1995–99:

Current Fee

Proposed Fee

Payable on First Reading of Private Bill

£3,500

£4,000

Payable on Third Reading of Private Bill

£3,500

£4,000

Payable on Second Reading of Provisional Order Confirmation Bill

£3,500

£4,000

Payable on appearance at Joint Committee on Special Procedure Order

£1,750

£2,000

Payable on appearance at Select Committee on Hybrid Instrument

£1,750

£2,000

Taxation fee per £100 of any bill of costs allowed

£1.40

£1.60

5. Emergency Medical Services—Defibrillators
The Committee took note of the decision of the Medical Advisory Panel that the House should hold two defibrillators, one in Peers' Lobby and the other in 1 The Abbey Gardens. The defibrillators and trained personnel will be in place by Easter.
Lord Barnett: My Lords, I should like to raise two points with the noble Lord the Chairman of Committees. Perhaps I should declare an interest, in that the first section of the report will allow my own daughter to sit on the Steps of the Throne. I very much applaud that ruling.
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However, I believe that many other matters should be of concern to the noble Lord the Chairman of Committees and the House authorities. First, what facilities will be made available for those sitting on the Steps of the Throne? Secondly, and more important, are we pressing the other place—when they have acquired 200 offices at a cost of £1 million each in Portcullis House—to concede 200 offices to your Lordships' House? If not, why not?
The Chairman of Committees: My Lords, as regards the first point raised by the noble Lord, Lord Barnett, it is proposed that those mentioned in the report of the House of Lords' Offices Committee should be given the facility of being allowed to sit on the Steps of the Throne, if that is acceptable to your Lordships this afternoon. No other facilities were envisaged in relation to those concerned.
So far as concerns office space, which the noble Lord, Lord Barnett, has mentioned, that is not a matter which arises out of this report. I believe that I would be trespassing on the indulgence of noble Lords were I to venture into that matter this afternoon. However, perhaps I may indicate that matters connected with accommodation are very much in the minds of those committees of your Lordships' House which are concerned with these issues.
Lord Peyton of Yeovil: My Lords, perhaps the noble Lord the Chairman of Committees will agree that it would be wise if he were to take away the question put to him by his noble friend and give it a great deal more thought than he has been able to give it so far? Personally, I should hate it if he were to leave the Chamber without having it clearly in his mind that a great many noble Lords agree with what has been said by the noble Lord, Lord Barnett.
Lord Peston: My Lords, will the noble Lord the Chairman of Committees explain the meaning of the word "or" used in the sentence quoted at the end of the first point, where it states, "or the eldest son"? "Or" can mean one of two things: it can mean one but not both, or it can mean "and/or". Am I right to assume that here it means "and/or", in that, where an eldest son is sitting but his sister is older, she will be able to sit on the Steps as well? That would seem to me to be an entirely correct recommendation.
Lord Bruce of Donington: My Lords, can the noble Lord, Lord Boston, give the House an indication as to whether or not the committee discussed the agenda of its next and future meetings? Also, will the whole question of repairing and bringing up to a tolerable standard the acoustic properties of the various committee rooms of this House receive more than a perfunctory consideration?
The Countess of Mar: My Lords, I take this opportunity to thank the committee for extending the rights of females to sit on the Steps of the Throne. Perhaps I may remind the noble Lord that new incumbents will have will far less of a battle than I had

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with the noble Lord, Lord Denham—I see he has just taken his seat—when he was Chief Whip. When I sought to persuade him that my daughter, who is also my heir, should be allowed to sit on the Steps of the Throne, after a lot of excuses which did not stand up, he said that I might produce a son. I said that I could produce a certificate to prove that I could not and he finally gave way.
Lord Boardman: My Lords, as hereditary Peers who have been excluded from this House were granted as a concession the right to sit on the Steps of the Throne, should not the order be amended?
The Chairman of Committees: My Lords, perhaps I can deal with the last point first; that is, the one raised by the noble Lord, Lord Boardman. Hereditary Peers in fact already had the right to sit on the Steps of the Throne. On the point raised by the noble Countess, Lady Mar, I can only say that I am grateful to her for what she said, and am happy that she is happy.
The noble Lord, Lord Peyton of Yeovil, mentioned the matter of the House of Commons and House of Lords offices arising from the question raised by the noble Lord. Lord Barnett. There is no lack of interest in your Lordships' committees on this matter; indeed, it is being actively dealt with in the committees. I can give the noble Lard that assurance. However, I hope he will forgive me if I do not go further today because these matters will be referred to at a later date, though they are very much in people's minds.
The noble Lord, Lord Bruce of Donington, raised the question of repair of committee rooms. As your Lordships will he aware from earlier reports, there is a continuing and extensive programme of work along the lines mentioned by the noble Lord, Lord Bruce. I can assure him that those are being pursued with vigour. If he has any problems in mind relating to specific rooms and will let me know outside the Chamber what they are, I will look into those to see whether they are being dealt with.
The noble Lord, Lord Peston, raised a point in relation to the word "or". That word has its legal connotation and therefore it is used to indicate the alternative, not both.
On Question, Motion agreed to.

Financial Services and Markets Bill
3.14 p.m.
Lord McIntosh of Haringey: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee. — (Lord McIntosh of Haringey.)
Lord Saatchi: My Lords, the Minister proposes that we should now go into Committee. The House should be aware that we have some difficulty with this.
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There is deep concern on these Benches in relation to the conduct of this Bill through this House. This Bill changes the face of regulation of Britain's most successful industry. The Government take the view that this Bill is the best of all possible Bills in this best of all possible worlds. So it should be; it is the single biggest piece of legislation that this Government have introduced.
The Bill is 215 pages and 408 clauses long. In its epic 18-month passage through another place it attracted 1,450 amendments. The standing committee sat for 17 hours in 35 sessions and a fine Joint Committee of both Houses, chaired by the noble Lord, Lord Burns, prepared a set of 37 recommendations. Yet after all that, the Government have now tabled 254 more amendments and say that they have hundreds more to come. Few of those amendments are in response to the Opposition's substantive amendments in another place.
I stress that this is not a complaint about the Minister, who graciously apologised to the Committee for the scale of government amendments we are being asked to consider. Nevertheless, it is difficult to avoid the conclusion that the Government are almost redrafting the Bill as it goes along. First, the Government seem to be trying to correct bad drafting; secondly, they are introducing new concepts, some of which they say we shall not see in their final form until Report stage.
This is a complex and technical Bill whose 30 parts are highly interconnected, but under the avalanche of government amendments the Committee of your Lordships' House is unable to see the Bill in the round. I therefore ask for the Government's co-operation in this because we support the primary effect of this Bill; that is, the creation of an overarching financial services authority. But what explanation can the Minister give for the large number of government amendments, given the level of pre-legislative scrutiny this Bill received?
If the Bill is as perfect as the Government claim, one is entitled to ask why they are having so many second thoughts about it. To express our concern, I give notice of our intention to vote against the first government amendment in Committee this afternoon as a form of gentle protest.
Lord Newby: My Lords, I give modified support to the noble Lord, Lord Saatchi. As someone else who is attempting to deal with the government amendments as they are brought forward, I find it extremely difficult to deal with such a huge volume of highly technical amendments on which one sometimes needs outside advice at short notice. The Minister made it clear at the beginning of proceedings that there were likely to be a large number of amendments, and he has certainly been right.
As a general principle, we support the idea that government amendments should come forward in due time. But the point made by the noble Lord, Lord Saatchi, about the long process through which this Bill has gone, is absolutely valid. There was a pre-legislative committee on the Bill; it went through the

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Commons some time ago. Although the Bill is complicated, it is unfortunate that the Government should be tabling so many amendments to it.
However, I hope that the noble Lord, Lord Saatchi, will not mind if I disagree with him on two points. First, I notice from my supplementary list of amendments tabled on Friday that all bar one came from the Conservative Front Bench and we are facing the same difficulty in relation to late amendments from that front as we are from the Government. Secondly, I am not convinced that the best way to express our displeasure is to vote against an amendment with which we may agree, and therefore we do not propose to do so from these Benches.
Lord Peyton of Yeovil: My Lords, I give warm support to my noble friend and to the points he made. Nobody can possibly say that my noble friends on the Front Bench have been other than extremely temperate so far in their opposition to the Bill.
I also echo one point made by my noble friend; that is, I exempt the Minister, who handles a difficult, long and complicated Bill in a civil and courteous fashion, from any criticism. Having said that, I extend to him my strong personal sympathy that he should now find himself in loco parentis to such a monstrous child. It is an unfortunate and embarrassing position in which to find oneself. In saying what I now say, I am not in any way underrating the parliamentary skills of the noble Lord, but they will be fully exercised in defending the Government's rather sloppy conduct with this specific measure.
The Minister finds himself in charge of a baby which has put on an enormous amount of weight in a record space of time. Indeed, even now, it shows further signs of extremely undesirable growth. I hope that the Minister will realise how very sorry we all are for him in the terribly unfortunate role that he finds himself having to play.
Lord Elton: My Lords, if the noble Lord accepts the role of parenthood perhaps we may invite him to sign a certificate such as the one mentioned by the noble Countess, Lady Mar, which she offered to my noble friend Lord Denham a while ago? However, if the noble Lord was not present during Question Time, he may not see the point of that request.
On a more substantive matter, could the noble Lord put this Bill into context? I agree with other noble Lords that the Minister finds himself in a position with which one can sympathise, but is not the real problem the fact that this Committee stage has been scheduled too soon, before all the government amendments have been thought through? We receive government amendments almost daily through the post, accompanied by very helpful notes. Can the Minister say whether this haste arises from the pressure of other legislation that the Government propose to bring forward? Further, can the noble Lord remind the House of the total number of main programme Bills
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that the Government propose to bring to this House and tell us how many Second Readings are still ahead of us?
Lord Stewartby: My Lords, I should like to support what my noble friend Lord Saatchi said. Like him, I have particular sympathy for the Minister. Indeed, I spent many hours in Committee in another place on regulatory Bills. They are always very complicated and difficult to handle, especially when they are dealt with single-handedly by a Minister. But the problem with this Bill is not simply its length and the number of amendments that have already been tabled—and, indeed, the number of further amendments that are due to be tabled—but the fact that not only are some details of the Bill still unclear at this stage but also certain issues of policy still need to be resolved. That is the great difference between the present position and what I thought was the tradition in Parliament; namely, that one does not debate Bills in Committee unless the policy has been established, even if the amendments to implement that policy have not been brought forward.
During the passage of the Building Societies Bill in the 1980s—for which, for my sins, I was responsible—a large number of amendments were tabled in this House. That was a great pity. However, we took the greatest care to ensure that the import of all government amendments of any consequence that were due to be tabled was already known and published. I am afraid that that is not a position that we enjoy in relation to the present Bill.
Lord Jenkin of Roding: My Lords, I should very much like to endorse what my noble friend from the Front Bench said and to make one or two suggestions. I, too, am grateful to the noble Lord, Lord McIntosh of Haringey, for the care that he has taken to ensure that those of us who are taking part in the proceedings on the Bill have at least one or two days' notice of the amendments that the Government are tabling. I very much welcome and thank the noble Lord for the accompanying notes. However, with the greatest respect, I do not think that the noble Lord has taken on board the difficulty that faces those of us on this side of the House who are seeking to understand the Bill and to deal with it. These really are shifting sands. One thinks that one has understood a clause to which amendments may well have been tabled, but then one finds that the whole clause is to be left out and replaced with an entirely new one. Therefore, as my noble friend said, the context in which one is trying to debate the Bill seems to shift almost day by day.
Perhaps I may indicate to noble Lords exactly what we have been confronted with. On 22nd March, 81 new amendments were tabled and nine new clauses; on 23rd March, 23 amendments were tabled, together with three new clauses and one new schedule. All this actually runs into many, many pages on the Marshalled List. Therefore, having tried to understand the Bill, one then has to grapple with the detail—in this case, over the weekend—in an effort to try to understand the changes. I frankly concede that

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many of the amendments are properly described as "minor drafting amendments". I have no doubt that the Minister will use those words to justify such amendments. If there are a dozen or even half a dozen minor drafting amendments, one can cope; but it is extremely difficult to cope if there are hundreds because one has to satisfy oneself that a whole string of amendments really are just minor drafting amendments and that they will not change the policy significantly.
However, it goes further than that point. In an effort to be helpful, the noble Lord has already given some of us notice regarding amendments that will be tabled on Report to parts of the Bill that have already been dealt with. I have with me a copy of the notification that we were sent, which is headed, "Draft Decision-Making Amendments to Parts III to IX". As noble Lord may be aware, we shall begin to consider Part X later this afternoon. The problem with those amendments is that their references are to the Bill in the form that it appears before the Committee; but, when they are tabled, they will refer to the Bill as amended in Committee. I am sorry, but I just do not have the resources to begin to go back and look through the Hansard reports and the Marshalled Lists to find what amendments have already been made to the clauses that the Government now propose to amend still further on Report. I am certain that the noble Lord was trying to be helpful, but I have to tell him that it is almost useless for one to try to understand what is intended to happen. Indeed, it emphasises my point that it is very difficult to find firm ground on which to stand.
Perhaps I may take up a point made by the noble Lord, Lord Newby. I am not trying to keep in touch with a number of experts in the field—namely, legal advisers and others—because, if I may say so, my noble friends on the Front Bench are doing that wholly admirably. But life is made extremely difficult for some of us as regards trying to understand what is happening when things change day by day. I totally support the protest made by my noble friend Lord Saatchi.
Lord Boardman: My Lords, I should like to add my support to the concerns that have been expressed regarding the amendments that have been tabled. Indeed, the amendments that arrived at the end of last week were such that, quite clearly, they should have required me to stay up late all weekend in an effort to understand them. One receives much comment from commercial interests with which one was previously connected. Those concerned have very strong views on the amendments that are being made. It would be helpful if one were to have the opportunity to discuss such amendments with them and to take note of their points, but one never seems to have the time to do so.
Like other noble Lords on this side of the House, I have no complaint to make about the personal approach of the Minister. Indeed, he has been most helpful. Although I understand the problem with which he is faced, he must, nevertheless, understand
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ours. We are experiencing much difficulty in the proceedings on this most important Bill. I hope that something can be done to ease the situation.
Lord Peston: My Lords, I hope that my noble friend is not taken in by all the flattering remarks that the Opposition are making about him. I certainly have no intention of associating myself with all those kind remarks. It seems to me that the Opposition are now learning that it is a tough job being in opposition. When they have spent as many years on the Opposition Benches as I did, they will realise how difficult it is to scrutinise technical Bills.
This is a difficult Bill. But, in a way, the Government cannot win. They are trying to improve it. We made the terrible error of having this Committee stage in the Chamber of the House rather than proceeding with it in the Moses Room, which is much more suitable for such technical matters. But, as I understand it, the Opposition did not want us to deal with it in a much more professional way in the Moses Room.
I have seen the difficult amendments to which reference has been made. They are technical; indeed, I have yet to see anything from the Government'side that suggests a fundamental change in policy. It was not clear from the remarks of the noble Lord, Lord Saatchi, whether he feels that there has been a change of policy at some point. I have seen no evidence to support that view. I have seen adjustments because, quite rightly, the Government are thinking matters through. The alternative—this shows that they can never win—would be for the Government to decide not to think it all through in order to get it right. However, they would then be told off for that reason.
Having thoroughly enjoyed the debate of the past quarter of an hour—indeed, it is rather more interesting that the Bill itself—I feel that we ought to get down to business and actually look at some of the incredibly boring material that is set out on the Marshalled List for today.
3.30 p.m.
Lord Harris of Greenwich: My Lords, I hope that I may say a few words on this matter. I can recall, as I think the noble Lord, Lord Peston, can, precisely the same kind of complaint being made when the Labour Party was in opposition as is now being made by the noble Lord, Lord Saatchi, and his noble friends. That is to some extent inevitable although I think that the noble Lord, Lord McIntosh, should take the complaints seriously, as I hope that he will. However, the thing which worries me—which was referred to by my noble friend Lord Newby—is the number of starred amendments. This really is highly objectionable; it means that they were tabled on Friday. Many Members of the House looked at both Government and Opposition amendments for the first time this morning. That is most unsatisfactory.
Quite apart from this Bill, we have had two other examples in recent weeks where major issues of principle appeared on the Order Paper with a star beside them. I do not say that we should object in

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principle to all starred amendments but there should be some discussion through the usual channels, with the Government Chief Whip and others, to see whether we can avoid repetition of incidents of this kind which are not in the interests of this House.
Lord Barnett: My Lords, I shall try to be as civil and courteous as the noble Lord, Lord Peyton, and my noble friend always are. I read in the press this morning—I do not know whether this is true—that the noble Lord, Lord Strathclyde, the Leader of the Opposition, now has it in mind to make matters extremely difficult for the Government in your Lordships' House. The noble Lord is shaking his head; I am delighted that the report is untrue. However, I am not sure whether he nodded or shook his head; he did both!
However, as has been said, the Bill is complex. It is non-party political in any sense. Indeed, the Official Opposition have made it clear that they support the Bill. However, when a Bill is as complex as the one before us it is not too surprising that the Government should table amendments to it. Indeed, if they had not tabled amendments, I should have thought that the Opposition would be rather annoyed about that. But to take to a vote an amendment with which they broadly agree as a form of protest is rather silly. I would not have expected the noble Lord, Lord Saatchi, to associate himself with that kind of nonsense.
My noble friend Lord Peston was absolutely right to say that a Bill as complex as the one before us should be discussed in Committee off the Floor of the House, as in another place, and then returned to the Floor of the House on Report. To discuss these kind of technical matters at Committee stage on the Floor of the House seems to me to be quite wrong.
Lord Lyell: My Lords, will the noble Lord who is to reply on behalf of the Government cast his mind back 23 years? He need look only at the noble Lord, Lord Strabolgi, who is seated one row behind him. The noble Lord, Lord Harris of Greenwich, may also remember that in 1977 I had the honour of attempting to work out, with the valuable help of the government Front Bench of that time and of my noble friend Lord Belstead, the then Patents Bill. There were 650 government amendments for amateurs such as myself and my noble friend Lord Belstead to consider between Second Reading and Committee stages. I tactfully remind the noble Lord, Lord Peston, that the then government successfully got their business through. The noble Lord, Lord Barnett, will remember those days well. Those were technical and professional amendments. The House discussed them until late at night but the then government got their business through. If the noble Lord, Lord Peston, wants to go over the ball, he will find someone here who can do it too.
Lord Clinton-Davis: My Lords, I was the Minister in charge of the then Patents Bill. There were so many amendments because representations were specifically made by people who were technically expert in the patents profession. That is the reason for the number of amendments that were tabled. I cannot remember whether there were 550 or 650, but certainly there was a large number. They were tabled because technical experts made representations to the then government which received a positive response.
Lord Lipsey: My Lords, unlike the noble Lord, Lord Peston, I have not had the experience of 17 years in opposition. Therefore I perhaps have more sympathy with the Opposition than he does. I would have much more sympathy if they had not decided on the stunt of pressing the amendment to a vote. The Government's dilemma is absolute. Every day that we do not have this Bill, the present, rather ramshackle system—I speak as a board member of one of the SROs—has to trundle on. The sooner we get the Bill, the better. We could have the amendments in better shape in two or three months' time, but the ramshackle system would have to continue for another two to three months. It is sad but inevitable that we have ended up as we have.
Lord Hunt of Wirral: My Lords, in agreeing with my noble friend Lord Saatchi, I respond to a number of points that have been made by the noble Lords, Lord Barnett and Lord Peston. First, it is not the fact that the Government seek to improve the Bill that is at fault, but that they should try to do that while at the same time debating parts of the Bill that they already admit need further amendment. The answer surely therefore is to allow more time for the Committee stage. That is, of course, an option very much up to the Government.
Secondly, I say to the noble Lord who spoke from the Liberal Democrat Benches that the first amendment concerns Clause 129. It is apposite to oppose any amendment to Clause 129. Here I pay tribute to the noble Lord, Lord McIntosh. When I raised the need for further amendment to Clause 129, the noble Lord conceded that there might be a case for doing so and invited me to a meeting to discuss it. This morning staff from his office contacted me and sought to arrange that meeting. I believe that Clause 129 needs further amendment. It is a good moment to reflect on whether we should seek to amend it further before it is in its final form.
Rather than seek to point up the historical significance of opposition and government performance in the past, will the Minister continue with his positive and constructive attitude of inviting noble Lords to discuss parts of the Bill, take his foot off the accelerator and give us time to ensure that we get the Bill right, as the noble Lord, Lord Barnett, said? It affects the competitiveness of one of our most important areas of the economy; namely, the City, the insurance market, banking and financial services. It is vital that we get it right; that is why I so strongly support my noble friend Lord Saatchi.
Lord McIntosh of Haringey: My Lords, I do not know how clear it will be to those who are relatively new to this House how familiar I am with the arguments that have been put forward from the Opposition Benches. I put them forward from the Opposition Benches over a period of 14 years before the previous general election. However, I must confess that before doing so I usually thought that it was proper to give the then government notice of that, which did not occur in this case. However, I say that with all the mildness at my command.
Of course the Bill is immensely complicated. It is inevitably immensely complicated because it deals with immensely complicated markets which change from day to day. It is for that reason that the Bill tries not to be unduly prescriptive about the coverage of the regulation system of financial markets. It seeks to provide the flexibility which protects not only the financial markets themselves but—this is equally, if not more, important—also the people who use those financial markets; the consumers of financial products and investments. That results, inevitably, in this being a complicated Bill. The procedure which was adopted in the months and years preceding the arrival of the Bill in your Lordships' House is unprecedented in being the subject of a report by the Treasury Select Committee in another place and in being scrutinised by a Joint Committee of both Houses. It is unprecedented in the sense that a draft Bill was produced following the Joint Committee and the Government's response to the Joint Committee—and yet the natural and inherent complexity of the subject has still mad, it necessary to have further amendments. That is inevitable.
If anything has changed during the past week or so, it has not been that the Government have tabled more amendments. On the contrary, the Government have managed to concentrate their amending obligations so that the number of amendments to be tabled is substantially fewer than the 500 or 600 of which I gave notice at Second Reading.
What has given rise to some of the indignation —which I do not deny is understandablev—is that, in describing what the amendments would be about, I have given as much notice as I conceivably can in advance of the amendments, at the time of the amendments and subsequently. In other words, I have been flooding noble Lords opposite and my noble friends with explanatory material about the amendments. I hope that those who have received that material will recognise that we are improving the Bill but not fundamentally or significantly changing its policies; we are reflecting the inevitable complexity of the subject matter.
Of course I apologise to noble Lords for their difficulties in understanding the Bill and the changes being made. As my noble friends have pointed out, those difficulties are paralleled by the very late stage at which opposition amendments have been tabled. That has meant that some of us have had considerable difficulty in dealing with them over the past weekends. We are not used to dealing with
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manuscript amendments on major Bills of this kind, but we have had to—and they have not been government amendments.
We have to do what we have to do in order to obtain the best Bill. Many of the government amendments are entirely positive in the sense that they reflect our reconsideration of points made by the Opposition and others during the passage of the Bill; they may be entirely neutral in the sense that they are purely drafting amendments which need not detain the House or the Committee; and some of them involve not a change of policy but a rethink of the way in which that policy may best be achieved.
We appreciate the difficulties involved. We do not believe this is unprecedented—and we certainly do not believe that it justifies the price to be exacted in the form of a vote in Committee today against the first amendment, which the Opposition may well support on its merits.
As my noble friend the Leader of the House is ready to repeat the Statement made in another place, it may be as well if I seek leave to withdraw the Motion that the House resolve itself into Committee on the basis that I shall reintroduce it after the debate on the Statement. I beg leave to withdraw the Motion standing in my name.
Motion, by leave, withdrawn.

Lisbon: Special European Council
3.43 p.m.
The Lord Privy Seal (Baroness Jay of Paddington): My Lords, with the leave of the House, I should like to repeat a Statement which is being made in another place by my right honourable friend the Prime Minister. The Statement is as follows:
"With my right honourable friends the Foreign and Commonwealth Secretary and the Chancellor of the Exchequer, I attended a special meeting of the European Council in Lisbon on 23rd and 24th March.
"Ever since this Government took office, my right honourable friends and I have consistently advocated the need for comprehensive economic reform within the European Union. From the first European Council I attended at Noordwijck, through the launch of the British presidency and since, we have made clear that the central European economic issue for Britain in this Parliament is reform: how we modernise the European social model; how Europe embraces the enterprise agenda and seeks to match the dynamism of the United States, while at the same time preserving our commitment to social justice.
"The idea of holding a special summit at Lisbon on economic reform was originally put forward as a joint British/Spanish initiative. The Portuguese presidency has been rightly praised for the energetic and thorough way in which it took the issue forward.

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"The challenge facing Europe today is fundamental. In many aspects of the new knowledge economy, the United States has established a clear lead. Seventy per cent of all e-commerce business in the world is presently conducted in the US; less than 20 per cent in Europe; and despite the gathering strength of Europe's economic recovery and the advances we have made in some key areas— for example, mobile telephony—15 million European men and women are without jobs.
"The Council marks a sea change in European economic thinking. It points Europe in a new direction—away from the heavy-handed intervention and regulation towards a new approach based on enterprise, innovation and competition.
"As part of this fundamental reorientation of economic policy, the Council agreed a whole series of concrete measures, with clear deadlines, including: rapid agreement this year on an effective legal framework for e-commerce within the EU; a fully liberalised and competitive telecoms market by the end of the next year; access to the Internet for all schools by 2001; electronic access to the main basic public services by 2003; the introduction of a European diploma for basic IT skills; a Community-wide patent by the end of 2001, making European patent protection as simple, inexpensive and comprehensive as anywhere in the world; and government and community procurement to be fully on line by 2003.
"The need for reform is not confined to the "new economy". We agreed at Lisbon on the need for urgent measures to make the European economy as a whole more competitive, flexible and dynamic. To support this objective, the Council concluded that: there must be faster liberalisation of previously protected sectors like gas, electricity and transport; there should be further support for European R&D, with the EIB making an additional one billion euro available for venture capital to support SMEs over the next three years; there should be a general reduction in the level of state aids throughout the Union; the financial services action plan should be implemented in full by 2005, with earlier progress in priority areas; for example, the introduction of a single prospectus for companies raising capital across the EU and the elimination of barriers to investment in pension funds; and a European charter for small firms should be developed, to clear away the obstacles to the growth of small businesses.
"In these and other areas, we agreed to benchmark each member state's performance and progress, not just against other countries in Europe but, where appropriate, against the best in the world.
"We also agreed that EU social policy must be modernised to respond to changing employment patterns, increasing life expectancy and deepening social exclusion. Again, the European Council agreed on a number of specific measures to take this new agenda forward: we agreed action to combat
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social exclusion, with member states setting targets in specific areas—unemployment, youth unemployment, overall employment, child poverty and so on; we agreed to halve by 2010 the number of 18 to 24 year-olds excluded from the labour market because of low educational qualifications; we finally opened up the issue of the long-term sustainability of member states' pension systems and the need to reform them across the EU; we agreed to establish a new Europe-wide database on jobs and learning opportunities; we agreed to put life-long learning at the centre of job creation, and to monitor each member state's progress against a series of agreed aims; we agreed to improve equal opportunities, increase the provision of childcare and promote greater flexibility in the management of working time. Each year, the European Council will meet to examine progress and agree further action specifically on economic reform.
"The Lisbon European Council represents a turning point in Europe's approach to economic and social policy. With a sound macro-economic framework in place and the euro safely introduced, the concrete actions agreed at the Council should help to deliver an increase in the EU employment rate over the next 10 years, from an average of 61 per cent today to something close to 70 per cent. I have no doubt that this is achievable. In the last three years, we have created over 800,000 new jobs in Britain; in Spain there have been over a million new jobs; and in France, too, employment has risen by over 800,000 in the last two years, in part reflecting new measures to cut the cost of labour.
"Above all, the European Council agreed that once again in Europe we can seriously contemplate a return to full employment. That post-war goal, achieved 30 or 40 years ago, but then abandoned, is back on the agenda and quite right too. Each citizen unemployed is a resource wasted.
"But we have the courage to recognise that the aspiration cannot be met unless we are prepared to make the fundamental reforms necessary to equip our countries for the modern age, a new 21st century economy. It is in the combining of traditional aims and values with modern means and reforms that the true significance of Lisbon lies.
"We had a full discussion of the situation in the Balkans, including the continuing problems in Kosovo and Montenegro. We agreed that the countries of the region need to be brought more into the European mainstream, and committed ourselves to enhance economic assistance, including through early trade liberalisation. The Lisbon Council recognised the immense progress made since the Kosovo conflict began a year ago, but agreed that a more coherent approach by the international community was needed. We asked the Council Secretary General and the European Commission to come forward with early recommendations on how to strengthen the impact of the European contribution and enhance co-ordination of the overall international effort. We believe this will

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enable Javier Solana and Chris Patten to promote a more coherent international strategy for Kosovo and the region.
"Finally, we discussed relations with Russia on the eve of the presidential elections, agreeing on the need for a full partnership between the European Union and Russia, and emphasising our concerns again about the situation in Chechnya.
"I spoke to President Putin this morning to congratulate him on his emphatic election victory. He was very conscious of the weight of responsibility on his shoulders, both to restore order and democracy in Chechnya and to rebuild the Russian economy.
"Lisbon was a highly successful summit. By getting our way in Europe, we are standing up for Britain's economic interests. Making Europe more dynamic benefits Britain. More competition in Europe means new markets for British business. More enterprise in Europe means more jobs in Britain. More e-commerce means more opportunities for British companies. More jobs, cheaper goods and easier access to the Internet are good for Britain.
"Once again, constructive engagement has been shown to be the right policy for Britain and for Europe".
My Lords, that concludes the Statement.
3.52 p.m.
Lord Strathclyde: My Lords, I thank the noble Baroness the Leader of the House for repeating the Statement. Will the noble Baroness will join me in welcoming the presence in Lisbon, with such strong popular backing, of Prime Minister Aznar of Spain? Does she agree that his influence on future discussions is likely to be far more constructive than the rather outdated attitudes of M. Jospin?
We welcome the fact that at last some EU leaders seem to accept the need to reduce regulation and increase competitiveness. We welcome the fact that the EU has realised that it is not internationally competitive and that the crucial services sector is underdeveloped. But we do have to ask why it has taken so long. We have been saying this for decades. And has anyone told the EU Commission, which still seems to be working with undiminished zeal on measures for harmonisation and regulation?
There are many fine words in the Lisbon communiqué. In fact, I have rarely read such a torrent of aspirations—the small print of which amounted to the Prime Minister and his colleagues confessing, "We"ve over-regulated, overspent and overtaxed". But words are not enough. The commitment to deregulate must be matched in action. Small business people in Britain and throughout Europe are crying out at the cost of the regulation and nannying interference that they now face in running their businesses. In the spirit of the Lisbon summit, can the noble Baroness undertake to review all those regulations imposed on small businesses in the United Kingdom since the signing of the Social Chapter by the Prime Minister?
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We welcome the commitment in principle in Lisbon to deregulate in the fields of telecommunications and utilities. But how does that sit with the Government's plans to introduce more regulation on these industries in the current parliamentary Session? Will the Lisbon discussions affect that legislation in any way? And, when will all this happen? Were target dates set for the liberalisation of markets in gas, electricity, water, postal services and transport? If so, what were those target dates? Will the Utilities Bill currently before Parliament be dropped?
Why did the Prime Minister commit himself to the so-called "pending tax package"—tax harmonisation by another name?
On research, where again there are worthy aspirations, most of them are best met not by states, but by the private sector. What is meant by giving the Commission powers to "build a European Research Area", including mechanisms for monitoring research and using tax policies to promote research? I wonder whether this represents an extension of Community taxation competence. It sounds as though it does.
We read in paragraph 21 of the conclusions that the Ministers want to,
"eliminate barriers to investment in pension funds".
How does that sit with the Chancellor of the Exchequer's smash-and-grab raid on pensions investments with his massive increase in taxation of dividends?
We welcome the commitment to lower taxes on low-paid workers. But does not the American model point to the urgent need to lower taxes in the European economies overall? Therefore, will the Government set a lower tax target for the UK? Does not this commitment at Lisbon suggest that the huge increase in the tax burden since May 1997—now of course admitted by the Chancellor of the Exchequer—is taking Britain in precisely the opposite direction to what is needed?
We welcome another Lisbon aspiration, which is to facilitate cross-border investment. We need and support such a free market. But when will the Government wake up to the fact that unless sensible action is taken this could represent a threat as well as an opportunity to our most vital national interests in the City of London? Will they reconsider their decision in the Budget not to reduce or eliminate stamp duty on transactions in shares, given the fact that UK rates are now becoming increasingly uncompetitive in Europe? We do not want to wake up to a world in which business drains away from the London market because of the determination of the Chancellor to cling to stamp duty.
As usual, a number of initiatives were suggested at Lisbon. Perhaps the noble Baroness will indicate to us how she believes they will be paid for. Will any addition be requested to current EU funds?
Perhaps I may turn briefly to foreign affairs. We welcome what is said about securing the stability of south-eastern Europe. But when do the Government expect navigation on the Danube to be opened, as called for in paragraph 51? What part will the

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UK Government play in this? Do the Government envisage any further burdens falling on our magnificent servicemen and women in the Balkans?
Finally, the most absurd part of the summit was the body language of the Prime Minister when sitting next to the Chancellor of Austria. For how long do he and his EU partners intend to go on with the futile boycott of the democratically elected government of Austria? Will he still be boycotting Austria while congratulating Mr Putin, who has presided over a catalogue of human rights abuses in Chechnya, or feting President Jiang Zemin, who has done the same in Tibet? Was not the "musical chairs" in Lisbon another example of the frankly rather adolescent Blair doctrine on human rights: hector the weak, but lick the boots of the strong? Is this now the policy of the British Government?
What is needed in Europe following Lisbon is not what we were presented with—a further addition to the mountain of Euro-rhetoric—but a radical shift of direction, to lower tax, less regulation and more open competition. There can be no sense of a sea change in European economic thinking until we see less interference from Europe in the nooks and crannies of business and our private lives.
3.59 p.m.
Lord Rodgers of Quarry Bank: My Lords, I thank the noble Baroness the Leader of the House for repeating the Prime Minister's Statement. Despite some discussion of Kosovo and of Russia, the Lisbon summit has been given the convenient title of "the Internet summit". That is what I shall address my remarks to.
As the House will recall, the whole question of the preliminary paper for the Lisbon summit was discussed by the Select Committee on the European Union, which reported to the House in its sixth report. If I were to summarise the tone of that report, I would say that it was a healthy scepticism about what the summit might achieve. It referred to the uncertainty of the underlying rationale of the special council and to the danger that it would be long on objectives but short on the means to achieve them. That was very much the mood when, on the initiative of my noble friend Lord Wallace of Saltaire in tabling an Unstarred Question on 15th March, the House debated the Lisbon summit. In reply to that debate the noble Lord, Lord Sainsbury, said:
"This summit is ultimately about making Europe the best place in the world to do business".— [0fficia/ Report, 15/3/2000; col. 1674.]
That was a very good summary and we should attempt to judge the achievements of Lisbon against that criterion. I prefer to use the word "criterion" because I am still not quite sure what a "benchmark" is. Indeed, the verb "to benchmark" finds no place in the Larger Oxford English Dictionary, but I take it to mean "to measure against objectives". In a sense, that will be the test of Lisbon: whether, given the aspirations of Lisbon—that is what they mainly were—we will be able to measure achievement
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positively against what was discussed and agreed last weekend. As a result of Lisbon, will Europe be the best place in the world to do business?
Put like that, on the basis of the communiqué itself, the answer is plainly "no". I do not think that the Prime Minister or the Leader of the House would claim that Lisbon has solved the problem of how to make Europe the best place in the world for business. The most it has done is to take some steps in that direction. The achievement will depend on a persistent will on the part of the Union itself and its member countries over a long period. Very many decisions will be required—most of them not by governments and most of them not yet taken—if we are to achieve the aspirations of Lisbon.
On my part, I have divided thoughts: welcoming what was achieved but perhaps suspending judgment on whether history will show that it was mainly rhetoric or there was real substance behind it. Certainly, in historical terms, it is too soon to sustain the Prime Minister's main claim that it is a turning point. It may be. It could be a turning point for the better, but we cannot even say that for the moment.
The emphasis in the Statement is on modernisation and liberalisation. Those are the fashionable "buzz words" but they are not the whole language of politics.
I have two principal mainstream reservations about the Statement. First, I cannot share the passionate belief in markets solving all problems. Liberalisation is not all good. For example, would it get rid of poverty; and what would be the cost in dislocation and personal security? That is what we have to set against the advantages of liberalisation, although they can be recognised. Secondly, I found no reference in the communique to the danger that Europe may become a rich island in a poor world. If it is successful, if the aspirations of Lisbon are fulfilled, we shall be very rich indeed. We shall be growing at 3 per cent per annum. We shall be a competitor to the United States. But where does that leave the rest of the world? Will the rich be getting richer and will the poor be getting poorer? If that were to be the case, it would be right to have reservations on whether Lisbon has been a turning point or at least a turning point in the right direction.
Although we broadly welcome the Lisbon communiqué and congratulate the Prime Minister both on writing the Lisbon agenda and the communiqué in Downing Street—that is precisely what I think happened—I hope that there will be no attempt to lecture other European Union countries on the way we would want them to run their own economies. Even for those of us who are strong Europeans, that is further than any European Union communique should go. Perhaps it would be a good time to say again that if Britain is to play its full part I hope that the strong, clear leadership that was the theme of the Prime Minister's own statement about his achievement will soon lead to Britain's participation in the single European currency.
The noble Baroness will be very glad to know that I have only one question on the Statement. Although there was no reference to it in the communiqué,will she

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say whether there was any discussion of the single currency—if not in the Council itself then in the margins—and whether the Government have moved any further forward to taking a more positive view on this issue, which is central to the part that Britain will play in the Union in the years ahead?
4.6 p.m.
Baroness Jay of Paddington: My Lords, I am grateful to both noble Lords who have, I think it would be fair to say, broadly welcomed the Statement. I am glad that both noble Lords acknowledged that the Statement was the result of the positive leadership role played by the United Kingdom Government on the agenda. I remind the noble Lord, Lord Rodgers, of the scope of the agenda which, I am sure the Government would acknowledge, did not include all of the global picture which he rightly identified as being of relevance to the Union. But, as the title or "theme", if one wants to so describe it, of the particular meeting was employment, economic reform and social cohesion within the Union, perhaps that broader global context, although it would be relevant to discuss it in another forum, was not the main subject of the agenda for today.
The noble LOrd, Lord Rodgers, also said that many of the decisions and items for discussion within the context of the Statement and the agenda at Lisbon were not those to be taken necessarily by government but were in a sense more relevant to the private market place. But he is right in saying that the underlying theme of the summit, at least from the UK Government's perspective, was to ensure that the European Union is the best place to do business. That was particularly relevant to the e-commerce agenda and all of those issues that flow from that.
Both noble Lords were somewhat sceptical about the precise points that had been agreed by the summit and any form of action that had been set out on a specific timetable. It is right to say that in the conclusions and in the Statement there is indeed a new emphasis both on deadlines and specific objectives. For example, it has been agreed that a fully integrated and liberalised telecommunications market should take place before 2001. The charter for small firms, which is particularly relevant to the new economy, is to be agreed by June of this year. A financial services action is to be implemented by the year 2005. There is to be procurement on-line by 2003. There is to be a Community-wide patents agreement by 2001 and teachers are to be skilled in the Internet and multimedia resources by 2002. Those are all specific objectives with specific timetables which do not stand up to the criticism that the Statement or the conclusions of the summit were related only to rhetorical ambition rather than a specific programme.
The noble Lord, Lord Strathclyde, asked whether what had been agreed would make any difference to the Government's position on tax in the European Union. I am sure the noble Lord is aware that Her Majesty's Government have long made it clear that we will not sign up to EU tax measures which bring any form of tax regulation under the QMV arrangements
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or any that are harmful to the City. Those positions were protected at Lisbon and the conclusions demonstrate that.
The noble Lord, Lord Strathclyde, mentioned Austria and asked whether what was said was simply symbolic. As the noble Lord will be aware, the UK Government and their European partners have said clearly that the Austrian Government must be judged by their record in government. It is still too soon to draw any conclusions. We shall continue to monitor developments and implement the measures agreed, and see what comes out of that in the long run.
Overall, it is true that the constructive leadership given by both the United Kingdom and Spain—the noble Lord, Lord Strathclyde, rightly drew attention to the role that the Spanish Government had played—and by the Portuguese presidency, together with the very good preparation achieved by a large number of bilateral contacts and statements by various European partners before Lisbon, have produced this very practical outcome. I challenge both Lords that this is a sea change. As a result of Lisbon we have seen riot only the specific set of goals and programmes for change that I have listed, but also the important achievement of a different approach to the liberalisation of certain important matters. I have already mentioned the telecommunications and utilities issue. Maintaining common issues of social justice has also been important in the bilateral discussions. Noble Lords will not be surprised to hear me refer to my portfolio as Minister for Women. I am particularly pleased, for example, that the conclusions contain references to an improvement in equality of opportunity and improvements in the numbers of jobs for women within the European Union; they contain also a specific reference to childcare.
4.10 p.m.
Lord Tomlinson: My Lords, I should like to ask my noble friend two questions. First, perhaps I may rebut slightly the scepticism expressed by the noble Lord, Lord Rodgers, in regard to the Select Committee report. My noble friend will be aware that the report was produced only on the basis of the presidency paper, and that subsequent to the presidency paper there were seven further Commission papers, three Council papers and four others which substantially improved input to the European summit and made it more focused and much clearer, especially in regard to macro-economic objectives.
One point that is lacking in both the Statement and in the presidency conclusions is any interface between the decisions at Lisbon and the future enlargement of the European Union. If this Lisbon Statement is to produce real actions—as I believe it should and can—does it not somewhat alter the goal-posts of the acquis communautaire for those countries seeking to join the European Union? Is it not therefore necessary for the Government to address at some future stage, with ministerial colleagues from the rest of the European Union, the question of what support there will be for the applicant countries aspiring to join the European Union, in order that many of the high objectives

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agreed at Lisbon can be partly implemented in those countries so that they are not further behind us when enlargement takes place?
Baroness Jay of Paddington: My Lords, my noble friend raises an important question. It is right that the matter of the IGC should be seen along the lines developed at Lisbon. My noble friend makes more specific the general point made by the noble Lord, Lord Rodgers, about seeing the conclusions of the Lisbon summit in a broader context. The broad context of the IGC process and the applicant countries is the more precise and immediate one.
Clearly the objectives of the discussions and the proposals at Lisbon must not, as it were, take existing members of the European Union so far out in front in such matters as e-commerce arrangements that it becomes impossible for other countries to come alongside them in terms of Community regulations and understandings. My noble friend is right on that point. I am sure that that matter will be taken under the umbrella of the IGC as discussions progress. That process is only just beginning.
Lord Howell of Guildford: My Lords, can the noble Baroness help me to solve a puzzle? First, if Lisbon really is a turning-point, leading Europe in new directions of flexibility and liberalisation, why on earth was there no review of the Working Time Directive or the provisions of the Social Chapter—which everyone recognises have been a major force of paralysis in European reform?
Secondly, did it occur to Ministers assembling at Lisbon that the major explosion in recent years in e-commerce and Internet enterprise has come about in areas that are so far removed from government that they have had nothing to do with government? I refer, for instance, to enterprises in Silicon Valley and Bangalore which have prospered almost despite government, and which are in great fear of the worst slow-down on these developments—namely, too much regulation. Was that idea in the minds of leaders at Lisbon? If so, might it not have been wise for them to demonstrate a little more candidly that they understood that the e-commerce revolution lies outside the realms of government control?
Baroness Jay of Paddington: My Lords, I made it clear in my initial response to the noble Lord, Lord Rodgers, that it was understood—possibly not as explicitly as the noble Lord might have liked—that many of the matters discussed at Lisbon were indeed the prerogative of the private markets and of private enterprise. I believe that the noble Lord will agree that there are many ways in which governments, acting collectively or individually, can support much of the new investment and activity needed to stimulate, for example, small business investment in e-commerce. That was precisely the direction that was intended from the point of view of the specific arrangements made.
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In regard to directives under the Social Chapter, I am afraid that I disagree with the noble Lord. For example, I should have thought that the introduction of the minimum wage and the discussions now being negotiated about the part-time working directive were achieving precisely what the Prime Minister described in his Statement; namely, an improvement in the economic direction of Europe for the new economy while at the same time retaining the appropriate attention to social justice.
Lord Harrison: My Lords, will my noble friend agree that the Lisbon Council has been big for small businesses— not only because of the 1 billion euros provided for small businesses through the EIB but also because of the European charter for small businesses? Will she take this opportunity to repudiate the suggestion of the noble Lord, Lord Strathclyde, that the Government are trying to snarl up the single market for small businesses? Indeed, my noble friend mentioned the minimum wage. It is the subject of a report today indicating that British businesses have demonstrated an enormous welcome for the minimum wage and wish to see the amount raised. Finally, does my noble friend agree that there is still much work to be done to complete the single European market—the inspiration of the noble Lord, Lord Cockfield—which will be the best solution and opportunity for British businesses and for jobs and prosperity?
Baroness Jay of Paddington: My Lords, I agree with my noble friend. In replying to his specific point, it may be helpful if I reply to a point made by the noble Lord, Lord Strathclyde, which I did not do in replying to his general remarks. The noble Lord asked whether the proposals would cost a great deal of money. That is not the case. The conclusions make it clear that achieving the strategic and specific goals that I have mentioned will depend on mobilising resources available on the markets. I emphasis again that this is predominantly a matter for the private sector. Naturally, the UK Government and their partners hope that, where appropriate, public/private partnerships can also he utilised.
Lord Chalfont: My Lords, perhaps the noble Baroness will allow me to return momentarily to the question of Austria. In his interesting intervention, the noble Lord, Lord Rodgers of Quarry Bank, said that he hoped we should not get into the habit of interfering in the internal economic arrangements of other countries. I should like to add that I hope we shall not interfere too much in the internal political arrangements of other countries.
In reply to the noble Lord, Lord Strathclyde, the noble Baroness said that we would keep an eye on the behaviour of the Austrian Government to see how well they did. Is that not the same as saying that the Austrian Government are assumed to be guilty until they have proved themselves innocent? If so, is that the right way to treat a sovereign government? Perhaps I may repeat the question put by the noble Lord, Lord Strathclyde: how long is this period of probation to

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last? Do we wait until the Austrian people change their government? What are the criteria? For how long is Austria to be cast into the outer darkness because of a democratic decision taken by its own people?
Baroness Jay of Paddington: My Lords, I hesitate to argue with the noble Lord on questions of international law or relative constitutionality. However, I believe that a distinction should be drawn between the internal democratic processes of a member government of the European Union, as the noble Lord suggests, and the requirement that member governments fulfil their obligations along the lines of what may be described as the values to which the European Union in general has collectively agreed. The noble Lord asks me how long the process will take. All I can do is repeat what I said in answer to the noble Lord, Lord Strathclyde. The view of our European Union partners is that sufficient time has not elapsed to ensure that there is a consistent commitment to European Union values by the new Austrian Government, and that is something that they will wish to continue to monitor.
Lord Blaker: My Lords, paragraph 50 of the Council's conclusions state:
"The European Union…will … continue to support the democratic opposition [in Serbia], but will also develop a comprehensive dialogue with civil society [in that country]".
In view of the continued presence of Mr Milosevic, how is that support being given, and how will that dialogue be developed?
Baroness Jay of Paddington: My Lords, as I believe was fairly clear from the Statement, there is some disquiet within the European Union about the need for,
"a more coherent and action-oriented strategy",
to quote the conclusions dealing with the Balkans. That means that there are ways to achieve that particular form of dialogue other than those agreed under the Stability Pact and other bilateral interventions by individual European countries. I do not have details of the specific methods of engagement with the Serbian Government. I can only express the general understanding about trying to extend the existing channels with the Serbian Government. Obviously, there is a belief within the European Council that something more pro-active must be done to establish a better situation there. If I receive any more specific information about the particular channels with the Serbian Government, I shall write to the noble Lord.
Lord Lea of Crondall: My Lords, I declare an interest as a member of the EU high level group on benchmarking. l t may assist if I explain what that is, given that the noble Lord, Lord Rodgers of Quarry Bank, said that he had to look it up in a dictionary. This was an initiative taken more than a year ago by the European employers' organisation UNICE as a new half-way house between over-regulation and simply letting free markets operate. It has been widely
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welcomed by the Council as a means of introducing best practice in Europe. Does my noble friend agree that in Lisbon a new philosophy in regard to both the public and private sectors has been developed so that we can emulate best practice in different parts of Europe to try to improve the performance and competitiveness of Europe's economy? In that connection, does my noble friend also agree that that initiative has strong support? For example, the leader of my group was the chairman of Ericsson in Sweden; another member was the director-general of the organisation of small businesses in Germany. This is not a concept that is opposed by small businesses. Does my noble friend agree that the Social Chapter is compatible with that, in that minimum standards are one of the results of benchmarking? For example, one finds minimum standards in connection with the percentage of women in the labour force. Requirements in relation to such matters as the protection of those in part-time work and fixed-term contracts pro rata with men are exactly the concepts which emerge from this kind of analysis.
Lord Pearson of Rannoch: My Lords, I hesitate to interrupt the noble Lord, but perhaps I may remind him that we are here to ask questions, not to make speeches.
Baroness Jay of Paddington: My Lords, I believe that my noble friend did ask a general question. I hope that he also helped the noble Lord, Lord Rodgers, in understanding the concept of benchmarking. I am inclined to sympathise with the noble Lord, Lord Rodgers, about the infelicity of the verb "to benchmark". However, benchmarking as a concept is probably well understood. I agree with my noble friend that the process of assessing best practice is very well understood in the public and private sectors in this country. I was grateful for my noble friend's authoritative experience of the engagement by both small and large EU businesses in this subject. That again demonstrates, particularly to noble Lords opposite, that this is something with which the free market, the private sector and business in Europe agree.
Lord Dahrendorf: My Lords, while I appreciate the Statement repeated by the Leader of the House and the language of the Lisbon Summit, there is one small technical question the answer to which interests me, although perhaps it is the subject for another debate. It seems to me that this is the first time that the objective of raising the employment rate from 61 per cent to nearly 70 per cent has played an important part in Statements of this kind. Why has this particular benchmark entered the debate, especially in view of the fact that one of the main instruments to fight unemployment in many European countries is the extension of primary education and early retirement?
Baroness Jay of Paddington: My Lords. I should not like to challenge the noble Lord on his statement that this is the first time the matter has been mentioned in this form. The noble Lord is probably right; I do not know otherwise. The point about the relative rates of

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employment was simply to put into context the overall attempt to increase the number of jobs, particularly those in the new knowledge economy. The noble Lord is right to mention the relative value of what we in this country call "lifelong learning". That is specifically mentioned in the conclusions as something of very great importance to the successful implementation of much of the policy. I believe that what is conveyed by the Statement is that employment has risen significantly in the various member states of the Union, and therefore it is perfectly legitimate to attempt to aspire to (to use a fashionable phrase) a percentage rise in employment to achieve the 20 million extra jobs, to which the Prime Minister referred. To put on my hat as Minister for Women, one of the UK's economic predictions is that probably 1.7 million new jobs will be created in this field in the next decade, of which 1.3 million will be for women. Therefore, it appears that the overall percentage is an aspiration that is worth setting down.
Lord Pearson of Rannoch: My Lords, perhaps I may press the Leader of the House on two of the answers that she has given, one to my noble friend Lord Strathclyde and the other to my noble friend Lord Howell. I thought I heard the noble Baroness say in reply to my noble friend Lord Strathclyde that the Government would not sign up to any tax harmonisation measures which they did not like. Presumably, the Government have signed these conclusions of the presidency. In the fourth part of paragraph 21 one sees that they have agreed,
"to conclude, in line with the Helsinki European Council conclusions, the pending tax package".
In paragraph 22 one also sees that they have signed up to the statement:
"The opportunity provided by growth must be used to pursue fiscal consolidation more actively".
As regards red tape, I heard the answer the Minister gave my noble friend Lord Howell. However, in view of what is said in paragraph 14 of the presidency conclusions, can the noble Baroness tell the House unequivocally whether the Council agreed to withdraw any of the acquis communautaire or whether they remain sacrosanct? If so, how on earth can one possibly hope to meet the aims of paragraph 14?
Finally, I refer to another item which is not included in the somewhat rosy Statement of the Prime Minister. These Statements always appear to be the triumph of bureaucratic hope over what will certainly turn out to be the bitter experience dictated by the world market. I note in paragraph 21—perhaps the Minister can confirm this—that the Government have agreed,
"to make rapid progress on the long-standing proposals on takeover bids".
How can that be good for the British economy?
Baroness Jay of Paddington: My Lords, I hope that the noble Lord did not mishear me or that I did not mis-speak. In relation to the tax issue, I thought that I said that the Government have made it clear over a long period that those matters of tax relating to our
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own tax situation will not be subject to qualified majority voting. If I said something different, I apologise; that is what I meant.
Tax was not explicitly discussed at Lisbon. The noble Lord is right to refer back to the conclusions at Helsinki. As he will know, discussions on the broad package are under way with our European partners.
On the paragraph relating to the acquis—the noble Lord referred, I think, to paragraph 14—it relates specifically to small and medium-sized enterprises. I do not have the information about whether there has been specific change to the acquis on that. I doubt it very much or it would have been made explicit. I can only refer the noble Lord back to the point I made to the noble Lord who asked me whether it was possible to align that with the existing acquis and IGC process. It is a live issue which would have to be set under that umbrella.
The noble Lord raised the tight timetable on the financial services action plan.
Lord Pearson of Rannoch: My Lords, I refer to the takeover directive.
Baroness Jay of Paddington: My Lords, I am sorry; I have misunderstood.
Lord Pearson of Rannoch: My Lords, the takeover directive appears to be being pushed ahead with Prime Ministerial support.
Baroness Jay of Paddington: My Lords, in that case I am not sure to which paragraph the noble Lord refers.
Lord Pearson of Rannoch: My Lords, paragraph 21.
Baroness Jay of Paddington: My Lords, I was emphasising the previous part of paragraph 21.I apologise to the noble Lord.
The noble Lord is right to say that the issue will have to be considered in the broader context of the tax package. It was not specifically addressed at Lisbon. I refer the noble Lord back to the Helsinki arrangements which establish the package for tax reform.

Financial Services and Markets Bill
4.33 p.m.
Lord McIntosh of Haringey: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee. — (Lord McIntosh of Haringey.)
On Question, Motion agreed to.
House in Committee accordingly.
[THE DEPUTY CHAIRMAN OF COMMITTEES (Lord Murton of Lindisfarne) in the Chair.]

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Clause 129 [General rule-making power]:
Lord McIntosh of Haringeymoved Amendment No. 226D:
Page 60, line 6, after ("activities") insert ("or
(b) with respect to the carrying on by them of activities which are not regulated activities,").
The noble Lord said: In moving the amendment, I speak also to government Amendments Nos. 230C, 230G, and 277 B; and refer to opposition Amendment No. 231XA.
We begin today's Committee with a debate on Part X of the Bill—Rules and Guidance. It is one of the most vital, if technical, parts of the Bill. Rules are a key instrument by which the authority will give effect at working level to its statutory objectives and the principles to which it must have regard. The role of guidance is to provide information and advice to the regulated community—with respect to rules but also on more general issues.
The first clause of Part X is Clause 129, the authority's general rule-making power. This is a key clause in the new regime. It confers a power on the authority to make rules applying to authorised persons in carrying on regulated activities. Clause 130 gives the FSA power to apply rules to authorised firms' non-regulated activities where it is necessary in order to avoid an adverse effect on the customers of the authorised business.
The effect of Amendment No. 226D and my intention to oppose the Question that Clause 130 stand part of the Bill will be to integrate the authority's power to make rules which affect non-regulated activities as part of its power to make general rules. Amendments Nos. 230C, 230G, and 277B delete references to non-regulated activities rules elsewhere in the Bill.
There are two main reasons for this change. First, it will bring much greater focus to the authority's remit to make non-regulated activity rules. I shall come back to that point in a moment. Secondly, although in many respects Clause 130 repeats what is in Clause 129, one point in which Clause 130 differs is that Clause 129 allows the FSA to make rules even when there is no relationship between the authorised person to whom the rules will apply and the persons, that is those consumers dealing with persons providing regulated activities, whose interests are protected by the rules. This is necessary to cover situations where rules are necessary to control systemic risk. The absence of such a provision in respect of non-regulated activities could lead to doubt about when a rule applies.
Returning to the first point, the authority will be able to make rules under the integrated power—those were Clauses 129 and 130—only if it appears to be necessary or expedient for the purpose of protecting the interests of cansumers. It is worth emphasising that the people whose interests are being protected are limited to consumers dealing with persons who are carrying on regulated activities; and that the protection is focused on protection in relation to the carrying on of those activities. It is clear as a matter of common sense that what a person does otherwise than
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in connection with regulated activities is capable of having an effect on his regulated activities. But that is not a licence for the authority to interfere with the running of a person's non-regulated activities.
This Bill is about regulated activities. But there is an important qualification to this. Where there is a risk that a person's non-regulated activities could damage the interests of his regulated activity customers in relation to the carrying on of regulated activities then that is a matter for the Bill. It is right that the rule-making powers of the authority should extend to this type of situation. This is the effect of our amendments. They make it clear that the authority's powers are limited to this situation That is what our Amendment No. 229 (which we have already debated) says. It is worth remembering that we are talking here about a power.
It is at the stage when the authority makes its rules that it must consider whether there are situations where non-regulated activities could damage the interests of a consumer of a regulated activity. Even if it can identify such situations, the authority must also reach the view that a rule it made could provide protection for such a consumer and that it is necessary or expedient to make that rule, bearing in mind the authority's general duties as set out in Clause 2.
As a result of the amendments, Clause 129(1) will allow the authority to make rules to protect the interests of consumers. By bringing in non-regulated activity rules into Clause 129, it will be clear that the purpose of such rules is also to protect the interests of consumers; and by making this small change all the provisions of Clause 130 can be removed.
I turn to Amendment No. 231XA. Clause 141 allows an authorised person to be sued for damages if a private person—
The Earl of Onslow: I tried very hard to understand what the Minister said. I found it immensely difficult. I shall be surprised if I am alone. Is it possible for the noble Lord to sum up what he said during the past five minutes—I see he grins with horror at the thought—in something which is called the Queen's English? I listened very hard but found it incredibly difficult to understand. I do not think that I am the most stupid Member of your Lordships' House.
Lord McIntosh of Haringey: First, this part of the Bill is about the Financial Services Authority making rules. Secondly, Clause 129 says that it makes rules about authorised persons, who are the people covered by the Bill in activities which are regulated by the Bill. Thirdly, Clause 130 states that there might be occasions when the authority must regulate activities carried out by authorised persons which are not regulated activities. Therefore, the amendments take out Clause 130 and bring those provisions into Clause 129. However, there is one exception to that. Fourthly, there must be a restriction on which unregulated activities are covered by the rule-making power.
The Earl of Onslow: That is terrific. Why the hell did he not say it before? That told us exactly what we wanted to know. I stand gobsmacked in admiration for what the noble Lord said. That explanation was very good, but the other one was very difficult to understand. I thank him.
Lord McIntosh of Haringey: It might be difficult for Members of the Committee to understand and it was difficult for me to understand. I ran a management practice and having been in business all my life I used to say to people who wrote reports for me, "Tell me what that means". After they had told me what it meant, I would say, "Well, why didn't you write that?". Unfortunately, legislation and even Ministers' speeches about legislation are different. I have to cover the waterfront and go into more detail. It was true of the noble Earl's government, too.
The Earl of Onslow: Of that, there is no doubt whatever. I was not making a party political point; I was making a general point. I am immensely impressed by the Minister's explanation.
Lord McIntosh of Haringey: And, by the way, it is what the noble Lord, Lord Saatchi, intends to vote against!
I turn to Amendment No. 231XA. Clause 141, which has nothing to do with Clauses 129 or 130, allows an authorised person to be sued for damages if a private person suffers loss as a result of the contravention of a rule. The effect of Amendment No. 231XA would be to prevent such actions for damages in respect of non-regulated activity rules.
As I explained in putting the case for the Government's amendments, we are proposing to remove the clause which confers the power to make non-regulated activity rules as such. That was the second point I made. In any event, we believe that the FSA's power to make rules relating to non-regulated activities is narrower than has often been supposed. We believe that under our new proposals it will be clear that the FSA will have a power to make rules only about non-regulated activities if it considers that it is necessary or expedient to do so in order to protect the consumers of regulated activities.
I believe that the same logic which results in the authority being given power to make rules in relation to non-regulated activities follows through to there being a right of action for breach of statutory duty in relation to contraventions of such rules. I keep looking towards the noble Earl, Lord Onslow, to make sure that he is still with me!
It is part of the necessary protection for consumers of regulated activities. The right of action for breach of statutory duty is of course only available to private persons. Perhaps I may give an example. Let us suppose that an authorised person who also carried on a non-regulated coin-dealing business were to operate an authorised collective investment
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scheme is a regulated activity and it is perfectly lawful to operate such a scheme as long as the operator is authorised.
However, it is not inconceivable that some rules might need to be applied to the coin dealing business—purely as a minimum—in order to make sure that the funds contributed by participants in the collective investment scheme—that is, the consumers of the regulated activity—are protected.
A rule might be necessary to require an independent valuation of any purchase for the scheme made using investors' funds which the scheme operator makes for his coin dealing business in order to avoid any conflict of interest he might otherwise have and to ensure that the scheme participants' interests are protected. It may be arguable that the rule would touch on the running of the non-regulated coin dealing business. However, it is clear that if he contravenes such a rule, and the coins are sold to the scheme at what turns out to be a disadvantageous price, there could be damage to the interests of the scheme participants. Are we together on this?
The Earl of Onslow: The noble Lord deserves great credit. I believe that I am with him on the pennies, yes.
Lord McIntosh of Haringey: That is why we believe that the FSA must have the power, exercisable only in such cases, to make rules which affect the carrying on of a non-regulated activity. It follows that if an authorised person were to breach such rules, a private person should be able to bring an action for breach of statutory duty in any case where he suffers loss or damage as a result of the rule breach. The two propositions go hand in hand.
I hope that the noble Lord will not press his amendment.
Lord Stewartby: I do not want to add to the Minister's already heavy burden, but could we have five Haringey bullet points at the beginning of each government amendment? That would make them a great deal easier to understand.
Lord McIntosh of Haringey: The risk of oversimplification is great. The case of Pepper v. Hart states that what Ministers say at the Dispatch Box when explaining Bills can sometimes be taken into account in a court of law. It is dangerous.
Lord Stewartby: I am not suggesting that he should dispense with the Treasury rhubarb, but we should all be helped by starting with such a punchy introduction.
4.45 p.m.
Lord Kingsland: My rather furtive expression exhibits my fear that when I subside my noble friend might rise again!
Our Amendment No. 231XA is an amendment to Clause 141. Under that clause, the contravention by an authorised person of the authority's rules is actionable at the suit of a private person who suffers loss as a

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result of the contravention. Members of the Committee are also aware that, in such circumstances, compliance with the FSA's guidance is not a defence to the statutory right to bring an action for damages. Compliance with guidance does not provide a safe harbour against proceedings under Clause 141(1).
Our amendment would add a caveat to the application of Clause 141(1) by adding to Clause 141(4) the words,
"or a non-regulated activity rule".
Non-regulated activity rules are referred to in Clause 130. They are rules made by the FSA applying to authorised persons with respect to the carrying on by them of non-regulated activities. Rules made under Clause 131 are non-regulated activity rules. The proposed amendment would mean that the statutory right to bring an action for damages would be precluded in the case of contraventions of such rules. It is submitted that that is reasonable in principle because the statutory right in Clause 141 should be limited to breaches of the rules which apply to the authorised person's regulated activities.
For those reasons, we object to the Government's Amendment No. 226D. Our amendment draws the distinction between regulated activity and non-regulated activity, as does the Bill as drafted. We do not believe that the right to damages should apply in cases involving breach of non-regulated activities. The effect of the Government's amendment is to do away with that distinction, which we believe should be kept.
Lord McIntosh of Haringey: I commend Amendment No. 226D to the Committee.
4.49 p.m.
On Question, Whether the said amendment (No. 22613) shall be agreed to?
Their Lordships divided: Contents, 130; Not-Contents, 71.

Division No. 1

CONTENTS

Addington, L.

Crawley, B.

Alli, L.

Dahrendorf, L.

Amos, B.

Darcy de Knayth, B.

Ampthill, L.

David, B.

Archer of Sandwell, L.

Davies of Coity, L.

Ashton of Upholland, B.

Davies of Oldham, L.

Avebury, L.

Dean of Thomton-le-Fylde, B

Bach, L.

Desai, L.

Barnett, L.

Dholakia, L.

Bassam of Brighton, L.

Dixon, L.

Bledisloe, V.

Dormand of Easington, L.

Bradshaw, L.

Dubs, L.

Bragg, L.

Elder, L.

Brooke of Alverthorpe, L.

Evans of Parkside, L.

Brookman, L.

Evans of Watford, L.

Bruce of Donington, L.

Falconer of Thoroton, L.

Burlison, L.

Falkland, V.

Carter, L, [Teller]

Farrington of Ribbleton, B.

Christopher, L.

Faulkner of Worcester, L.

Clarke of Hampstead, L.

Gale, B.

Clinton-Davis, L.

Gavron, L.

Craig of Radley, L.

Gladwin of Clee, L.

532

Goodhart, L.

Merlyn-Rees, L.

Goudie, B.

Milner of Leeds, L.

Gould of Potternewton, B.

Morris of Manchester, L.

Grabiner, L.

Murray of Epping Forest, L.

Gregson, L.

Newby, L.

Hardy of Wath, L.

Orme, L.

Harris of Greenwich, L.

Patel of Blackburn, L.

Harris of Haringey, L.

Peston, L.

Harrison, L.

Pitkeathley, B.

Haskel, L.

Prys-Davies, L.

Hayman, B.

Puttnam, L.

Hilton of Eggardon, B.

Ramsay of Cartvale, B.

Hollis of Heigham, B.

Rea, L.

Holme of Cheltenham, L.

Rendell of Babergh, B.

Howie of Troon, L.

Rodgers of Quarry Bank, L.

Hoyle, L.

Roll of Ipsden, L.

Hughes of Woodside, L.

St. John of Bletso, L.

Hunt of Kings Heath, L.

Sandberg, L.

Irvine of Lairg. L. (Lord Chancellor)

Sawyer, L.

Scotland of Asthal, B.

Islwyn, L.

Scrota, B.

Jay of Paddington, B. (Lord Privy Seal)

Sharman, L.

Sharp of Guildford, B.

Jeger, B.

Shepherd, L.

Jenkins of Hillhead, L.

Shore of Stepney, L.

Jenkins of Putney. L.

Simon, v.

Smith of Clifton, L.

Joffe, L.

Stoddart of Swindon, L.

Kennedy of The Shaws, B.

Stone of Blackheath, L.

Lea of Crondall, L.

Strabolgi, L.

Levy, L.

Symons of Vernham Dean, B.

Lipsey, L.

Thomas of Gresford, L.

Lockwood, B.

Thomas of Walliswood, B.

Lofthouse of Pontefract, L.

Thornton, B.

Longford, E.

Tomlinson, L.

Lovell-Davis, L.

Tordoff, L.

Macdonald of Tradeston, L.

Turner of Camden, B.

McIntosh of Haringey, L. [Teller]

Walker of Doncaster, L.

Warwick of Undercliffe, B.

McIntosh of Hudnall, B.

Weatherill, L.

MacKenzie of Culkein, L.

Whitaker, B.

Mackenzie of Framwellgate, L.

Whitty, L.

Maddock, B.

Wilkins, B.

Mallalieu, B.

Woolmer of Leeds, L.

Massey of Darwen, B.

Young of Old Scone, B.

NOT-CONTENTS

Blackwell, L.

Higgins, L.

Blatch, B.

Holderness, L.

Boardman, L.

Home, E.

Brabazon of Tara, L.

Hunt of Wirral, L.

Brigstocke, B.

Jenkin of Roding, L.

Campbell of Alloway, L.

Kingsland, L.

Campbell of Croy, L.

Lucas, L.

Carnegy of Lour, B.

Luke, L.

Clark of Kempston, L.

Lyell, L.

Cockfield, L.

McColl of Dulwich, L.

Colwyn, L.

McConnell, L.

Courtown, E.

Mayhew of Twysden, L.

Cox, B.

Miller of Hendon, B.

Dean of Harptree, L.

Monro of Langholm, L.

Denham, L.

Mowbray and Stourton, L.

Eccles of Moulton, B.

Murton of Lindisfarne, L.

Elles, B.

Northbrook, L. [Teller]

Elliott of Morpeth, L.

Northesk, E.

Elton, L.

O'Cathain, B.

Fookes, B.

Onslow, E.

Gardner of Parkes, B.

Oppenheim-Barnes, B.

Geddes, L.

Park of Monmouth, B.

Gilmour of Craigmillar, L.

Peyton of Yeovil, L.

Goschen, V.

Plummer of St. Marylebone, L

Gray of Contin, L.

Prior, L.

Hanham, B

Rawlings, B.

Hayhoe, L.

Renton, L.

Henley, L. [Teller]

Roberts of Conwy, L.

533

Rotherwick, L.

Shrewsbury, E.

Ryder of Wensum, L.

Stewartby, L.

Saatchi, L.

Swinfen, L.

Saltoun of Abernethy, Ly.

Trefgarne, L.

Seccombe, B.

Trumpington, B

Tugendhat, L.

Sharpies, B.

Vivian, L.

Shaw of Northstead, L.

Young, B.

Resolved in the affirmative, and amendment agreed to accordingly.
4.58 p.m.
Lord McIntosh of Haringeymoved Amendment No. 227:
Page 60, line 8, leave out from ("of") to end of line 15 and insert ("consumers.").
On Question, amendment agreed to.
Baroness Turner of Camdenmoved Amendment No. 228:
Page 60, line 17, at end insert—
("( ) The Authority may make rules under this section to require authorised persons to advise and inform persons referred to in subsection (1) about matters arising during the course of their use of the services referred to in that subsection.").
The noble Baroness said: In moving this amendment, I assure Members of the Committee that it is not a technical amendment. The focus of the Personal Investment Authority with regard to consumer protection was on the selling of products and on ensuring that sellers knew their customers' needs and gave the best advice to meet those needs.
However, consumers' needs change. They may need advice and information at any time during the life of a product. Changes in consumers' needs may arise from changes in their circumstances. Consumers often need to cash in endowment policies early because they cannot afford to continue paying the premiums. There are several options for consumers, such as trading the policies, borrowing on the security of their value, or making them fully paid up. Those are often much more advantageous than simply cashing in the policies.
Consumers need to be informed about those options when they approach their life companies. Of course, some companies make a practice of advising clients in this regard. I am aware of that from my own experience some years ago when I sought to cash in a policy with my company (which was a mutual company). It advised me that I would probably be better off if I traded the policy. Not every company does that. If the client does not know, he may well lose out.
Some changes are caused by outside factors. Changes to assumptions about yields have meant that some endowment policies are not sufficient to pay off an interest-only mortgage; ISA mortgages are set up with the assumption that the investment will pay off the mortgage. If it is clear at some point that the investment will not be sufficient, consumers will need to be told early that that may be the case and what their options are. Sometimes changes in taxation will have an effect on products, and consumers will need to know about that.
534
The FSA should be able to make rules to require information and advice to be given in similar circumstances. Leaving it to the companies concerned may mean that consumers do not receive the information that they need at the right time.
I understand that the FSA believes that the Bill already allows it to make rules covering that, but that does not seem to me to be absolutely clear in the Bill. Therefore, I believe it necessary to have a provision on the face of the Bill which makes that absolutely clear. This may be extremely important to people at quite difficult times in their lives, when they need to have advice about the best options available. Therefore, I hope that the Government will be prepared to accept the amendment. I beg to move.
5 p.m.
Lord Kingsland: Our reaction to the noble Baroness's amendment is similar to the kind of reaction which the Minister has given to us on numerous occasions: we agree with it but we do not think it is necessary.
We think that because not only is the protection of consumers an objective contained in Clause 2(2)(c), but also in the way the objective is further elaborated in Clause 5(2)(c); almost the express terms of the noble Baroness's amendment are contained in the expression,
"the needs that consumers may have for advice and accurate information".
Moreover, under Clause 29, there does not seem to be any constraint on the scope of rules which can be made within the objectives of the Bill.
I do not wish the noble Baroness to be in any doubt about our commitment to the principles which underlie her amendment; but for all those reasons, we believe that it is otiose.
Lord McIntosh of Haringey: I do not believe that I have used the word "otiose" once throughout the whole proceedings in Committee. It is a lovely word; that is quite true.
My noble friend's amendment to Clause 129 proposes that the FSA should have power to make rules requiring authorised persons to advise and inform consumers about matters arising during the course of their use of the authorised person's services. She gave a very good example, which was also given in another place, of a requirement on an insurer to notify a surrendering endowment policyholder of the existence of the second-hand traded endowment market.
Stephen Timms, the Financial Secretary to the Treasury, explained then that the FSA would be able to make rules using its general rule-making power, although it was for the FSA to determine whether and how to use its powers, having regard to its general duties.
I am happy to confirm that it is still the Government's understanding that the FSA would be able to make rules to deal with this problem on the basis that they would apply to authorised persons with

535
respect to the carrying out of a regulated activity and would be for the purpose of protecting the interests of consumers. My noble friend cast doubt on that, but I really do believe that to be the case.
It is worth noting that such a rule could not have been made under the Financial Services Act 1986. Paragraph 4 Schedule 10 of that Act prevented conduct of business rules applying to a regulated insurance company, except in relation to the selling and advice of long-term policies or to the management of pension fund assets. That restriction has not been continued under this Bill and I hope that my noble friend will recognise that, in effect, we have brought her amendment into the scope of the Bill for the first time and that, therefore, she will not feel it necessary to press the amendment.
Baroness Turner of Camden: I thank my noble friend for his explanation in opposition to the amendment. It is obviously not my intention to seek to divide the Committee on I should like to think about what he said and to have a word with the people who have been advising me in this connection because it was our impression that without some wording of this kind on the face of the Bill, the FSA may very well conclude that it did not have authority to give advice in the circumstances which I have been suggesting.
However, in view of what the Minister said, I shall withdraw the amendment and consider what he said between now and Report stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringeymoved Amendment No. 228A:
Page 60, line 24, leave out from ("rules") to ("may") in line 25.
The noble Lord said: In moving this amendment, I shall speak also to government Amendment No. 230ZA and speak in a friendly tone to opposition Amendment No. 230A because I believe that our thinking on these matters is very much at one.
Subsection (1) of Clause 131 allows the authority to make requirements relating to the financial resources of particular authorised persons. Subsection (2) allows it to direct a particular person to hold a specified amount of capital.
Amendment 230ZA deletes those subsections. The substantive change we are making here relates to the removal of Clause 131(2). Under that provision, the FSA would have been able to notify individual authorised persons as to the level of financial resources that they must maintain. Subsection (1) of Clause 131 was included only in order to provide the basis for the proposition in subsection (2). Subsection (2) needed to be stated expressly because the sort of individual notification for which it provides is not the type of provision one usually finds in rules—the general idea being that rules are legislative acts which apply to all authorised persons or specified classes of such persons.
We now intend that individual financial resources requirements for particular authorised persons will be made using the power to impose requirements in Clause 41 (in Part IV).
536
General provisions about financial resources will continue to be able to be made using the rule-making provisions of Clause 129. This will cover general rules about the nature of resources that a person must have. It will also allow general rules to be made which apply to all authorised persons, or specified groups of such persons, which set out formulae and so on in accordance with which the level of resources a person must have can be calculated. The power to make the rules will of course be subject to the requirements of Clause 129(1); namely, that they are necessary or expedient to protect the interests of consumers of regulated activities, a mantra which I have repeated far too many times.
We no longer think that there is any need to deal with these matters expressly in Clause 131 if subsection (2) is removed. As indicated, Clause 131(1) is there only so that subsection (2) could hang on it.
The important change that we are making here impacts directly on the rights of individual authorised persons. As indicated, individual financial resources requirements will be imposed under Part IV. Under that part, the authorised person will be able to refer to the tribunal any requirement that has been imposed on him which he thinks is unfair or disproportionate. Depending on the circumstances, he may be able to refer the matter to the tribunal before the requirement takes effect or after it has done so. It may be necessary in some cases for a requirement to take effect straight away, but in either case the authorised person may challenge the authority's decision. The FSA will also have to go through a number of procedural steps in accordance with Part IV when imposing requirements in relation to particular authorised persons.
That is a significant change from the existing provisions. Under the Bill as it stands at the moment a person has a right to challenge the FSA's decision as to the appropriate amount of financial resources only if he disobeys the requirement and the authority takes enforcement action against him. Under the proposed procedures in Part IV a person may comply with the requirement so as not to jeopardise his standing as an authorised person while at the same time questioning the appropriateness of the particular level of resources.
Amendment No. 228A follows changes already made to Schedule 6 which allow for consolidated supervision of groups. Considering the overall structure of a group is important in terms of ensuring proper supervision of members of the group who are authorised persons. The change that we propose simply recognises that in the rules which relate to authorised persons it may be necessary to impose requirements on the authorised person which are not artificially limited to the financial resources of the group. The bottom line is that it will be possible to make only rules which apply to authorised persons and only if they are necessary or expedient to protect the interests of consumers of regulated activities.

537
Opposition Amendment No. 230A would also have the effect of making financial resources rules subject to the procedures of Part IV. In the light of our Amendment No. 230ZA, I hope that the noble Lord will not press his amendment. I beg to move.
Lord Hunt of Wirral: Having heard the Minister's explanation I am still a little confused. From the way in which I understood what he said, I believe that deleting subsections (1) and (2) of Clause 131, which is the effect of the Minister's Amendment No. 230ZA—which, I must confess, I have only just seen; indeed, I have only just received his kind letter explaining the amendment—might well have a significant impact.
The PIA currently has discretion over certain aspects of the financial resources rules. The current wording of Clause 131 allows the Financial Services Authority a similar discretion. I understood that that was causing some disquiet within certain parts of the Government. I was therefore expecting to see some amendment to Clause 131(2)(a). That is why I am troubled by the conclusive deletion of both subsections (1) and (2).
As I understand it—perhaps the Minister can assist me—capital adequacy and expenditure-based requirements will remain the same. If Clause 131(2)(a) is removed, firms with limited financial reserves whose resources fall temporarily below the £10,000 capital adequacy limit could find themselves technically in breach. That is why hitherto the PIA has exercised discretion in that area in respect of, for example, subordinated loans and contingency liabilities. There could be other areas, but I have not had time to explore those further since I have seen the Government's amendments. I wonder whether I am right in my concern that the discretion hitherto exercised by the PIA will now be taken away from the FSA. If it is, that could have a significant impact across the financial services market in the sector to which I am referring.
Lord McIntosh of Haringey: I assure the noble Lord that there is no question of the discretionary power being taken away. It is simply being transferred to Part IV of the Bill instead of occurring here. Under Part IV the principal difference, as I said, is that it allows for an application to the tribunal to be made and for it to be made even before any rule takes effect. There is the additional complication of European Union directives and their definition of what resources are. Perhaps if the noble Lord and I are meeting tomorrow or on Wednesday, as I hope that we are, we may deal with the matter then rather than take up the time of the Committee.
Lord Hunt of Wirral: I am extremely grateful to the Minister for that explanation. All I should say in passing is that Part IV deals with applications which bring into effect the whole bureaucratic process involving payments by the applicant and a whole series of administrative arrangements. I was referring to the discretionary power of the PIA which could be exercised without an application. However, as the
538
Minister suggests, that is a matter on which I could perhaps reflect further in the light of his helpful comments.
Lord McIntosh of Haringey: If we were to meet, I could write a note at the meeting and send it to all noble Lords taking part in the Committee proceedings.
Lord Hunt of Wirral: I am grateful to the Minister.
Lord Kingsland: Having heard the Minister's explanation of his amendment, I can confidently say on behalf of the Opposition that it satisfies the problem which concerned us. In those circumstances, there will be no need for us to press our amendment.
On Question, amendment agreed to.
5.15 p.m.
Lord McIntosh of Haringeymoved Amendment No. 229:
Page 60, line 35, at end insert—
("(7) "Consumers" means persons—

(a) who use, have used, or are or may be contemplating using, any of the services provided by—

(i) authorised persons in carrying on regulated activities; or

(ii) persons acting as appointed representatives; or

(b) who have rights or interests which—

(i) are derived from, or are otherwise attributable to, or

(ii) may be adversely affected by,

the use of any such services by other persons.
(8) If an authorised person is carrying on a regulated activity in his capacity as a trustee, the persons who are, have been or may he beneficiaries of the trust are to be treated as persons who use, have used or are or may be contemplating using services provided by the authorised person in his carrying on of that activity.
(9) For the purposes of subsection (7) a person who deals with an authorised person in the course of the authorised person's carrying on of a regulated activity is to be treated as using services provided by the authorised person in carrying on those activities.").
The noble Lord said: I beg to move.
[Amendment No. 229A, as an amendment to Amendment No. 229, not moved.]
On Question, Amendment No. 229 agreed to.
Clause 129, as amended, agreed to.
Lord Joffemoved Amendment No. 230:
After Clause 129, insert the following new clause—
LIFE ASSURANCE BUSINESS RULES
(". The Authority shall make rules requiring an authorised person who has permission to carry on a regulated life assurance activity to consult and account to with-profits policyholders for—

(a) any appropriation of reserves or surplus assets to shareholders, and

(b) decisions on the application or investment of assets or reserves which could adversely affect the rights of such policyholders.").

539
The noble Lord said: I declare an interest in that my family and I are with-profit policyholders in proprietary life insurance companies. The purpose of the amendment is to help protect the interests of with-profit policyholders in proprietary life insurance companies. Policyholders, while notionally owning the majority of assets in many life insurance companies, are normally not represented, consulted or even informed when decisions which could affect their best interests are taken by the directors. That is because the boards of such companies are elected by and legally accountable to their shareholders but not to their policyholders.
However, shareholders' interests do not always coincide with those of policyholders. Where such conflicts arise, boards of directors tend to focus on the interests of the shareholders who elect them. That is an entirely unsatisfactory state of affairs, aggravated by the fact that decisions taken by the boards are generally taker in secret and without any prior consultation with policyholders. There is not even a mechanism by which policyholders can obtain information on issues which are of vital importance to them.
The system is a model of opaqueness and lack of transparency. I shall seek to illustrate that claim by reference to a number of decisions taken by the Prudential insurance company. In so doing, I am not suggesting that that company is behaving differently from other companies in a similar position, nor am I seeking to impugn personally any of its directors.
The Prudential, as a result of the mis-selling of personal pensions, was obliged to pay compensation in the amount of approximately £2 billion to policyholders who had been mis-sold pensions. In order to find the resources to pay the compensation, it decided to utilise for the purpose what is variously known as its orphan estate, inherited estate or surplus assets.
The orphan estate does not, as may be imagined, consist solely of assets arising from unclaimed policy proceeds but rather more from surplus reserves arising from a number of sources, including in most cases underpayment of bonuses to previous generations of policyholders.
It is by no means clear who owns the orphan estate but many, including a number of actuaries, believe that policyholders might have the most valid claim to some or all of it. In practice, the Prudential may have appropriated resources arguably belonging to policyholders to Day for losses which policyholders, if they had been consulted, which they were not, could well contend had nothing whatever to do with them and should have been entirely borne by the shareholders who, after all, had elected the directors but failed to control their salespeople. Indeed, the views of policyholders on that issue may well be influenced by the findings of the Treasury Select Committee in its 9th report in 1998, paragraph 32 of which reads,
"The shareholders, who benefit from the profitability of the company, have a responsibility and should hear a substantial share of the loss from pensions mis-selling".
540
On that matter we concur with the judgment of the Consumers' Association that placing responsibility on shareholders will encourage better management in future.
In making the decision to pay the compensation for mis-selling out of the orphan estate, which incidentally was approved by the Treasury, neither the Prudential board nor the Treasury consulted policyholders nor, apparently, even considered the question of accountability. After all, if £2 billion of a company's assets have been lost, somebody must be accountable. At the very minimum, policyholders whose money it may have been, or who may have been prejudiced by its loss, should have been informed of why the misselling was not prevented and who was responsible so that they could take any action they felt appropriate.
However, there is a further interesting twist. The Prudential's orphan estate, even allowing for the depletion of the £2 billion paid to policyholders who had been mis-sold, will still have within it a balance of approximately £5 billion. The board of the Prudential decided that it would like to reallocate the orphan estate.
It is by no means clear to policyholders what precisely is intended by the board or the reasons for their new-found interest in clarifying the position relating to the orphan estate. However, policyholders may well speculate that the purpose of the reallocation is more to do with enhancing shareholder value than benefiting policyholders. Does the Prudential intend to appropriate the whole of the orphan estate to shareholders, 10 per cent, or some intermediate figure? The policyholders certainly have no idea. The Prudential has been locked in negotiations with the Treasury for several years. Policyholders have been unable to extract any information on what the Prudential would like to do with the £5 billion, give or-take a couple of billion.
The response to all questions to the Prudential and the Treasury is that it is price-sensitive information for shareholders, but it apparently occurs to no one that it is vital information to policyholders who might want to block any appropriation they consider contrary to their interests.
It is also instructive to note that the Prudential, the United Kingdom's mightiest insurance company, appears to make little or no effort to communicate with its policyholders. Its annual reports are replete with references to maximising shareholder value, but I could find nothing in its recent reports about maximising policyholder value or, indeed, virtually any reference whatever to policyholders. Based solely on its annual reports, one could be forgiven for-concluding that policyholders might be an extinct species.
I am pleased to say that there is, however, potentially some good news for policyholders on at least one issue. In my discussions with the Prudential it emerged that at long last the industry is planning actively to address the communications issue through a new project called "Project Salter" headed by Sandy Leech, chief executive of Zenith Life and chair of the

541
Association of British Insurers. Although that initiative is to be welcomed, it is a voluntary code that is proposed. We all know, based on previous experience, that voluntary codes in the life assurance industry are disregarded by many of its members and that the standards which voluntary codes set tend to be watered down to the lowest common denominator in order to attract comprehensive industry support.
Nevertheless, I urge the Government strongly to support the Salter initiative, provided that it sets high standards, is universally agreed to by the industry, and meets its timetable of setting standards by June this year and implementation in the first half of next year.
I submit that the failure of companies to consult with, and account to, their policyholders is an untenable situation and that in the Bill, one of the objectives of which is the protection of consumers, steps should be taken to ensure that companies consult with and inform policyholders about issues which may affect their best interests.
In the draft regulations just published relating to stakeholder pensions, the Government have insisted on ring-fencing with-profits funds because of their opaqueness and have called for greater transparency. That is what the amendment also seeks to achieve for with-profits policyholders. The draft regulations also set standards for product design and communication with policyholders which could serve as a model for the Salter initiative and for the implementation of the resolution I propose.
I should also like to draw attention to the relevant precedent in relation to pension funds in which the rights of pensioners are protected through direct representation on pension trustee boards. The most effective protection afforded to policyholders would be for direct representation on the boards of life assurance companies, which I hope Government will soon require. However, I appreciate that to move such an amendment at this stage would be inappropriate. Instead, the amendment I propose should be seen as a first step towards protecting the rights of policyholders. I beg to move.
Lord Haskel: I spoke to this matter at Second Reading. The noble Lord, Lord Joffe, has put the case so well and in such detail that there is no need for me to cover the ground again. However, I indicate my support for his amendment.
Lord Jenkin of Roding: Perhaps I may offer a word or two, having spent some years as chairman of a mutual life assurance company. I listened with great interest to the noble Lord, Lord Joffe, who made a convincing case. In the case of a mutual company, the policyholders have all the power in their hands. We were a statutory company. The directors were elected by policyholders and only policyholders had votes at the annual meetings. We were under considerable restraints, both under our rules and general laws, to the extent to which the board could use the policyholders' money in, for instance, taking over another company. There had to be procedures before
542
a court with an assurance that the policyholders had been fully informed, were properly consulted, and had consented to the change.
If people want the benefits of a with-profits policy, they should go to a mutual company. Perhaps I may add that I now have nothing whatever to do with the company I chaired, nor have I been briefed by it. However, the problem faced by directors is what to do when the same policyholders learn that a bid has been made for their company. Policyholders want the money now. They put themselves into precisely the position described by the noble Lord, Lord Joffe, concerning the "Pru". I have always found that to be a disappointing trait in policyholders.
I had a short answer to questions I received in correspondence or those raised at an annual meeting. I would say, "You are in this for the long term. You have taken out a long-term life policy or pension policy in order to protect your family or yourselves in your old age. You cannot have it twice. If, when a company comes in and buys up the company, you take it as a payment, you are then a policyholder in a proprietary company and the amount of money you would have had when your policy matures will be reduced. You cannot have it twice".
I have a great deal of sympathy with the point made by the noble Lord, Lord Joffe. I do not know whether it is susceptible to rules. However, it seems to me that the mutual companies are fighting a losing battle. It has been the same as regards the building societies. A few have succeeded—the Nationwide remains where it is—but most have succumbed. Why is that? Because most of their members wanted money now rather than money in a few years' time. My faith in this form of saving in modern society has been somewhat undermined, notwithstanding that of course very large sums of money are invested regularly and entirely properly for the long term—until a bidder comes along and makes an offer of money now.
I believe this to be a real problem and I hope that, in the course of its general work of protecting consumers and giving out information, the Financial Services Authority will be able to indicate that those who take out life insurance and pension policies for the long term should almost always be advised to stick with them for the long term rather than to take a quick buck now.
5.30 p.m.
Lord Lipsey: I am aware that after such expert speeches, a few words from me may be perceived as possibly otiose. However, I believe that it is worth emphasising that the Committee will be grateful to the noble Lord, Lord Joffe, for raising this matter.
In this area we are looking at very big bucks. Some figures were published in The Sunday Times: £7.8 billion for the Prudential; £1.4 billion for Britannic Assurance; £3.8 billion for CGU; £2.1 billion for Legal & General and £2.1 billion for AXA. That total would just about fund the defence budget for a year. These are very large sums. Surely in principle it is intolerable that such sums should be

543
dealt with by secret deals made in the back room, free from the light of publicity which would allow all those with an interest to express their opinion. No doubt the Minister will address whether the Bill deals with this question.
While I do not necessarily press this particular amendment, I hope that in the course of our debate this afternoon we shall have at least forced the issue out into the open. If we ensure that the matter is dealt with, we shall have done a service.
Lord Blackwell: While I understand the sentiments that lie behind this amendment, I have grave doubts about its practicality. If directors are conducting a business in the interests of their shareholders, the FSA has the right and obligation to put controls around the use of reserves so as to protect policyholders. However, to impose an obligation to consult with-profit policyholders on the use of those funds seems to me to present a complication in terms of who the directors are supposed to be serving and what would be the rules and appropriateness of taking decisions on the use of those reserves.
I believe that it would be cleaner if policyholders who have taken the decision that they want to invest their money in with-profits company then left it to the directors of that company to run the business so that it delivers returns in the long run that continue to attract new policyholders, and for the FSA to establish rules to ensure that policyholders are protected, rather than confusing the issue by imposing a duty of consultation. I can see that situation ending in a great deal of confusion and added bureaucracy on how decisions are taken.
Lord Grabiner: I should disclose a professional interest in some of the questions that have been raised by this proposed amendment. Having said that, I wish to comment on the drafting of the amendment rather than on its underlying merit. Perhaps I may say only that I certainly agree that the noble Lord, Lord Joffe, has identified an area of real concern here.
So far as subsection (a) is concerned, on the face of it, it is confined to the need to make rules requiring an authorised person to consult in relation to the,
"appropriation of reserves or surplus assets to shareholders".
The example given by the noble Lord in his opening remarks concerned the activities of the Prudential, in particular the payment of victims of mis-selling. Subsection (a) would not help because the victims of mis-selling are generally not shareholders—they may be, but that would only be by chance. In that regard, the drafting is not adequate. I can think of one or two other examples, such as the use of such moneys for the payment of windfall tax. It may be that we have not yet seen the end of windfall tax. If we have not, this would obviously provide a way of meeting those liabilities. Furthermore—dare I say—there is also the possibility of such moneys being used for the purpose of paying directors' bonuses. However, I had better not say anything more about that. However, in subsection (a), the use of the word "shareholders" is not a satisfactory piece of drafting.
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As regards subsection (b), I should like to home in on the word, "rights". My concern here is that the expression, "rights of such policyholders" is simply too vague and uncertain for the following reasons. First, there is no statutory definition of the expression, "reasonable expectations" in the context of a discussion about the reasonable expectations of policyholders. I believe that the only place where an attempted definition can be found is in the context of the obligations cast on a scheme actuary when he comes to advise the trustees; otherwise, one is not told what that expression means. It obviously includes statements that may have been made at the point of sale, but it could include all kinds of other things as well. Indeed, in a sense it is a highly subjective point, because one policyholder's expectation may bear little or no relation to that of another. That is one area of uncertainty.
The second area of uncertainty that I see is that, if these are rights as defined in subsection (b), I suggest that it will almost certainly be the case that what is being done with the money should not—ex hypothesi—be done with the money. That is because if the policyholders' rights are being infringed, the money should not be used for any other purpose. That leaves an inherent incongruity in the drafting which presupposes that there are rights which, so to speak, sit outside rights. That, of course, cannot be right.
The third area of uncertainty that I have identified is that it is not at all clear from the drafting of subsection (b) whether it would encompass the manner in which the money was invested. The subsection states:
"decisions on the application or investment of assets or reserves which could adversely affect the rights of such policyholders".
That might—I suggest that it would—encompass poor quality investment. However, how does one judge that or draw attention to it? How can one substitute oneself for the person whose professional role may be precisely to deal with the investment of those assets?
With respect, I suggest that the drafting is not adequate. However, viewed as a probing exercise, perhaps I may say that the amendment raises extremely important questions.
Lord Elton: Perhaps the noble Lord, Lord Joffe, could offer a little further clarification on an important issue? I apologise to the noble Lord if I should have gathered this already. If the policyholders are to be able to require the authorised person to be accountable to them, that suggests that the policyholders will hold something approaching a veto. The noble Lord may have already explained this, but what I cannot see from the drafting of this amendment is whose will is to prevail where there is a conflict of opinion between the policyholders and the shareholders? Either a nihil obstat, as it were, will prevail, or someone on the board must have the last word.
Lord Joffe: The intention is that policyholders would be consulted. But if the impasse suggested arose between the shareholders and the policyholders, at that stage the policyholders would have the right to apply to the court to protect their interests.
Lord Donaldson of Lymington: I support what was said by the noble Lord, Lord Grabiner. This amendment speaks of rates. Let me say I have no life insurance policies, but things may have changed since the days I took out with-profits policies with satisfactory results. I was always under the impression that my only right was a contractual right. If I looked in my policy, I would certainly be guaranteed a basic return—that is what I was after—but thereafter it would depend expressly, in contractual terms, on what bonuses were declared by the board.
Unless the animal has changed considerably, this amendment will leave me in exactly the same position as I was over the years; that is, I could go to the courts and say, "This company is going bankrupt", or, "This company is not going to meet its obligations", which were merely for the basic amount.
Lord Stewartby: This amendment, in its present form, will not do, as a number of noble Lords said. But the thought behind it is important. I hope that one of the consequences of this short debate will be that the FSA will look at this area and see whether there are steps it can take to encourage greater transparency.
There is no doubt that the with-profits element, whether of a life policy or a personal pension fund, is determined in an arbitrary fashion. I strongly support any measures which make it clearer on what basis the figures are plucked out of thin air, not only to judge whether the resources of the company—whether it is an incorporated business or a mutual—were being reasonably allocated between different types of claimant on that fund, or the other comparison with the outside world as to how it was genuinely performing in relation to its competitors rather than just on the figures for a specific year.
There seems to be a gap which has widened in recent years between the information available to other sorts of investors who have benefited from a lot of initiatives by the FSA and its related bodies (a general encouragement in advertising and accounts to provide more information so that investors know where they stand) and this corner of an old system which remains unduly obscure and where it is difficult for any with-profits element to have any idea whether or not it is being fairly treated. Therefore, although I do not support the amendment, I strongly support its message.
Lord Elton: The answer of the noble Lord, Lord Joffe, to my question with the comments of the noble Lord, Lord Grabiner, show that the effect of the amendment is merely to produce a piece of machinery which in some cases, but not all, will bring to court matters which otherwise may not have gone to court. As I understand it, it is a way of enabling policyholders to realise that they have a means of testing rights which they might otherwise not have.
Many of the people we are talking about are not sophisticated policyholders and one has a great deal of sympathy with what the noble Lord, Lord Joffe, is trying to do. But this points in the direction more of some sort of ombudsman or referee rather than yet
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another apparatus within this legislation. If we are leaving thoughts for the FSA when it comes into being under the Act, that may be a better route rather than the route taken by the noble Lord, Lord Joffe.
5.45 p.m.
Lord McIntosh of Haringey: I should declare an interest, first, as a policyholder with Sun Life of Canada and with Scottish Widows, both of which propose to demutualise. I voted against demutualisation in both cases. I was overruled and shall be receiving cheques and/or shares in due course. So my conscience is clear.
I shall make a long boring speech and then summarise it in five or six points for the noble Earl, Lord Onslow. Of course, there can be conflicting interests between shareholders and policyholders. This amendment relates to a specific type of life insurance where policies are described as being "with profits". Commonly, "with profits" policies are insurance policies with a savings element. There is an expectation that bonuses will be paid from time to time, usually annually, depending on the performance of the fund in which the premiums have been invested. These bonuses go to increase the benefits that will be payable to the policyholder at maturity.
Current industry practice in shareholder-owned life offices is generally to distribute surplus in the fund in the proportions: 90 per cent as bonus to with-profits policyholders and 10 per cent to shareholders, although there are some exceptions. In the case of mutual life offices, all the surplus will be distributed to policyholders as there are no shareholders. However, to ensure fairly steady returns to policyholders year on year, the insurance company does not each year distribute the whole of the year's profits earned by the business. Like prudent companies in other walks of life, it creates a reserve for undistributed assets within the with-profits fund. That is called the "estate" or, in certain circumstances, the "orphan estate".
In some cases, the estate has been allowed to grow up over a long period of time and has been passed on from one generation of policyholders to the next. That is called an "inherited estate"; that is really what the orphan estate is. The estate may reach a point which exceeds that considered necessary for the efficient management of the business. We were given some figures and they are pretty big figures. In such circumstances, the company may wish to manage down the level of estate by distribution to policyholders and shareholders.
The question is: who does the undistributed sum, the inherited estate, belong to and how should it be distributed? Although inherited estates have been built up over many years, the status of the funds within them and the appropriate basis of attribution are clear. However, in a small number of shareholder-owned offices this is not so. Over the years, policies and practices in these offices may have changed so that there are doubts about the respective interests of shareholders and policyholders in relation to the attribution of surplus.

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The guiding principles in relation to the attribution between shareholders and policyholders of assets from a firm's inherited estate are those set out in a statement on 25th February 1995 by Mr Jonathan Evans who was then Minister for Consumer Affairs and responsible for insurance matters within the DTI. The Government have since confirmed their agreement to those principles.
Where there is lack of clarity over the origins of the inherited estate, the regulator (whether the DTI, the Treasury or the FSA on behalf of the Treasury) has taken the view that the compatibility of any proposed attribution with these general principles needs to be considered in the light of the particular circumstances of the case. Therefore, in practice a dialogue takes place with the company over any proposed attribution. Before a final decision is taken, the regulator will also request a report on the proposals from an independent actuary and that policyholders are consulted.
This case-by-case assessment is conducted in the light of Section 45 of the Insurance Companies Act which enables the regulator to impose requirements on a company to ensure that the criteria of sound and prudent management are met. Those criteria include,
"having due regard to the interests of policyholders and potential policyholders".
The phrase, "policyholders' reasonable expectations" which has been the subject of debate, occurs in Section 45 of the 1982 Act, but is not used in this Bill which refers here, as throughout, to the "interests of consumers".
The Act contains further safeguards for with-profits policyholders. Sections 28 to 31A provide controls over transactions involving and distributions from the assets attributable to the with-profits fund. Section 2C provides controls over transfers of business between companies; and Sections 18 to 23 require insurers to submit annual re turns to the Treasury incorporating a valuation by an appointed actuary and to make copies available to any policyholder or shareholder who asks for one.
I listened most carefully to what the noble Lord, Lord Joffe, said about the lack of transparency on the part of life insurance offices. We must consider whether the provisions in the 1982 Act, which seem, on the face of it, to answer the complaints that he made, are actually being implemented. This is a matter that I should like to consider between now and the next stage of the Bill.
The Bill will provide for the continuation of the existing protections under the Insurance Companies Act 1982. Clauses 129, 134 and 330 will enable the FSA to make rules that maintain the existing statutory safeguards in the interests of with-profits policyholders. Indeed, I understand that the FSA proposes to reproduce these in its draft interim prudential rules contained in Consultation Paper 40a. The FSA will be able to use its guidance power under Clause 148 to continue and, if necessary, supplement the existing advice and information that has been given.
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Part VII of the Bill will also provide a statutory framework for the transfer of with-profits business between companies to replace Schedule 2C to the 1982 Act. Finally, the FSA will be able to impose particular requirements on an individual insurer for the purposes of protecting consumers, including of course policyholders. So the Bill will—I put it no higher at the moment—in no way reduce the existing protections available, and the FSA will be able to intervene to protect consumers using its Part IV powers.
However, the noble Lord's amendment would go further and require the FSA to make rules requiring insurers to consult and account to policyholders—I must say that I would pay more attention to the phrase "account to" than I would to "consult"—on each and every appropriation to shareholders, and other decisions that could adversely affect the rights of policyholders. Again, I listened to the debate about whether policyholders have rights that go beyond contractual rights. Clearly, this is a very difficult issue.
Clause 129 would give the FSA powers to make such rules if they appeared to be necessary or expedient for the purpose of protecting policyholders. Similarly, Clause 148 would allow the FSA to issue individual or general guidance consisting of advice or information to that effect.
However, there is a balance to be struck in deciding what degree of protection is appropriate for with-profits policyholders given the FSA's general duties in Clause 2. In particular, the FSA will need to have regard to the principle that the burdens that its rules or regulatory guidance would impose should be proportionate to the benefits. For example, in the ordinary course of events, the distribution to shareholders of their share of the surplus should be unexceptional. Similarly, it would be unusual to require an insurance company to consult policyholders about operational decisions such as asset allocations and investment decisions, which may obviously affect their investment but will usually be within the company's own discretion both as a matter of company law and under its contracts. To require companies to do this would force them to reveal commercially sensitive information about their business, which cot Id potentially prejudice the interests of both shareholders and policyholders.
Where insurance companies will owe duties to their policyholders, as they do currently, will be in relation to their policies and the actual bonuses that they declare. Companies are already required to provide an annual notice to their policyholders setting out the bonuses allocated to their policies, as well As explaining the background to the declaration.
Therefore, we do not think that the Bill should require the FSA to make rules which would make insurance companies accountable to their with-profits policyholders for operational decisions or decisions relating to shareholder distributions. This does not, of course, prevent the FSA adding to the existing requirements in response to particular problems that may arise. However, we believe that it should be a

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matter for the FSA to decide in the light of its general duties, consultation and cost-benefit analysis in the usual way.
Perhaps I may sum up my response for the benefit of the noble Earl, Lord Onslow. First, the Bill will certainly enable the FSA to carry on providing the sort of protection that it has in the past in relation to orphan assets. Secondly, the powers will be at least as wide and effective as those available under the Insurance Companies Act. Thirdly, we believe that those powers give a perfectly adequate regulatory response to the potential difficulties. Fourthly, the general presumption of a 90 per cent/10 per cent split will not change as a result of the Bill, but the formula must be able to take into account particular factors in some cases; for example, where there is a transfer of business and something on which a court might rule. Fifthly, the ability of the FSA to obtain independent actuarial reports on the funds and liabilities is an important tool of regulation.
I apologise for the length of my reply, but this is clearly an important issue. The fact that the noble Lord, Lord Joffe, has raised the matter has been widely welcomed by Members of the Committee. It is important for us to continue to reflect on the adequacy of the protection that is already provided. In the mean time, I hope that the criticism that has been made about the "warm wording" of the amendment will encourage the noble Lord, Lord Joffe, not to press the matter. We are certainly prepared to discuss these issues with him at any time between now and the Report stage.
Lord Peston: Before my noble friend the Minister concludes, there are two questions that I should like to ask him. I listened to this debate as a layman and was most impressed by the analysis of the problem put forward by the noble Lord, Lord Joffe. Two matters struck me as being of overwhelming interest. The first is the transparency question. It was not clear from my noble friend's reply whether he is satisfied with the transparency aspect of the matter, or whether what he said forms part of his further reflection on the matter.
The second matter which, as a layman, rather horrified me was the fact that the noble Lord, Lord Joffe, seemed to be saying—he cited but one example, but that may well have been for the sake of brevity—that certain actions were getting very close to being unlawful in terms of the use of funds. I do not speak as an expert but as someone who has simply listened to the debate. If there were any danger that these enormous amounts of orphan assets were being used in, to say the least, a doubtful way, did I understand my noble friend to say that the matter could be drawn to the attention of the FSA, which would then deal with it? Is my noble friend saying that he is confident that that is at least one response to the noble Lord, Lord Joffe? I ask these questions purely because I have been listening to the debate and am quite interested in the answers for their own sake, quite apart from the practicalities involved.
Lord McIntosh of Haringey: My noble friend's first question was about whether the existing rules were being adhered to. I read out to the Committee what I understand the Insurance Companies Act 1982 provides as regards transparency and reporting to policyholders. It seems to me that the Act makes certain provisions which the noble Lord, Lord Joffe, said were not being implemented; in other words, that particular insurance companies are not obeying those rules. I do not know whether that is the case, but it is certainly a matter that needs further investigation.
As regards uses that may be unlawful, the particular point made by the noble Lord, Lord Joffe, referred to the suggestion that such orphan assets should be used in compensation for pensions mis-selling. As I should have said before, the Government made it entirely clear on 1st July 1997 (very soon after we came into office) that surplus assets in a company's with-profits fund should be used only to meet pensions mis-selling costs, first, where any profits from the pensions business concerned would also be attributed to the with-profits fund; and, secondly, to the extent that use of such surplus was consistent with policyholders' reasonable expectations. Indeed, we have returned to the "reasonable expectations" problem. However, that is the responsibility of this Government. We did try to make it as clear as possible.
Lord Joffe: Perhaps I may comment briefly on some of the points made in the debate. I entirely agree with the noble Lord, Lord Jenkin, that policyholders often act irrationally and seldom take account of their best long-term interests. However, the distinction between a mutual and a proprietary company is that in a mutual company there is a mechanism for policyholders to object because they are the owners; in a proprietary company, which is the main subject of my amendment, the policyholders have no rights whatever other than the contractual rights that they have in relation to their policies. Perhaps I may remind the noble Lord, Lord Jenkin, that in the Nationwide case the members actually rejected the money—the bribe—offered to them.
On the question of practicality, I refer to a distinction here. The noble Lord said that one elects directors, one takes out a policy and one leaves matters to the directors. However, the distinction in the life assurance industry is that these are long-term contracts; they often run for 30 or 40 years. The directors who are elected today may be very different from the directors in charge in 20 or 30 years' time.
I think that I am grateful to the noble Lord, Lord Grabiner, for his comments on the wording of my amendment. I agree with him entirely that the amendment as phrased does not achieve its objective. Should I retable the amendment, I shall certainly take advice of the noble Lord, Lord Grabiner, on how to draft it.
6 p.m.
Lord Grabiner: There will be no charge!
Lord Joffe: I thank the noble Lord. I believe that for an ombudsman to have certain rights is a help but is

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not the answer because the ombudsman's powers are restricted. I am not sure whether an ombudsman would have the right to look into the position of with-profits policyholders, but I think that the awards that the ombudsman can grant are limited. I see that as a useful addition but not as a substitute for what I have proposed.
The Minister mentioned the regulator having all sorts of rights to protect the interests of with-profits policyholders. The lack of transparency and opaqueness with which the regulators operate is not something which policyholders would necessarily applaud. Policyholders have by no means complete confidence in what the Treasury and the Department of Trade and Industry have decided in the past in relation to these orphan funds. It is clear that there is a need for remedies which are not solely the prerogative of the regulators.
The question of unlawfulness was raised. I did not suggest categorically that the actions of the Pru and the other life assurance companies were in any way unlawful. The difficulty is that one does not know whether they arc unlawful because one does not know who owns the orphan assets and it is impossible for the consumer to find that out. One of the purposes of the amendment is to look into these issues.
I am pleased to hear that the Minister will reflect on these issues. I, too, wish to reflect on them before deciding what course of action to take. I thank all those who have participated in this short debate. I express my appreciation to the Minister for his patience in advising me as a novice on how to submit this probing amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 130 [Non-regulated activity rules]:
On Question, Whether Clause 130 shall stand part of the Bill?
Lord McIntosh of Haringey: I gave notice of my intention to oppose this Question when debating Amendment No. 226D.
Clause 130 negatived.
Clause 131 [Miscellaneous ancillary matters]:
Lord McIntosh of Haringeymoved Amendment No. 230ZA:
Page 61, line 13, leave out subsections (1) and (2).
The noble Lord said: This amendment was spoken to with Amendment No. 228A. I beg to move.
On Question, amendment agreed to.
[Amendment No. 230A not moved.]
Lord Kingslandmoved Amendment No. 230B:
Page 61, line 39, after ("person") insert ("carrying on a deposit-taking business").
The noble Lord said: Clause 131 deals with a number of miscellaneous and ancillary matters relating to the authority's rule-making powers set out in Clause 129. In particular, Clause 131(3) is concerned with the rules relating to the handling of money held by
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an authorised person in specific circumstances. These rules, I understand, are usually referred to as the client money rules.
Clause 131(4) provides that an institution, which is usually a bank, with which an account is kept in pursuance of the client money rules, does not incur any liability as a constructive trustee if money is wrongfully paid from the account unless the institution permits the payment, first, with the knowledge that it is wrongful or, secondly, having deliberately failed to make inquiries in circumstances in which a reasonable and honest person would have done so.
Given that the institution will almost certainly be a person carrying on a deposit-taking business, it would be more satisfactory if the reasonable and honest person test should apply to a reasonable and honest person carrying on a deposit-taking business. It would be difficult to judge what inquiries a reasonable and honest person would have made if that person was the proverbial man on the Clapham omnibus. It would be more sensible to apply the test to a reasonable and honest person carrying on the relevant type of activity. I beg to move.
Lord McIntosh of Haringey: This interesting amendment concerns an institution such as a bank at which an authorised person keeps a special account for its clients' money pursuant to client money rules under Clause 131. For example, when an authorised person receives money from his client, he may be required by rules to hold it on trust in a separate bank account until he invests it on his client's behalf.
The institution will be required to handle instructions from the authorised person in relation to the account. The problem for the institution is how to know if the authorised person is withdrawing money from the account to invest on behalf of his client or if he is acting fraudulently.
Under the ordinary common law a banker will not normally be liable to repay the authorised person's client unless he could be treated as a constructive trustee on the basis that he either knew the withdrawal was wrongful or if he deliberately failed to make inquiries in circumstances in which a reasonable arid honest person would do so.
For example, one might expect a reasonable arid honest person in those circumstances to be suspicious if the authorised person started taking unusually large amounts of money out of the account or asked for funds to be transferred to his own personal or business account. That test was included in the Financial Services Act and is reproduced in Clause 131(4). The amendment would add an additional clarification to that second test by emphasising that it was based on a reasonable and honest person,
"carrying on a deposit-taking business".
I fully agree with the intention behind the amendment. However, the courts have had no difficulty in interpreting the test of a reasonable and honest person

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in the context of the law of constructive trusts. I respectfully suggest to the noble Lord that the clarification is unnecessary.
The test is concerned with circumstances in which a reasonable and honest person would have made inquiries. Those circumstances involve the handling of funds which have been deposited in an account with that institution pursuant to client money rules. Therefore we are already concerned with the actions of a reasonable and honest person in circumstances in which he is carrying on a deposit-taking business. I hope that on that basis the noble Lord will not press the amendment.
Lord Elton: As a listener to the debate, I had regarded the words that my noble friend seeks to insert into the clause as being some remedy for the presence of the word "deliberately" earlier in the paragraph. Can the Minister assure us that a failure through negligence by a person conducting this business is equally culpable under some other part of the Bill? Or is it that ignorance of the law is a defence, uniquely, in this position?
Lord McIntosh of Haringey: As I said, the law that applies is the law of constructive trusteeship. I would not dare to try to interpret that law. There is a great deal of case law on the subject; the issue is not a new one. I hope that the noble Lord will allow me to write to him on the subject.
Lord Elton: With eager pleasure.
Lord Kingsland: I shall avoid entering into that debate. The Minister is clearly in the frame of the mind where he says to the Opposition, "We entirely agree with the motive behind your amendment but, on the wording of the Bill, it is unnecessary". I shall reflect on his response. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringeymoved Amendment No. 230C:
Page 62, line 4, leave out ("or non-regulated activity rules").
The noble Lord said: I spoke to this amendment with Amendment No. 226D. I beg to move.
On Question, amendment agreed to.
Clause 131, as amended, agreed to.
Clauses 132 to 134 agreed to.
Clause 135 [Endorsement of codes etc. issued by other bodies]:
Lord McIntosh of Haringeymoved Amendment No. 230D:
Page 63, line 14, at end insert—
("(2A) At any time when endorsing rules are in force, and if asked to do so by the Panel, the Authority may exercise its powers under Part IV or section 65 as if failure to comply with an endorsed provision was a ground entitling the Authority to exercise those powers.").
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The noble Lord said: In moving Amendment No. 230D, I shall speak also to Amendments Nos. 230E and 230F.
These are three technical amendments to Clause 135 in the light of discussions between the Treasury and the takeover panel. The clause confers a power on the authority to make rules endorsing the City code on takeovers and mergers (the takeover code) and the substantial acquisition rules, which I gather are known as "SARs". Generally, these endorsing rules cover areas where the FSA would not be able to make rules—that is, in relation to conduct during public takeovers. The effect of this clause is that the authority may exercise its disciplinary powers over authorised persons for a breach of the endorsed provisions of the takeover code or SARs, if the takeover panel has requested it to do so.
Amendment No. 230D proposes that a new subsection be introduced after subsection (2) enabling the authority to exercise its disciplinary powers under Part IV or Section 65 in circumstances equivalent to those set out in subsection (3). This will specifically enable the panel to invoke the authority's disciplinary powers with regard to approved persons in addition to its powers referred to in subsection (3). Amendment No. 230E, which proposes to delete the reference to Part IV in subsection (3), is consequential upon this new amendment.
Amendment No. 230F proposes that a new subsection be introduced after subsection (3) making it clear that a failure to comply with a requirement imposed, or ruling given, under an endorsed provision is to be treated as a failure to comply with the endorsed provision under which that requirement was imposed or ruling was given. This will ensure that proper account is taken of the exercise of the panel's discretion under the City code.
As I say, these are technical amendments. There is a much more important issue in relation to the takeover code which I have discussed with its representatives. I suggest that it would be more appropriate to deal with that when we come to the Opposition's proposed new clause which it seeks to have inserted after Clause 389. I beg to move.
6.15 p.m.
Lord Elton: I have a small question for the Minister. I apologise for not giving him notice of it, but it is probably very simple to answer.
It is apparent from Clause 135 what happens when the takeover panel makes a rule and the authority decides to endorse it. What happens to the endorsement when the takeover panel decides to withdraw a rule? There seems to be a machinery for putting endorsements in place; I take it that there is a machinery for removing them. I dare say that it is only the size of the Bill and the limited time that has prevented me from finding it, but I do not know where it is.
Lord McIntosh of Haringey: When these powers are being put into place, the issue is to make sure that there is not a gap—in other words, there is no period during which no rules are being applied. When a rule is withdrawn or repealed, that problem does not arise because no disciplinary action is called for.
Lord Kingsland: We are perfectly content to endorse these amendments. As the Minister is well aware, we have other concerns about the relationship between the takeover panel and the authority. We raise these concerns in Amendments Nos. 276E and 276F.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendments Nos. 230E and 230F:
Page 63, line 16, leave out ("IV,").
Page 63, line 18, at end insert—
("( ) For the purposes of subsections (2A) and (3), a failure to comply with a requirement imposed, or ruling given, under an endorsed provision is to be treated as a failure to comply with the endorsed provision under which that requirement was imposed or ruling was given.").
On Question, amendments agreed to.
Clause 135, as amended, agreed to.
Clauses 136 to 138 agreed to.
Clause 139 [Modification or waiver of rules]:
Lord McIntosh of Haringeymoved Amendment No. 230G:
Page 65, line 6, leave out paragraph (d).
The noble Lord said: I spoke to this amendment with Amendment No. 226D. I beg to move.
On Question, amendment agreed to.
The Deputy Chairman of Committees (Baroness Gardner of Parkes): In calling Amendment No. 230H, I should say that if this amendment is agreed to I cannot call Amendments Nos. 230J and 230K.
Lord Kingslandmoved Amendment No. 230H:
Page 65, line 18, leave out from ("may") to ("the") in line 22 and insert ("only give a direction if it is satisfied that").
The noble Lord said: In moving Amendment No. 230H, I shall speak also to Amendment No. 231A, as the grouping requires.
Lord McIntosh of Haringey: The noble Lord will have to speak also to starred Amendments Nos. 230J and 230K because they will be pre-empted if this amendment is agreed to. He will have to make up his mind which amendment he is going to go for.
Lord Kingsland: I am most grateful to the Minister for pointing that out. I may need to sit down, reflect and stand up again before I move on to his agenda.
Amendment No. 230H relates to Clause 139. It is an important provision in the Bill which allows the authority to direct that all or any of the regulatory rules set out in Clause 139(1) are not to apply to an authorised person. It also allows the authority to direct
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that the rules can apply to such a person with such modifications as may be specified in a direction to be made by the authority. However, as I understand it, under Clause 139(4) the authority's power to give such a direction is qualified by two conditions. The first is that the authority must be satisfied that,
"compliance by the authorised person with the rules, or with the rules as unmodified, would he unduly burdensome or would not achieve the purpose for which the rules were made".
The second qualification is that the authority must be satisfied that:
"the direction would not result in undue risk to persons whose interests the rules are intended to protect".
The first qualification is a severe limitation on the ability of the authority to make use of the power of modification. It is likely that circumstances where rules would be unduly burdensome or would not achieve the purpose for which the rules were made would be rather rare. It is in a case such as this where some flexibility would be most desirable. This amendment seeks to remove the first qualification, with the result that Clause 139(4) provides that the authority may only give a direction if it is satisfied that the direction would not result in undue risk to persons whose interests the rules are intended to protect.
It is also worth noting that there are further safeguards in that under Clause 139(5) "a direction may be given subject to conditions", and the authority may also, under Clause 139(6), publish the direction in a way most suitable for bringing the direction to the attention of those most likely to be affected by it.
I turn to Amendment No. 231A which relates to Clause 148. Clause 148 relates to guidance. This amendment would ensure that an authorised person who acts in accordance with guidance is treated as satisfying the requirements of the relevant rule. The purpose of the amendment, principally, is not to forestall the authority bringing an action itself, but to prevent investors claiming that a firm has none the less contravened the rule and accordingly has brought an action for damages under Clause 141.
The issue of guidance is extremely important for the Opposition. As the Minister will be aware, one of the most important uncertainties in the field of action of the firm in the City is regulatory uncertainty. We believe that this uncertainty would be substantially reduced by a rule that stated that if an authorised person acted consistently with guidance it would make that person immune, not only from action by the FSA but also by action from a private party.
We recognise that the Minister might be reluctant to give us such a sweeping exemption. However, there is another way that this problem can be largely, if not entirely, met. That is by the authority being prepared to give specific guidance in instances where it is asked for. For example, a financial institution may, in innovatory mode, have a new way of approaching a problem which would create business not only for itself, but for the United Kingdom abroad.
If the financial institution comes to the authority and says, "I am not sure whether this complies", surely it must be in the interest of the authority to give clear

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guidance on whether it complies or not? What possible reason could the authority have for denying help in these circumstances? Yet, as I understand it, in another place, the Government was most reluctant to provide guidance in these circumstances.
Earlier on in Committee stage I made the statement that there seemed to me to be circumstances in which regulatory risk was a bigger risk for an operator in the City than the risk provided by the markets in which that operator conducted his business. I well remember a groan emitting from the Government benches.
This is the correct context in which to make that point again. The Government have a clear opportunity to make a statement now that if an authorised firm, operating in the market, complies with general guidance, it will be immune from suit. Or, alternatively, that to provide for an authorised firm that seeks the authority's help to decide whether or not what it is about to do might breach the law, the Government will introduce a clause in the Bill which requires the authority, within a reasonable time, to react positively to such a request. I beg to move.
Lord McIntosh of Haringey: We have had some difficulty in understanding these amendments because they are mutually contradictory. Amendment No. 230H deletes subsection (4)(a), which provides that the authority may not give a direction unless it is satisfied that:
"compliance by the authorised person with the rules, or with the rules as unmodified, would he unduly burdensome or would not achieve the purpose for which the rules were made".
But Amendments Nos. 230J and 230K, which would be pre-empted if 230H were carried, add an additional limb to the test. An authority may give a direction if it is satisfied that the purpose for which the rules are made can be achieved in a different manner from those specified in the rules.
Taking those amendments together, it is difficult to work out which is the one I have to reply to, whether we are being asked to delete subsection (4)(a) or simply expand it by adding the third criterion. I shall assume for the purpose of this debate that the noble Lords are advocating the deletion of paragraph (a) with the insertion of an additional test. I will first argue against the deletion of paragraph (a) and then I will argue against the additional test. That should cover the ground.
With regard to deleting paragraph (a), no one appears to disagree that the rules should not be waived, if the effect of the waiver would be to bring undue risks to the interests of consumers. We think this is not enough. Where a rule can be disapplied—remember we are talking about waiving rules, disapplying rules, not imposing them—without damaging consumer interests, a question might arise that the FSA should be looking at whether the rule as a whole is justified. The use of the waiver power is envisaged in circumstances where the rule has a particular exceptional effect on a particular authorised person. So it should be incumbent on the applicant to demonstrate the effect that compliance with an FSA
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rule would have on him. This is the purpose of putting in paragraph (a) which it is proposed should be deleted, and which we think should not be deleted.
Moving on to the additional test proposed by the noble Lord, Amendments Nos. 230J and 230K provide that the authority may only grant a waiver or modification where it is satisfied that:
"the purpose for which the rules were made can be achieved in a different manner than as specified in the rules".
As I have already said, it is unclear whether this is intended as an alternative to the tests already mentioned or to replace them. Either way, I must argue against them. It is not enough to know that the purpose of the rule can be achieved in some other way. The SFA would need to know that as a matter of fact the effect was being achieved by some other means; for example, that the firm was committed to not taking action of a particular kind. It is difficult to see that the authorised person would be unable to demonstrate that the rule was not either unduly burdensome or not achieving the intended effect.
It should be said that while the onus is on the applicant to show that the criteria set out in subsection (4) have been met, the FSA has said in its policy statement, the FSA's approach to giving guidance and waiver to firms in September of last year that:
"It will apply its general requirements in a way that allows them to be tailored to fit the circumstances of particular firms in accordance with its commitment to a flexible and differentiated risk-based approach".
It should be mentioned that the waiver power in Clause 139 is wider than that in the Financial Services Act 1986 in a number of respects. It covers a wider range of issues, including for the first time cancellation rules and collective investment scheme regulations. The purpose for which the rules were made test is new, a test that will be given proper weight when considering applications for waivers. Therefore, we believe subsection (4) should contain two limbs. These have already been correctly framed in the clause as it stands.
On the issue of whether the guidance can be relied on by an authorised person as a defence for a claim for damages under Clause 141—to which the noble Lord, Lord Kingsland, referred at the opening of his speech—there is a difficulty. There is a balance to be struck between fairness to the authorised person who has done what he is told and the private person who may be deprived of a right of action that he would otherwise have. The difficulty is that if a person who has complied with the guidance is let off an action for breach of statutory duty, this has the effect of allowing the guidance to override the rule. Whether that is right in policy terms is difficult to know. But while there is this difficult balance, we think that it is important to preserve the principle that third parties, in particular, private investors, should not lose the opportunity for redress where they suffer from a breach of the law.

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The noble Lord asked whether there should not be a requirement to give guidance in certain cases. In paragraph 246 of its first report the Joint Committee recommended that,
"a requirement would be an unreasonable burden and a restriction on its freedom of action".
Our response to the noble Lord, following the Joint Committee's report, has to be negative.
6.30 p.m.
Lord Donaldson of Lymington: Perhaps I may join in this party because I met all of this in the late 1960s when the Imperial Tobacco Company came to the commercial court—I may have the details wrong—and said, "Can we lawfully run a lottery?" We went into this and I gave a judgment saying that it could. I was overruled by the Court of Appeal on the basis that it was not for the civil courts to tell people what did and did not constitute a criminal offence. I am not arguing about whether it was right in law, but I think that it was quite wrong in policy.
It must be wrong if, where there is some question as to whether one is committing a criminal offence, one cannot go to some court and say, "Look, can I do this?" If someone is told that he can do it, he must receive protection. The Minister suggested that that meant that the advice was modifying the rule. With respect, I do not agree. The Financial Services Authority is being asked to tell the person operating the market what the rule provides. If it gets it wrong, that is a pity. But there is certainly no reason why the operator—the merchant—should suffer. The FSA is not saying, "There will be a different rule for you". But if it is are saying, "It is a different rule for you", and is prepared to justify it, the new rule or different rule ought to be accepted by the trader without there being any risk on his behalf.
The Financial Services Authority is immensely powerful, immensely learned and immensely well advised. It is very highly experienced. We are entrusting it with discretionary powers. But the one thing we ought not to do is to give it a discretionary power to say, "If you use this power, you may not protect people who act on the basis of it".
I turn to much more modern times. About a year ago I heard on television a member of the other place, not acting in his parliamentary capacity, complaining bitterly that in some activity—I imagine it was agricultural—he had gone to the Environment Agency to ask for advice on what he should do. He did it and the agency promptly prosecuted him. I do not for one moment suggest that those were the actual facts, but I was horrified on the basis that those were the facts. As I understand the Minister, he would be prepared to accept a situation in which the same facts could occur in the financial context. I hope that he will not.
Lord Jenkin of Roding: Perhaps I may intervene for a moment. When I read Amendment No. 231A, I thought to myself, "That sounds very reasonable". I listened to my noble friend on the Front Bench and it still sounded fairly reasonable. I was reminded of the
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provisions that used to work in the field of what was called surtax or super tax. The taxpayer could apply to the commissioners for a clearance against a direction that he had to distribute so much of his profits, which would then attract taxation in the hands of the shareholders. There started to be an informal procedure whereby the taxpayer could get in touch with the commissioners and could be given a clearance that if he distributed so much the commissioners would not make a surtax direction on him. That eventually became statutory. Happily, it was eventually abolished altogether. It was a very oppressive piece of legislation for private companies.
I thought to myself, "What my noble friend is moving in Amendment No. 231A is equivalent to the surtax clearance procedure". However, on reflection, I have to say that the Minister is right. There is a third party. There is the client or customer. If a clearance were given by guidance which allowed the authorised person not to comply with particular rules, where would that leave the customer? In theory, he should be able to sue the authority. But, of course, on provisions we have already discussed, he cannot. The authority has immunity in that respect.
Therefore, as a consequence of the immunity—I totally understand the reasons for the immunity—a customer might suffer quite substantial loss because, inadvertently, the waiver of the rules produced that result. With the greatest respect to my noble friend, if he seeks to take the opinion of the Committee on that amendment, I shall he unable to support him.
Lord McIntosh of Haringey: I am grateful to the noble Lord, Lord Jenkin, for his unexpected support. When the noble and learned Lord, Lord Donaldson, was dealing with these matters in the commercial court in the 1960s I do not know whether the concept of guidance was as common as it is now. There is also the relationship between guidance and rules. 1 know that in my business —the market research business—we had a code of conduct which was in two parts. There were rules. If one broke the rules, one could he kicked out of the society. There was also good practice. If one did not adhere to good practice, one might be required to put it right; there might be lesser requirements, but they were not hanging offences. What the noble and learned Lord, Lord Donaldson, and the noble Lord, Lord Kingsland, are suggesting is that the FSA should simply tell the authorised person what the rule provides. But that would have the effect that the guidance would take precedence over the rule. It would mean that what the authority says the rule will mean will be the law, instead of what the rule actually says.
The rule surely has to take precedence over the authority's interpretation of it. The whole principle on which the Bill is based is the accountability of the authority in many different ways. One of the ways in which it is accountable is in the framing of rules. If it does that wrong, the authority is in trouble. But if it

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can simply interpret rules as it wishes to suit needs, even at the request of an authorised person, one loses the effect of the rule-making powers.
Lord Kingsland: This seems to be the world of Alice in Wonderland. The authority issues guidance to the authorised community; a member of the authorised community faithfully follows it; and as a result of doing so he exposes himself not only to an action by a private party but also to the authority itself, even though it is what the authority has told the authorised party to do. That cannot be right.
Lord McIntosh of Haringey: We are talking about a waiver here. The amendments would provide that a person who has complied with guidance would be let off an action for breach of statutory duty. It is the other way round.
Lord Kingsland: I am talking about my Amendment No. 231A and the shelter the guidance ought to give someone if he complies with it. I adopt wholly the speech of the noble and learned Lord, Lord Donaldson, in that respect. As he said, the authority has huge discretionary powers. If it chooses to exercise its discretionary power in a certain way and the authorised party follows the exercise of that discretionary power, that party ought not to be vulnerable.
Lord McIntosh of Haringey: I must agree to disagree. I shall think about the noble Lord's point and, without any commitment, I shall attempt to resolve the matter so that there is not a misunderstanding between us and write to him between now and Report stage.
Lord Donaldson of Lymington: While the Minister is thinking about these matters, will he think also about a confusion that has been creeping in to the discussion? I refer to the difference between "guidance" and "waiver". Noble Lords have spoken as though a waiver made by a rule-making authority were an indication that someone could by-pass the rules. I do not think that that is quite the right analysis. It is a rule-making authority that will give the waiver—perhaps "waiver" is the wrong word. The authority will modify the rule in that case, rather as the Takeover Panel has always done.
Lord McIntosh of Haringey: I have been waking up at a quarter-to-four in the morning thinking about these matters. I shall go on doing so, and I shall write to the noble and learned Lord.
Lord Kingsland: With respect to the Minister, the noble and learned Lord's intervention is pertinent. On what other basis were the amendments grouped?
Lord McIntosh of Haringey: It was the noble Lord, Lord Kingsland, who agreed to the grouping. We
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thought that we had grouped them together because they all dealt with conditions under which waivers could be applied.
Perhaps I may say a further word about guidance. The noble Lord, Lord Kingsland, raised this matter when we were talking about market abuse. He spoke about SEC no-action letters. No-action letters are non-binding. So long as a person has acted within current written guidance issued to him in the circumstances contemplated by the guidance the FSA will not take regulatory action against him. That was reflected in the September 1999 policy statement, to which I have already referred, on the FSA's approach to giving guidance and waivers to firms.
Similarly, where matters are referred to the tribunal, the authority's chances of successfully bringing an enforcement action in relation to a person who has fully complied with guidance must be seen as pretty low. In criminal proceedings, Clause 22 of the Bill provides that it is a defence for an accused to show in relation to an alleged false claim to be authorised or exempt that,
"he took all reasonable precautions and exercised all due diligence".
Under Clause 23, in relation to an alleged breach of the financial promotion prohibition it is a defence for the accused to show,
"that he took all reasonable precautions and exercised all due diligence to avoid committing the offence".
Both defences may well focus on reliance on FSA guidance.
But the Bill does not just provide for FSA guidance. Clause 139 provides the FSA with waiver powers in relation to all or any of the rules specified in Clause 139. Once a waiver has been given, the FSA will not be able to take action for breach of a particular rule if someone has acted in accordance with the waiver. This supplements the guidance provisions under the Bill, ensuring that authorised persons are treated fairly.
In simple terms, a "waiver" means that the rule is disapplied or modified; and that has binding effect. "Guidance" is the interpretation of a rule to assist the firm; and that is not binding. We shall have to think about the different words, some of which, I admit, are not used in their normal common parlance sense. As I say, I shall wake up in the early hours of the morning, and when I have done so I shall write to all noble Lords who have taken part in the debates.
Lord Kingsland: Meanwhile, I shall console the Minister by begging leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 230J and 230K not moved.]
Clause 139, as amended, agreed to.
Clause 140 agreed to.
Clause 141 [Actions for damages]:
Lord McIntosh of Haringeymoved Amendment No. 231:
Page 66, line 35, after ("include") insert ("—

(a) listing rules or

b)")

The noble Lord said: I spoke to this amendment with Amendment No. 180. I beg to move.
On Question, amendment agreed to.
[Amendment No. 231XA not moved.]
Clause 141, as amended, agreed to.
Clauses 142 to 145 agreed to.
Clause 146 [Consultation]:
Lord Saatchimoved Amendment No. 231YA:
Page 65, line 6, after ("2;') insert—
("( ) a statement of the extent to which the Authority has taken into account the matters in section 2(3) in making the proposed rules;").
The noble Lord said: In moving this amendment, I shall speak also to Amendment No. 231ZA. The Committee will note that, in addressing Amendment No. 231YA, I shall follow the path of the noble Baroness, Lady Turner, in wanting to see spelt out on the face of the Bill for the absence of doubt a matter that I in my case and the noble Baroness in her case think is of great importance.
The background to the amendment is that Clause 146 requires the FSA to carry out a consultation exercise where it proposes to make any rules. The consultation procedure is defined in the clause. First, a draft copy of the rules must be published; then, together with the rules, there will also be published a cost-benefit analysis and certain other items referred to in subsection (2).
The amendment adds a further item to the list in Clause 146(2) of items that would be published with a draft copy of the rules. The additional item that we propose is a statement showing the extent to which the FSA has taken into account the provision in Clause 146(3) in making the proposed rules. Members of the Committee will remember that Clause 2(3) requires the FSA, when discharging its general functions—which include the function of making rules—to have regard to the matters described in Clause 2(3). Among those provisions it is stated that the global nature of the financial services market and the desirability of maintaining the competitive position of the UK should be considered and regard should be paid to them. Therefore, the purpose of the amendment is to require the FSA to focus on its obligations under Clause 2(3) by producing the form of statement described in the amendment.
Amendment No. 231ZA deals with the point that the FSA's obligation to consult on the rules referred to in Clause 146 presently applies only to new rules made after the coming into force of the legislation. However, the Government are expected to introduce a series of transitional provisions which will "grandfather" a significant number of existing rules which will be carried forward under a new regime. If that is so, the
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cost-benefit analysis requirement will not apply to those grandfather rules. Therefore, the purpose of our amendment is to require the FSA to review all the rules made by it within a proposed period of three years after they have been made to determine whether they indeed serve the purpose for which they were made in the first place.
If the FSA concludes that the rules should be changed in a way which is in its opinion "significant", the FSA will be obliged to make new rules to which the consultation provisions of Clause 146 will apply. However, where the FSA concludes that the rules should be approved in the form then in force, or in a form which does not differ very much from those rules, it will nevertheless be obliged to carry out a consultation exercise on the rules and issue a cost-benefit analysis.
The effect of our amendments is that the FSA will be under a continuous obligation to review its rules, carry out consultation exercises and issue cost-benefit analyses, with the result that no rules will exist which are not kept up to date and tested on a regular basis against the discipline of a cost-benefit analysis.
Members on these Benches have referred on many occasions to the importance that we attach to people's concerns that the Bill has the potential to create bureaucracy and stifle competition. That is why the amendments are important to us. They mean that competition will be raised to a higher level, as we have sought to do in other parts of the Bill, and that redundant rules will die an early and timely death. I beg to move.
The Deputy Chairman of Committees: I must inform the Committee that there is a misprint in Amendment No. 231ZA. In subsection (2), "section 129" should read "section 146".
Lord Newby: While I agree with what the noble Lord, Lord Saatchi, seeks to achieve in Amendment No. 231YA, I believe that the amendment is unnecessary. Clause 146(2)(c) already requires the authority to explain why it believes that the rules that it makes are compatible with its general duties under Clause 2. By definition, that includes Clause 2(3) which is referred to in the amendment.
As to Amendment No. 231ZA, I have some sympathy with the idea that there should be a trigger whereby rules can be revised. There is always a danger that one piles rules upon rules, and one must have a trigger to review the process. However, I believe that the amendment as set out is unduly prescriptive. It requires every set of rules to be reviewed within three years, which presumably means that the review must be completed in that period. Presumably, the purpose of the amendment is that, having been reviewed within three years, the rules should be further reviewed with; n another three years. That seems to us to be unduly prescriptive. What is required is a situation in which it is relatively easy to require the authority to amend the rules either because the circumstances to which they apply have demonstrably changed or there have been complaints about them. Arguably, that can already be

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achieved under the Bill either by the practitioner or consumer panel expressing a view or the Treasury itself ordering a review under Clause 10, although one suspects that the latter would be to use a sledgehammer to crack a nut. I should be grateful for guidance from the Minister as to whether under the Bill as drafted it is easy for such a review to be triggered by external pressure on the authority.
I conclude with a question to the Minister and perhaps also to the noble Lord who moved the amendment. I believe that this is the first time in the Bill that the authority is required to justify its conclusions by reference in part to the publication of a cost-benefit analysis. Like motherhood and apple pie, that is one of those sentiments which sounds very good on paper, but one wonders to whom the cost and the benefit are to be applied. Who will bear the cost and who is to benefit? We have assumed that the cost will be borne by the body to be regulated and that the consumer will benefit, but we should welcome clarification on that. We should also welcome clarification on how the benefit of the rules can be quantified given that in many cases their purpose is to prevent an abuse. One can draft a paragraph and claim that it is a cost-benefit analysis which shows that the benefit is that the consumer is spared a particular abuse. That may represent potentially a huge sum compared with the relatively modest costs to the firms involved and, therefore, it may be a sensible precaution. However, one doubts whether a cost-benefit analysis often achieves the claims that are made for it.
Lord McIntosh of Haringey: The first amendment is to Clause 146 which sets out the FSA's consultation requirements when it wishes to make any rules. Those requirements were expanded and made more detailed during the passage of the Bill through the Commons. I am pleased to see that the requirements are so extensive that noble Lords opposite have drawn on the wording of new Clause 146 in framing the second amendment in this group. The effect of the amendment is to require the FSA before making a rule to issue a statement of the extent to which it has taken into account the principles—proportionality, facilitating competition and so on—to which it must have regard in discharging its functions.
There is a technical problem with the amendment—I do not make too much of it—in that it requires the FSA to take into account the principles. Clause 2 requires the FSA to have regard to the principles, not to take them into account. Therefore, it is, strictly speaking, incompatible with the requirement in Clause 2.
Fortunately, the noble Lord, Lord Newby, said it first. I support the thinking behind the amendment but believe that it is unnecessary. That is the mantra that we use in these circumstances. Clause 146(2)(c) requires the FSA when making a rule to provide an explanation of why it is compatible with its general duties under Clause 2. That clause sets out the FSA's general duties. The principles to which it must have regard are part of that clause. Therefore, the FSA is
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already required to explain why the rule is compatible with those principles. For that reason, we do not believe that the amendment is necessary.
Amendment No. 231ZA requires the FSA to review each and every one of its rules three years after it is made. It also requires the authority to publish a cost-benefit analysis and effectively to consult on each one every three years. I appreciate that the purpose behind the amendment is to ensure that the authority regularly reviews its rules, and that where the rules are no longer appropriate they should be changed. I agree that there should be regular review and I expect the FSA to monitor the application and implications of its rules on an ongoing basis, not just every three years; but to require the FSA to go through a public consultation exercise on each and every rule every three years is unnecessary.
In addition to the FSA's own review, the consumer and practitioner panels will play an important role in monitoring the rules on an ongoing basis. To require the FSA constantly to monitor its rules would also be administratively onerous. The noble Lord, Lord Saatchi, said that this would be a continuous obligation on the authority, and he referred to the potential to create bureaucracy. The potential to create bureaucracy is created precisely by this amendment. The amendment would place a huge strain on the authority and divert time and money away from its proper business—regulating—but it would also have knock-on effects on the regulated community and consumers. The regulated community would have to pay the costs of the review and consultation, and consumers would have to put up with the disruption involved. I fear that the effect of the amendment would be the reverse of the very admirable sentiments which the noble Lord, Lord Saatchi, expressed.
In relation to reviews under Clause 10, which was a matter touched on by the noble Lord, Lord Newby, normally they could not be triggered by outsiders unless the effect of a rule was to lead to a major regulatory upset. However, it is open to the Director-General of Fair Trading to report at any time on the competition implications of the rules, and we shall turn to that matter in a few moments.
The noble Lord, Lord Newby, also asked about the quantification of cost-benefit analyses. We have deliberately refrained from specifying the methodology of cost-benefit analyses. As the noble Lord suggests, it is rather akin to motherhood and apple pie. Those who conduct such analyses, such as the consultancy divisions of some major accountancy firms, frequently change their methodologies because a good number of them do not work. (Perhaps I should not have said that!) We do not believe that we should prescribe details of that kind in a Bill which must survive for a number of years to come. I am sorry to be discouraging about the wording of the amendments and the way in which they would operate because the original thinking behind them is very sound.
Lord Jenkin of Roding: I do not believe that the Minister has met the point raised by my noble friend and the noble Lord, Lord Newby. What appears to be missing is some way in which the practitioner community can compel the authority to review rules. Yes, the panel can make its report. We have discussed all the provisions for that. But one can envisage that an authority with these powers and the substantial domination that it will inevitably exercise will simply say, "We'll get round to it some time". The practitioner community—it might be the consumers might say, "You really should review your rules; they are not working correctly". There should be some provision which could ultimately be justiciable.
That is what my noble friend seeks. The Minister has not replied. It is hot a Clause 10 situation. I think that the phrase used is "a sledgehammer to crack a nut", but what else do we have? There needs to be some provision.
7 p.m.
Lord Elton: I support my noble friend Lord Jenkin of Roding. We have been reminded that there are bodies outside the authority which can review it or require it to review. But surely there needs to be some internal duty on the authority to maintain a regulatory system that is efficient. That may sound like befriending the practitioner at the expense of the client. But in fact the public who use the financial services in this country will be properly served only if the regulation of those services is not only effective but also efficient.
We have seen how enormously burdensome regulations can be on what we now call authorised persons if there is no satisfactory link between them and the bodies which regulate them. From time to time they thought that regulators had ears that did not work. That is why I was moved earlier to press for an effective mechanism within the practitioner panel for bringing the needs of the practitioner to the notice of the Financial Services Authority. I express badly the same fears to which other noble Lords around the Chamber have referred. The danger is that the FSA may believe that its mechanism is working wonderfully and is intellectually sound and criminologically faultless but it may cost so much to run that it will drive people out of business. The people then to suffer will be the consumers.
Lord McIntosh of Haringey: That is exactly why we have practitioner and consumer panels. Noble Lords are pushing in different directions. The noble Lord, Lord Newby, was satisfied that there was enough internal pressure in the FSA to make it review its own rules. His question was: what external pressure was there; and under what circumstances could external pressure be triggered? The noble Lord, Lord Elton, is now worried about the lack of internal pressure on a self-satisfied financial services authority which thinks that its rules are marvellous and does not want to consider changing them.
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That is exactly why we have the consumer and practitioner panels. They are set up to do exactly that job. Their chairmen have to be approved by the Treasury, so they have a sufficient level of independence to provide the external trigger. At the same time they are enough within the FSA to understand the issues and developments taking place within the regulation of financial markets and financial services in order to ensure that they are capable of making a well informed and rapid response to difficulties which arise. They are available both to the financial community and to consumers to do exactly the job for which noble Lords call.
I repeat this. There are adequate external constraints on rule making. The FSA needs to comply with its general duties, objectives and principles, as we debated at length on the first day in Committee, which will require the FSA in practice to keep under review all its operations. The panels will no doubt bring pressure to bear. Surely that is what we have been debating earlier in Committee. Surely that is the proper answer to the issues raised by the amendments.
Lord Saatchi: I am grateful to my noble friends for making somewhat better than I did the point I sought to make. Having listened to the Minister I am even more of the belief that we should test the opinion of the Committee on this matter.
I agree that these amendments would place an onerous obligation on the FSA to carry out these cost benefit analyses at regular intervals; and that the FSA would not enjoy that very much. That is exactly the point. If the amendments serve as a deterrent to excessive rule making and if a burden had to be fulfilled every time a rule was made, we should regard that as a benefit to the working of the FSA.
The second amendment seeks to raise competition to a higher level. As the noble Lord, Lord Newby, and the Minister said, that matter can arguably be dealt with in other parts of the Bill. However, we regard the raising up of the competition objective and the des, re to maintain the competitiveness of the UK at every opportunity as a benefit. Therefore I should like to test the opinion of the Committee. I commend the amendment.
7.7 p.m.
On Question, Whether the said amendment (No. 231YA) shall be agreed to?
Their Lordships divided: Contents, 46; Not-Contents, 112.

Division No. 2

CONTENTS

Astor of Hever, L.

Cope of Berkeley, L.

Attlee, E.

Crathorne, L.

Blackwell, L.

Dean of Harptree, L

Blatch. B.

Denham. L.

Boardman, L.

Elton, L.

Brigstocke, B.

Ferrers, E.

Carnegy of Lour, B.

Flather, B.

Colwyn. L.

Fookes, B.

569

Gardner of Parkes, B.

Montagu of Beaulieu, L.

Goschen, V.

Montrose, D.

Haslam, L.

Northbrook, L.

Henley, L. [Teller]

Northesk, E.

Home, E.

Onslow, E.

Jenkin of Roding, L.

Park of Monmouth, B.

Jopling, L.

Pilkington of Oxenford, L.

Kingsland, L.

Rees,L.

Luke, L. [Teller]

Renton, L.

Mackay of Ardbrecknish, L.

Roberts of Conwy, L.

Marlesford. L.

Rotherwick, L.

Masham of Ilton, B.

Saatchi, L.

Miller of Hendon,B.

Seccombe, B.

Monro of Langholm, L.

Tugendhat, L.

Monson, L.

Vivian, L.

NOT-CONTENTS

Addington, L.

Jay of Paddington, B. (Lord Privy Seat)

Ahmed, L.

Alli.L.

Jeger, B.

Amos, B.

Jenkins of Putney, L.

Archer of Sandwell, L.

Judd,L.

Ashton of Upholland,B.

Kennedy of The Shaws, B.

Avebury, L.

Kirkhill,L.

Bach, L.

Lea of Crondall, L.

Bassam of Brighton, L.

Levy, L.

Bragg, L.

Lipsey, L.

Brooke of Alverthorpe, L.

Lockwood, B.

Brookman, L.

Lofthouse of Pontefract, L.

Brooks of Tremorfa, L.

Mclntosh of Haringey, L.

Burlison, L.

McIntosh of Hudnall,B.

Carlile of Berriew, L.

MacKenzie of Culkein, L.

Carter, L. [Teller]

Mackenzie of Framwellgate, L

Christopher, L.

Mackie of Benshie, L.

Clarke of Hampstead, L.

Maddock, B.

Crawley, B.

Mallalieu, B.

David, B.

Mason of Barnsley, L.

Davies of Coity, L.

Massey of Darwen, B.

Davies of Oldham, L.

Merlyn-Rees, L.

Dean of Thornton-le-Fylde, B.

Milner of Leeds, L.

Desai, L.

Morris of Castle Morris, L.

Dixon. L.

Murray of Epping Forest, L.

Donoughue. L.

Newby, L.

Dormand of Easington, L.

Orme, L.

Dubs, L.

Patel of Blackburn, L.

Elder, L.

Paul, L.

Evans of Parkside, L.

Phillips of Sudbury.L.

Fvans of WatforH L.

Pitkeathley, B.

Farrington of Ribbleton, B [Teller]

Plant of Highfield,L.

Ramsay of Cartvale, B.

Faulkner of Worcester, L.

Rea, L.

Filkin, L.

Rendell of Babergh,B.

Rennard, L

Gale. B.

Richard, L.

Gavron, L.

Scotland of Asthal, B.

Gilbert, L.

Sharman, L.

Gordon of Strathblane, L.

Sharp of Guildford, B.

Goudie, B.

Simon, V.

Gould of Potternewton, B.

Stoddart of Swindon, L.

Grabiner, L.

Stone of Blackheath, L.

Hardy of Wath,L.

Symons of Vernham Dean, B.

Harris of Haringey. L.

Taylor of Blackburn, L.

Harrison, L.

Thomas of Gresford, L.

Haskel, L.

Thornton, B.

Hilton of Eggardon, B.

Tomlinson, L.

Hollis of Heigham, B.

Turner of Camden, B.

Holme of Cheltenham, L.

Walker of Doncaster, L.

Howie of Troon, L.

Warner, L.

Hoyle, L.

Whitaker, B.

Hughes of Woodside, L.

Whitty, L.

Hunt of Kings Heath, L.

Wilkins, B.

Irvine of Lairg, L. (Lord Chancellor)

Williams of Elvel,L.

Woolmer of Leeds, L.

Islwyn. L.

Young of Dartington, L.

Janner of Braunstone, L.

Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.
7.17 p.m.
Clause 146 agreed to.
[Amendment No. 231ZA not moved.]
Clause 147 agreed to.
Clause 148 [Guidance]:
[Amendment No. 231A not moved.]
Clause 148 agreed to.
Clause 149 agreed to.
Clause 150 [Interpretation]:
Lord McIntosh of Haringeymoved Amendment No. 232:
Page 70, line 22, leave out paragraph (c).
The noble Lord said: Chapter III of Part X is concerned with the external competition scrutiny arrangements for the FSA. In earlier debates, I made it clear how much importance the Government attach to ensuring that the FSA gives the right weight to competition concerns. Getting the competition framework right is one of the main planks of economic growth and prosperity. But so is regulation. Without regulation there would be less investment and I do not need to spell out the adverse consequences of that. Consumers, both individually and as a whole, need to have confidence in the fairness and soundness of those with whom they deal if they are going to be willing to entrust their money to them.
The key to maximising welfare is ensuring that the level of regulation, and therefore the level of competition, is set at the right level; neither too much, nor too little. There are two ways in which that is achieved in the Bill. First, there are the internal constraints on the FSA and we have debated those. Most obviously, there are the constraints set out in the objectives and in Clause 2(3). Among those, as Members of the Committee will know, is the requirement in Clause 2(3)(f) for the FSA to have regard to the need to minimise the adverse effects on competition that may arise from any exercise of its general functions.
However, that is not all. The other matters in Clause 2(3) also act as constraints on over-regulation. There are procedural checks as well. I could single out the requirements that are placed on the FSA to consult on its regulatory provisions—rules, guidance and so on—and produce a cost benefit analysis (I can say that safely in the absence of the noble Lord, Lord Newby) which will have to look at the wider economic costs of the proposed rule or rules and not only at the direct costs for regulated persons.
In addition, we shall ask the FSA to produce an analysis in its annual report on the effect of its regulatory provisions on competition in the financial services markets. We want the FSA to take competition concerns very seriously indeed. Those are the internal constraints. Secondly, there are the arrangements for external oversight by the competition authorities. That is what this chapter of Part X is concerned with.

571
Let us look at the special nature of this regime. If it was not there, there would be no competition scrutiny of FSA rules and practices. Statutory rules are not covered by general domestic or European competition law. We do not claim the credit for that. It was brought in by the Financial Services Act 1986. However, we have extended it to cover all the sectors which will be regulated by the FSA. That means that, for the first time, there will be competition scrutiny of rules to cover insurance companies, friendly societies, building societies and banks.
Furthermore, not only does the Bill include a competition regime for the FSA as regulator, it will also include similar regimes which cover the rules and practices of recognised exchanges and clearing houses and, for the first time, the competent authority for listing securities. Those arrangements are intended to be along broadly the same lines as those for the FSA, and we shall bring forward amendments to achieve that in due course.
Not only do the external scrutiny arrangements mean that matters can be put right where the FSA does not get them right, but their very existence will work to reinforce the provisions which the Bill applies directly to the FSA. It will be mindful that if it does not get the balance right between competition and regulation, it will run into trouble.
We have also made a number of improvements to the way that the arrangements work in the light of Don Cruickshank's interim report on banking services in the UK. The main change is that the Competition Commission will play a very significant role in the process. Rather than Ministers taking the final decision on whet her regulatory provisions or practices have a significantly adverse effect on competition, that decision will be for the Competition Commission under the Bill. Where the commission finds that regulating provisions or practices have that effect—that is, an adverse effect on competition—it will have to come to a conclusion as to whether that effect is justified. In other words, it will balance the interests of competition against regulation and reach a view on whether the FSA got it right. Treasury Ministers came to a conclusion in this respect under the Financial Services Act 1986.
If the commission believes that the adverse effect is not justified, then the Treasury will have to direct the FSA to make changes. The only time that that does not apply is where the Treasury considers that there are exceptional circumstances which make it inappropriate or unnecessary to direct the FSA. The Bill does not spell out what those might be; we cannot predict them in advance. However, for example, it might be the need to meet the UK's international obligations.
The amendments which we propose make some further improvements to those made in another place. Amendments Nos. 232 and 233 provide necessary "tidying up". At present, the definition of regulatory provisions in Clause 150(1)(c) refers to guidance issued under Section 69. There is no guidance issued under that section. Therefore, Amendment No. 232 deletes subsection (c).
572
Amendment No. 233 deletes subsection (e). That subsection includes in the definition of regulating provisions in Clause 150(1) the FSA policy statements on the imposition and amount of penalties. However, such statements bite on the FSA itself; they do not require anyone else to do anything and, therefore, there is no need to cover them in this definition. The important matter is what the FSA requires or encourages people to do through rules, guidance or statements of conduct and what it does itself. Those issues are covered by the reference to regulating provisions, as amended by Amendments Nos. 50 and 51, and by the reference to practices in Clause 150(1).
Amendment No. 233A makes a change to the language used to describe what the competition authorities—that is, the Director-General of Fair Trading and the Competition Commission—should be examining. At present, Clause 150 uses language which mirrors that in the Competition Act, which itself mirrors that in Article 81 of the European Treaty. When we looked at that clause, we considered that it was not appropriate. That legislation is concerned with the anti-competitive practices of commercial undertakings, not with statutory bodies.
If we were to keep the current wording, there would be a danger that it might attract the European Court of Justice jurisprudence. That is particularly the case now that the Competition Act, which imports the treaty test into domestic law, has been enacted. That has never been our intention and there are two reasons why it concerns us. First, the jurisprudence has developed in the context of commercial undertakings. There is always a risk that this would have unforeseen, and possibly unwelcome, consequences if applied in a different context.
Secondly, we do not want the external competition scrutiny arrangements to turn on the legal issues. While that may be appropriate under the Competition Act regime, where penalties can be imposed and legal certainty is essential, here we are dealing with questions of judgment rather than law. The key question that we want the competition regulators to address is whether the FSA, in discharging its general duties, has struck the right balance between competition and regulation. The answer to that should turn more on economic than legal arguments.
That is why we are using the reporting side of the Competition Commission rather than the appeal side. It is the reporting side of the commission which considers mergers where the issues are similarly economic ones rather than legal ones. Therefore, Amendment No. 233A moves away from the Competition Act language and refers to adverse effects on competition. That is a broad term which is readily understandable and which picks up the language used in the principle in Clause 2(3)(f), which has been agreed.
In addition, this amendment allows the competition authorities to look at the regulating provisions or practices of the FSA which require or encourage people—perhaps for a good reason which I shall explain in a moment—to exploit strong market

573
positions. In most cases where someone exploits a strong market position there will also be an adverse effect on competition, but that is not always the case. The change simply ensures that the coverage is complete.
The other amendments in this group simply make consequential changes, replacing references to significant anti-competitive effects, as currently defined in Clause 150(2), with references to significantly adverse effects on competition, as defined in this amendment. However, I am grateful to noble Lords for spotting an error in Clause 154 where the reference should indeed be to Clause 153(2). That is dealt with in opposition Amendment No. 234L. However, since the effect of my Amendment No. 234K is to amend that subsection, I am afraid that I am denied the pleasure of accepting it.
However, I am not so grateful for Amendment No. 233B, the effect of which would include in the definition of anti-competitive effect things which prejudice the competitive position of the United Kingdom. There can be no doubt about the importance of the FSA having regard to the competitive position of the United Kingdom. That is why we have included such a provision in Clause 2(3). That requires the FSA to have regard to,
"the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom".
Although I have sympathy with the aim which underlies Amendment No. 233B, there is no need for it. It would be unnecessary.
If the FSA were to regulate in an anti-competitive way, it would undoubtedly impact on the competitive position of the UK, given the level of competitiveness in the global market place for financial services. However, there is no need to spell that out here. There is also a more specific point. The whole purpose of this section is to bring to bear the expertise of the competition authorities—that is, the OFT and the Competition Commission—on matters covered by Clause 2(3)(f). That expertise is not directly relevant to the other principles covered by Clause 2(3)(a) to (e). That does not in any way diminish their importance to the FSA. However, it means that there will not be a role for outside agencies to assist in taking account of those principles in the same way as there is for competition. I beg to move.
Lord Elton: Before the noble Lord sits down, perhaps I may ask whether I heard him aright, or is it the case that it is Amendment No. 234K in which the reference to Clause 154(2) should be Clause 153(2)? I believed that I heard him say that it was in Amendment No. 234L.
Lord McIntosh of Haringey: Opposition Amendment No. 234L is then dealt with by my Amendment No. 234K. Therefore, both of them correct the error.
7.30 p.m.
Lord Jenkin of Roding: We had a short discussion at the beginning of the afternoon about the volume of government amendments which are still coming on to the Marshalled List. I have one question to ask about that. I listened to the noble Lord, Lord McIntosh, with great care. He speaks fairly quickly and perhaps I do not always catch everything he says. However, it is clear that the largest number of amendments in the group seek to change the wording in relation to the adverse effect on competition from that which has prevailed in our own competition Acts to that which is appropriate for a regulatory body. I hope that I am putting that into what I might call "Onslow" language.
My question is: how did the wrong form of words get into the Bill to begin with? I should have thought that the authorities concerned, and not least parliamentary counsel who have a huge repository of wisdom in these matters, might have recognised that the wording in the Bill as originally drafted would be likely to—I coin the Minister's phrase—involve European jurisprudence. Obviously having discovered that, it is right to change it. I do not quarrel with that. But we have now been dealing with this Bill for 18 months. Why is it that that has been discovered only in the last days of the Committee stage in the second House to consider the Bill, after all that has gone before? That is relevant to the criticisms which have come from these Benches. The manner in which this legislation has been produced and is being presented to the Committee leaves a great deal to be desired.
If the amendments were in response to debating points made in another place, one would be kinder to the Government. But, as I understand it, they have discovered that their own wording was wrong. That is not a particularly good way of legislating.
Lord Elton: I cannot resist rising to that fly and telling my noble friend that that comes back to the complaint which I made ineffectively in our exchanges on whether or not we should sit as a Committee; that is, the enormous amount of legislation going through at the moment. That does not impact only on the timetable; it impacts also on the draftsmen and parliamentary counsel. The answer is that the Government are trying to do more than Parliament can properly do in the time available to it, unless we sit through August.
Lord McIntosh of Haringey: I am making no promises about sitting in August. The reason for the different wording is, as I said before, that the language at present used is that used in the Competition Act 1998. That mirrors Article 81 of the European treaty. I should add also that it is inherited from the Financial Services Act, which is the work of the previous government. When the Bill was being drawn up, the Competition Act, as it now is, was a Bill.
There are advantages in taking things slowly, over a long period, with a lot of consultation; and there are disadvantages because while that period is going on things change—for example, the demutualisation of

575
the Stock Exchange. That requires an enormous number of amendments which are simply unavoidable.
We have been working closely with the competition authorities on the wording of the competition provisions and appropriate changes following the Cruickshank review. Again, that is a step forward. It did not exist when the Bill was drafted. If we want to incorporate those improvements and have the best Bill possible, we must deal with those matters.
While I am on my feet, I should say to the noble Lord, Lord Elton, that I wrongly said to him that our Amendment No. 234K corrects the mistake in the wording. In fact, it does not make that correction. The correction is a typing error and the Clerk advises me that that correction may be made without formal amendment.
Lord Kingsland: In one way or another, the Minister has accepted the three amendments that we have tabled in this group. Therefore, I have no need to speak to them.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendment No. 233:
Page 70, line 24, leave out paragraph (e).
On Question, amendment agreed to.
The Deputy Chairman of Committees (Viscount Simon): Before calling Amendment No. 233A, I should advise the Committee that if this amendment is accepted, Amendment No. 233B cannot be called due to pre-emption.
Lord McIntosh of Haringeymoved Amendment No. 233A:
Page 70, line 28, leave out from ("a") to end of line 30 and insert ("significantly adverse effect on competition if —

(a) they have, or are intended or likely to have, that effect; or

(b) the effect that they have, or are intended or likely to have, is to require or encourage behaviour which has, or is intended or likely to have, a significantly adverse effect on competition.

()If regulating provisions or practices have the effect of requiring or encouraging exploitation of the strength of a market position they are to be taken, for the purposes of this Chapter, to have an adverse effect on competition.").
On Question, amendment agreed to.
[Amendment No. 233B not moved.]
Clause 150, as amended, agreed to.
Clause 151 [Reports by Director General of Fair Trading]:
Lord McIntosh of Haringeymoved Amendments Nos. 233C to 233E:
Page 70, line 38, leave out ("significant anti-competitive effect") and insert ("significantly adverse effect on competition").
Page 71, line 2, leave out ("any significant anti-competitive effect") and insert ("a significantly adverse effect on competition").
Page 71, line 8, leave out ("anti-competitive effect") and insert ("adverse effect on competition").
576
On Question, amendments agreed to.
Clause 151, as amended, agreed to.
Lord McIntosh of Haringey: I beg to move that the House do now resume. In doing so, I suggest that the Committee stage begin again not before 8.37 p.m.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

British History
7.36 p.m.
Lord Lukerose to ask Her Majesty's Government whether the teaching of British history in schools is satisfactory.
The noble Lord said: My Lords, I thank all noble Lords and noble Baronesses for taking part in this debate. I always think it is rather strange to do that before they have taken part, but I assume that they will all do so. I look forward to their contributions. I look forward to hearing the speech of my noble friend Lady Blatch and the answers from the Minister.
Henry Ford said, "History is bunk". Mr Blair said, in 1996:
"You are proud to be British, but too much of that pride depends on history and nostalgia and not on what Britain is today".
So why are we so fascinated by historical novels? Why do we watch in our millions so-called "period" dramas on television? Instant archaeology on Channel 4 is tremendously popular, although I cannot help wondering sometimes whether it is a little bogus. Why do we want to visit so many places associated with our history or, as I like to call it, with an echo of my childhood, our "island story"?
I believe that that is a subconscious reaction to a very deep-seated desire to know our history; to know our ancestors; and above all, to find out as much as possible of our past to relate to our present life.
History is knowledge. If you are lucky enough to have been taught it, you will be a more rounded person than if you have not. You will be in a position to improve your life; to know where you stand in the general scheme of things. I was lucky enough to have been taught history and, perhaps more importantly, an appreciation of history at school, starting with a structure of dates, political events and people who have had influence in their times.
"Willy, Willy, Harry, Ste, Harry, Dick, Dick, John, Harry III, I, II, III Neds, Dick the Lad",
and so on, may be a joke these days, but it was a wonderful way of remembering the sequence of English kings and, therefore, significant events. After I had thoroughly learnt that essential background, I had a wider appreciation of how we lived in the past, how and why we behaved as we did, and the mistakes that we made.

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It has been rightly said that those who forget the past are condemned to repeat it. When my younger son sat his GSCE history exam some 14 years ago, I was amazed to discover that his main subject was the history of China from 1914 to 1948—an excellent subject, no doubt, but for GSCE? He did not seem to have been taught any British history at all. It is surely essential to be taught at least some coherent British history to compare with and relate to that of foreign countries and peoples.
When my noble friend Lord Patten—I am sorry to say that he is not in his place this evening—was Secretary of State for Education, he said:
"Our history has been formed and charged by the individual actions of great people;—heroes and villains; saints and sinners; generals and sea-farers … all these have stamped their mark on British history".
Wellington never fought Waterloo; he merely opposed the Chartists. Churchill never led this country from defeat to victory; all that he did of note was to lose the 1945 election. Clive of India, Wolfe, Nelson, Florence Nightingale, Gordon, Pitt the Younger, Peel and Palmerston are not even mentioned. All the above examples come from a new textbook for national curriculum history. Does not that show that the Government's claims, as reported in the Times Education Supplement under the heading,
"British stamp back on history",
including the phrase,
"The government hopes to put British heritage at the heart of all history exams by making it impossible to avoid studying the nation's past".
and so on, may be a little misleading? Will the Minister confirm that history will no longer be compulsory after the age of 14? Will he say whether British history will indeed be at the heart of history exams?
I am enormously proud of my country; of its traditions; of the many great and noble people who forged our history and made things happen. They were sometimes kings and sometimes commoners. I want all children—and even more so those of foreign parents—to learn, to appreciate and to profit from proper teaching of our history, which is the most important basic building block of our society and citizenship. Without it, we cannot appreciate the past, we cannot adequately fulfil our lives during the present, and we have no hope of introducing the next generation to a successful future.
7.42 p.m.
Lord Harrison: My Lords, in Sellar and Yeatman's 1066 and All That, British history is divided into "Tory Acts", "Factory Acts", "Satisfactory Acts" and "Unsatisfactory Acts". I therefore thank the noble Lord, Lord Luke, for posing the Question as to whether the teaching of British history in schools today is carried out in a satisfactory or unsatisfactory manner.
I wish to concentrate on the Tory acts which brought about today's national curriculum and the factory acts—that is, Britain's economy—which I
578
believe should govern the history curriculum's future development. A decade ago, the creation of the national curriculum provoked enormous controversy. Much of the argument turned on whether pupils could,
"go back to the good old days when we learnt by heart the names of the kings and queens of England, the names of our warriors and battles and the glorious deeds of our past"—
a sentiment for which the then Prime Minister, Mrs Thatcher, vented enthusiastic support. Indeed, the story of the deeds of derring-do concerning the development of the history curriculum in 1990 are vividly recounted in Robert Phillip's book, History teaching, Nationhood and the State. I allude to that treatise partly to highlight why history teaching is a contentious issue. At the core of the debate is the issue of nationhood; the fear that Britain is losing its identity and that, in modifying the history curriculum, we could somehow restore Britain to perceived former glories.
Such anxieties and some of the remedies proposed to mitigate them are misplaced. A more sober critique of history teaching today would invite us to be alive to more immediate and pressing concerns, in particular, our relationship to Europe, with whose history Britain's growth has been so intimately bound. But before turning to those concerns, perhaps I may remind your Lordships that the Government have given us the assurance that in the revised history curriculum to be taught in our schools from this autumn,
"important key events, historical figures and developments in British history will be retained as a central feature".
Furthermore, the announcement in last week's Budget that £1 billion extra is to be given to our schools, principally in the form of the book fund—so vital to the teaching of history—is warmly welcomed.
My anxieties lie elsewhere. I return to my factory acts and to the economy; to my concerns for Britain's future, including its manufacturing base. Because Britain must look to its economic future, our history must look to the future. We must see how the teaching of history can contribute to Britain's future prosperity.
How do I justify such a paradox? Let us read through the history section of the national curriculum. The one period airbrushed out of our history is Britain's post-war engagement with the European Union. The glory that was Greece and the splendour that was Rome are timetabled there, but the evolution of the European Union and, crucially, Britain's engagement with the single market lie absent from the national curriculum. Yet what is the principal market into which we shall send our British school students? It is of course the single European market of 370 million consumers, soon to swell to 500 million. Where is the evidence that, in drawing up the national curriculum over a decade ago, anyone asked the core curriculum question: what are the skills, knowledge, attitudes and aptitudes that our young people require today to be successful entrepreneurs in tomorrow's single European market? It is indisputable that Britain's economic backyard is no longer just the UK; it is indeed Europe. We thrive or wither there.

579
The proof that we are still thinking in the past and not about the past is the fact that we dub the curriculum a national one and not the "European" or indeed the "international" curriculum. If our young entrepreneurs want to make the goods and to provide the services that will sell in the single market, we must give them a thorough knowledge and understanding of the histories of continental countries into whose markets we currently send them so poorly informed. A deep knowledge of the market into which one is selling is the sine qua non of successful business.
It was a folly a decade ago when the noble Baroness, Lady Thatcher, tried to restrict the percentage of European history to be taught in the national curriculum. Slavish concentration on British history is not in Britain's interest. To help our young people to compete and for them to become Britain's intelligent ambassadors in a civilised and civilising Europe, we need to place more, not less emphasis on Britain's role in the development of Europe and its union. After all, chickens come home to roost. One glance at the car industry in Britain today suggests that those vital European and international connections have still not been fully appreciated or understood. Even when making cars we should have known that history is not bunk. I fear that for too long we have failed to place Britain's history in its true context. We have been content to be left on the continental shelf.
The teaching of history in our schools should no longer be left to the image of,
"an old-fashioned schoolmaster, perhaps in his sixties, with tweed jacket and a pipe".
History and history teaching are too vital for us to be nostalgic about. Used wisely, our past is our future; used ill, our future will be only our past, where acts of factory closure such as Rover's will mark our decline. As 1066 and All That concludes,
"This would be a bad thing. America will become top nation and history will Come to a lull stop".
7.49 p.m.
Lord Roberts of Conwy: My Lords, I compliment my noble friend on calling and securing this important debate. Those of us who share a love of history and owe the cast of our minds to its study are naturally concerned about how it is taught to those who come after us and that concern extends to what is taught.
As a minister in the Welsh Office with a responsibility for education, I was deeply involved in the preparations for the introduction of the national curriculum in the late eighties. I well remember the controversial discussions within Government when the history working groups produced their report. The Welsh history report, produced under the chairmanship of Professor Rees Davies, found more favour among some of my colleagues than its English equivalent because the history of Wales can hardly be told without close reference to the political history of England, while t le history of England traverses many parts of the world. The problem with English history is to grasp the core of that history and the same applies to British history.
580
At the time I thought that the outcome of those reports transposed into the curriculum would stand for a generation at least but there have been two major revisions: in 1994 and again last year. I have no personal experience of teaching. I rely on the critical observations of professional teachers who have an abundance of such experience. They tell me that history is not what it used to be. Its study as prescribed has been diluted in the name of flexibility.
I hope all that has not been carried too far. Without a degree of prescription as to the basic factual knowledge to be acquired by young people it is difficult to see how historical inquiry can be at all meaningful and anything other than a playful exercise. Nor can the process of understanding what happened in the past be properly conducted unless it is rooted in real events.
Much re-writing of history goes on; there is nothing new in that. But there have to be identifiable reference points, even then, before their significance is reinterpreted and the new re-interpretation judged. Without traditional teaching, young people will not be able to sense the pace of change at different times in our history; surely one of the most valuable things to be learnt from historical study.
Contrary to Emerson's interesting dictum that,
"There is no history; only biography",
the revisionists reject the significance of individuals. I wonder what Cromwell or Churchill would think of that. My objection to the view of revisionists is that history without heroes and villains is dull and unedifying. I suspect that the airbrushing of personalities from history is a secret vice of the inferior second-hand scribbler of history who seeks his own glorification and that of his personal, potted retrospective view imposed on our complex and ever-changing past.
When I think of my own induction to an enduring love of history, I think of a pre-Raphaelite, textbook picture of a smartly dressed, golden-haired and noble Caractacus in chains before an effete Charles Laughton look-alike emperor in Rome. I am glad to see that Caractacus is mentioned as suitable for study at key stage 2. The social history counterpart is the twentieth century story of the two ancient Britons, Dai and Ianto, who appeared in the Coliseum about that time. Ianto, the duller of the two, asked who the lady was in the imperial box, next to the chap wearing the laurel leaves. Dai, ever knowledgeable, replied, "I'll tell you later; here come the lions".
What is history? It certainly should be fun and not the dull stuff some of our educators would have it be. I have studied the revised programme for key stages 1 to 3. There is an astonishing range of possibilities there; perhaps too wide a range. But it is what happens in the classroom that matters and what the teachers make of such little prescription there is. Without first-class guidance I suspect that they, the teachers, will find history very confusing and not he able to convey the joy of it to their pupils.
7.54 p.m.
Baroness Thornton: My Lords, from the outset I declare an interest. I am the parent of two children who attend a London comprehensive. When I told them I was to take part in the debate, they were keen for me to tell your Lordships' House how brilliant they think Mr Stokes their history teacher is, and how much they enjoy his subject. I can testify to the enthusiasm with which they approach the projects and homework they undertake.
I welcome the Question posed by the noble Lord, Lord Luke, for tonight's debate. It is a rare opportunity to comment upon and perhaps compare the British history that I was taught at my comprehensive in Bradford some 30 years ago and the British history which my 12 and 13 year-old are taught at the Camden comprehensive which they attend.
I was fortunate to be taught British history by an inspired and enthusiastic teacher who motivated me sufficiently to take the subject at both A level and as part of my degree. But however inspired he was, I confess that the teaching materials available and the methods by which we were taught amounted to books, more books, chalk and talk, and almost certainly did not have an appeal to a wider group. Pupils less bookish than myself regarded history as something for the more academically inclined and thus it had a more elitist image than I thought it and the teacher deserved.
How different is today's curriculum and teaching. In preparation for the debate I looked at what my children had been learning in humanities and history over the past five years or so in both primary and secondary school. I also looked at the teaching material available to them and the projects they produced.
It cannot be said that they have not been studying British history. They have studied the Romans in Britain. If I have any complaint it is that there has been a surfeit of Romans in their curriculum; they seem to have studied them on several occasions. They have studied the Anglo-Saxons, Vikings and Celts, the Tudors and Stuarts. One of my children studied the Tudor period and undertook a project which involved creating a Tudor street. At the same time they did a colourful piece of work about the Aztec Empire. As your Lordships will know, the Tudors and the fall of the Aztecs were contemporaneous. They have learnt how to use time-lines and so, indeed, have I. They have studied Victorian Britain and the impact of the Second World War, slavery and the Industrial Revolution. They have been taught both the broad spread, and the events and heroes.
My son has just completed a project about the First World War and life in the trenches. To do his project and provide a mini-dissertation, he not only read and researched the obvious books but used the Internet at school and at home. He delved into archives of all kinds, including German and British war propaganda. He and his class read poetry. They visited the Imperial War Museum and made use of its excellent materials. They watched BBC videos and he and his classmates performed a short theatrical production about life in
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the trenches, using contemporary sources, music and poetry. He now knows the dates of the battle of the Somme and other major events. He understands the battle strategies. He has some knowledge of life in the trenches and some understanding of the consequences of the Versailles Treaty. He has decided opinions on the competence of the British Generals. He looks forward next term to learning about the Vietnam war and I look forward to seeing what he will make of that episode.
How different that is from my experience of learning history. How accessible it is to youngsters of all talents and abilities. This, surely, is what we want from the teaching of British history for our young people. They must understand not only our history but our place in the world; what other peoples and cultures experience, and place a value on that too. The national curriculum is the mechanism which has provided the framework for that kind of teaching. As a parent I welcome the clarity of the syllabus which is available at every stage of their school life. In common with most parents, I like to know what my children will be learning and how that subject will reinforce other subjects in the curriculum.
In conclusion, I believe that the state of British history teaching in our schools is more than satisfactory. I believe it merits at least a B + or an A-and is improving steadily.
8 p.m.
Lord Pilkington of Oxenford: My Lords, even though I taught history for 40 years, I find it hard to present to noble Lords a philosophy of the subject, so my approach will be somewhat pragmatic and practical, as one would expect from an ex-teacher.
Certainly I never taught my pupils how to sell cars in Europe. I believe that the noble Lord, Lord Harrison, mistakes the idea of history as it relates to the business of the economy. One of the problems of history is that it never stops happening and the last century saw revolutions, wars and massive changes. As a teacher the problem one finds is that there is always more to study. Pupils are now expected to study not only British and European history, which was the case in the past, but to have some understanding of world history. As the noble Lord, Lord Luke, pointed out, his son was presented with China.
Added to this, there have also been enormous advances in the study of social history. However, speaking as a teacher, one has to start somewhere and to lay the foundations and understanding that guide further study. The obvious area for starting is the history of one's own country, because the cathedrals, castles, factories and so forth are there to be seen. This is rather like the study of other religions. A person can only understand other religions if he has some understanding of his own. Furthermore, what is of most importance for the study of history is that one must have a sense of time, an idea of the progress of history, a peg on which one can hang one's coat.
The old idea, which I began with when I was eight years old, was that of drawing timelines showing little pictures of Charlemagne and Alfred. I liked drawing

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those little pictures. From that, I acquired a sense of time which has never deserted me. In contrast to the noble Baroness, Lady Thornton—although I appreciate the understanding that her son has acquired—I rather deplore the modern tendency to study projects rather than long periods. One can only understand the Vietnam War in the context of some knowledge of when the French took over Vietnam in 1881 and what Vietnam was like before that. One can only understand the Romans and so forth with a sense of time. It is important, when teaching British history, to get a sense of the whole—from the Romans to the present day.
Actually, the Romans were only a minor part of British history. It really begins with the Anglo Saxons. Yes, it might be somewhat "surface" at times—Our Island Story and such like—but it worked in the past. We must remember that we are looking at around eight or nine ye.rs of tuition for a child of seven to a person taking GCSEs at 16 years old. Perhaps I may give two examples. The problems of Ireland date from the Reformation. Understanding can only be achieved if pupils undertake a study of Ireland from the Reformation——which, if I may say a little arrogantly, could be done in a simplistic way over two or three weeks. It is not enough to do projects from the First World War and various other 20th century topics.
As pupils understand more, they can be encouraged to make comparisons and consider, for example, why it was that the old Scottish parliament became the prisoner of the Crown whereas the English parliament—our ancestor—became the conqueror of the Crown. That is the kind of thing that students ought to think about. We must remember that pupils will abandon history at 16 years old. This will be all the understanding they achieve. It is not enough to understand what it must have been like in the trenches during the First World War. Pupils must get a sense of and feeling for British history. It is this country where those students will cast their vote and where they will live.
Finally, in the last year of GCSE, and for the minority of those who will move on to A-level, students must able to write essays. One can only understand history if one can analyse. History is not a matter of saying, "Let's understand Charlie or Ludwig in the trenches during the First World War"; it is a matter of understanding the complex arrangements that produced us sitting here and our colleagues sitting in the other place. That is what history is all about and what teachers must try to teach. History must not be reduced to mere projects that look attractive. Students must learn a sense of time and how to analyse and understand what made us. Once that has been achieved, students can go on to study China, India or America—whatever they wish. However, I shall never regret what I learned when I was at school.
8.5 p.m.
The Earl of Onslow: My Lords, I failed history O-level. Obviously I did not go to the excellent
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comprehensive school referred to by the noble Baroness, Lady Thornton. I went to a rather expensive school on the banks of the Thames.
However, because I had read Our Island Story—by far the best history book that has ever been written—I went on to study the subject in more detail. Perhaps noble Lords will remember the part describing the Siege of Lucknow. There is a picture of two Scottish girls with dust and smoke swirling around them. One is saying to the other, "Dinna ye hear them? Dinna ye hear them?" It is the sound of Havelock's pipes leading the Argyll and Sutherland Highlanders through mutineering Pandies, bayoneting them and saving the residency. That kind of heroic and, I accept, possibly jingoistic story gave me a love of history which allowed me to fail it at Eton.
However, there is something slightly more important than loving Our Island Story, and it is this. First, as my noble friend Lord Pilkington said, we must start the teaching of history from around the Roman Conquest to 1945. In my view, everyone should be given a complete list of English history. At my private school in 1946, the headmaster had written a book called Dr and Mr Fox's Date Book. It began with Julius Caesar and finished in 1945. In one column it stated, "Date joined British Empire". The book allowed the reader to understand the dates so that the complete picture was formed. I do not believe that it is possible to learn history without understanding the scale of its long, long story.
Perhaps I may tell noble Lords a parable to illustrate my thoughts on the teaching of history. My daughter Arabella studied at the university in Athens. She returned home with some Greek friends, whom she took on a trip to the British Museum. When they came out, they were absolutely purple in the face with rage. Arabella thought that they would mention the Elgin Marbles, but that was not the problem. They said, "How dare they give the Turkish exhibits bigger labels than those of the Greeks?" That incident had taken place because the history of Greece is taught in a way that encourages xenophobia. I suggest that, when reading history, one must learn not only about the grandeur of one's country, but also about where it went wrong. History must not be treated solely as a jingoistic exercise.
There is enough in British history of which to be quite phenomenally proud. After all, gentlemen making speeches in a disused chapel ensured that Louis XIV was no longer master of Europe; that Philip II of Spain could not impose a laver on the Low Countries or England; that there are no more French Hussars in Moscow or WaffenSS in Paris; and that von Kluck was turned on the Marne in the same place where Attila the Hun had been turned by Aëtius. The grandeur of British history is sufficient not to need any nationalistic hubris attached to it. We must be careful. Nevertheless, it is a grand story and all of us should know about it.
The noble Lord, Lord Harrison, said that we must learn about continental economics. I believe that we really need to learn about Adam Smith, not about the

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imposed mercantilism of Colbert and Joseph II. They were the ones whose attitudes still dominate the thinking of the European Community, along the lines of, "We shall only have silk merchants in Lyons". That is not a good way to form an economic strategy. Indeed, the present First Lord of the Treasury constantly urges our continental neighbours to base their economics on Adam Smith. However, he seems to be immensely surprised that when tobacco is taxed too highly here, everyone flees to Calais to buy cheap cigarettes. That should be a history lesson; that is our history; that is Adam Smith.
We can go further. We only need to look at Ireland to see where history is taught in such a way that it poisons relations. My noble friend Lord Pilkington said that the differences in Ireland go back to the Reformation; I suggest that they go back to when the Irish Parliament tried to impose Perkin Warbeck on the English; or even further, to when Richard II went recruiting Irish soldiers to dominate England.
It is a complicated issue. We must try to teach history so that we know the whole of it; we must not teach history so that it is xenophobic. We must be able to judge the grandeur of this country, which is mind-blowing, and be fair by recognising that it has "warts and all", to quote Cromwell.
8.10 p.m.
Baroness Sharp of Guildford: My Lords, from these Benches I congratulate the noble Lord, Lord Luke, on initiating this debate. I speak not as an expert but as one who has always enjoyed the study of history and believes that as legislators and policy-makers we have much to learn from the past.
My profession—that of an economist—is much too arrogant and tried to simplify the complex conjunction of events that fall into history; to create models with which it feels it can predict the future. My view is that what history teaches us is that the future always contains surprises.
I studied history at school through to advanced and then to scholarship level. But that was a long time ago. My daughters also studied history at school, but even their experience pre-dates the national curriculum. In preparing for this debate I talked to some of the teachers in schools in Guildford and I also looked up two recent Ofsted reports. I was interested to discover from the reports that underlying today's national curriculum, which has had a considerable effect on the teaching of history in schools, are five key elements.
The first is to provide a chronological frame of reference so that, as the noble Lord, Lord Pilkington, said, pupils are able to locate in time the material that they are studying and to cross-refer between periods; secondly, to acquire a range and depth of knowledge sufficient to be able to answer historical questions not just descriptively but also in order to make explicit links between related ideas; thirdly, to acquire an understanding of historical interpretation. It is important to recognise that the same events can be viewed differently from different perspectives: that the
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Battle of Waterloo was a great victory for us but can be viewed from the French perspective also, perhaps not as a victory but with a different interpretation.
The fourth element is to develop a sound use of historical sources. That is very different from the sort of history I studied, which was largely derived from textbooks. The Internet is a great opening where one gets to see the original sources.
The last element is to develop an ability to order and communicate those facts and ideas both in writing and orally. The noble Lord, Lord Pilkington, stressed that the writing of essays is an important part of history. But oral history is important also; it has perhaps had a longer tradition than the writing of essays and is an important part of the transmission of our culture. I am sure no one disputes the importance of those key elements. They include a sense of chronology, a sense of time.
If we look at the national curriculum itself, we see a good deal of history in it. It starts at key stage 1 where the aim is broad coverage from the ancient Britons, the Romans, the Vikings, William the Conqueror, the Tudors and the Stuarts; then key stage 2, a more detailed knowledge of different periods and the heroes that come in—William the Conqueror, Bad King John, Henry VIII, Oliver Cromwell and Queen Victoria. Personalities begin to emerge. For the older pupils in key stage 2 there is an emphasis on research, on retrieving information.
Key stage 3 in the secondary schools involves reasonable coverage of both the medieval realm, the Tudors and the Stuarts, and then into the 18th and 19th century, with the industrial revolution, its consequences, the growth of empire and the development of parliamentary democracy. It is a great shame that history is optional at key stage 4 in the national curriculum; namely, for GCSE. Only Albania, other than Britain in Europe, makes history optional for 14 year-olds.
I end on the question of whether politicians should dictate history syllabuses. Yes, we have a duty to ensure that we transmit the culture; but we also have a duty to equip our young people as citizens of the modern world. We must have some knowledge of and empathy towards other cultures and understand where Britons fit in. It is a slippery slope if we politicians start laying down what should or should not be taught. That is where many of the great dictators began: in the laying down of guidelines for their thought police to follow. It ill behoves any British Government to go down such a route.
From the evidence that I put together in order to participate in this debate, it seems to me that the study of British history in English schools, if well taught, is more than adequate and that the majority of our schools are doing a good job in teaching it. Given all the pressures on teachers today, rather than criticising them for not doing it in the same way as it was done when we were young, they deserve a sound round of applause.
8.16 p.m.
Baroness Blatch: My Lords, I thank my noble friend for initiating this debate because it is interesting, but the great frustration is that we do not have more time. Indeed, I know other speakers would like to have spoken tonight and have not been able to do so. But any fears that some of us had about history in the national curriculum, I am afraid were only heightened tonight by the contribution of the noble Lord, Lord Harrison.
The Secretary of State, announcing the details of the national curriculum revision, said that,
"Dates and events will continue to form the cornerstone of the teaching of history and we have strengthened the guidance from the draft so that everyone is clear about the importance of chronological events. The curriculum will include a strong emphasis on distinctive civilisations, key individuals and chronology".
We heard comments to that effect in the press and on the media. The schools Minister, Estelle Morris, went on to say,
"Our priority for the National Curriculum is to ensure that the important key events, historical figures and developments in British history, wit be retained as a central feature of the revised curriculum. They will be taught at all key stages. This will ensure that pupils learn the richness of British history".
But those announcements are arguably misleading. The Secretary of State recommended to the Qualifications and Curriculum Authority,
"It is proposed to introduce slimmer programmes of study at key stages 1 and 2 … which are less prescriptive than those introduced in 1995 by reducing the general requirements, and the detailed specification within each area of study at key stage 2. It is also proposed to increase flexibility at key stage 3 … by removing detailed specification from each area of study and the requirement to teach the first four study units in the current programme of study in chronological sequence".
As a result of that flexibility and the removal of prescription, the Qualifications and Curriculum Authority produced a history curriculum which does not refer to a single monarch or Prime Minister by name. All we have now is illustrative examples of individuals and events set out in brackets in the curriculum notes.
As a Minister—I admit of some time ago—I visited a school, which will have to remain nameless, where I was told that they taught all subjects through prejudice, racism, gender and conflict. Apart from needing to be held down by my officials when I heard that, what went through my mind was the denial of the glories of literature and history denied to those pupils. That is not to say that prejudice, racism, gender and conflict are not important in themselves, but to teach all subjects through those themes seemed to be almost a criminal activity on the children. But there seems to be a return to that.
There is also a concern about the changes to post-16 courses. Why, for example, in a letter today—it would be interesting to have a reply from the Minister—has the traditional essay question requiring at least 40 minutes continuous writing been eliminated from the history A-level?
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A new history textbook has just been published by Longman, called Minds and Machines, Britain 1750–1900. If this is to be an acceptable current textbook, we really do need to worry about what will happen. The textbook closely reflects the requirements and sociological bias of the current national curriculum. It is more concerned with leading children into superficial and moral judgments than in providing them with knowledge. Many of the chapter headings are dominated by gloom, doom and despair, suffering and desperation, injustice and exploitation; for example, one reads:
"White gold & black misery, Fingers weary and worn, A perfect wilderness and foulness, Pauper places, Riot and reform, A policy of sewage".
Is this the new textbook that is consistent with the requirements of the national curriculum?
The impossibility of safeguarding the landmark personalities and events of British history without requiring them to be taught is amply demonstrated by this book. It makes a mockery of the present Government's claims that the new history national curriculum for the year 2000, which is totally non-prescriptive, will,
"ensure that the important key events, historical figures and developments in British history will be retained".
It is important for the Minister to cover this point in his reply. The criticism I have just made of the book—the newest modern textbook for history—gives great cause for concern. It would be helpful to know whether the Minister agrees with that criticism. The book was in fact criticised by Chris McGovern, the director of the History Curriculum Association, who is an authority on such matters. The noble Lord must allay those fears in his response and assure the House that such textbooks will not be deemed appropriate in the future. We must be assured that children will be taught British history, including its chronology of events and the influence and impact of historical characters.
I conclude by saying that Mr Blair and his ministerial colleagues appear to be obsessed with all things modern. The intellectual richness of our people will be the greater when informed by a knowledge and an appreciation of our history.
The Earl of Onslow: My Lords, before my noble friend sits down, perhaps she can tell me whether that book is on the same shelf as the one on teaching people how not to be homophobic?
Baroness Blatch: My Lords, I do not know.
8.22 p.m.
Lord Bach: My Lords, the House will be most grateful to the noble Lord, Lord Luke, for having tabled the Unstarred Question this evening, thereby giving rise to this all-too-short debate on such a fascinating subject. Indeed, thanks have been expressed to him from all parts of the House and I also thank all other noble Lords who have taken part in our debate.

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Perhaps I may, first, declare two interests. The first relates to the fact that I am the father of an 11 year-old daughter who is finishing in primary school this year. I spoke to her about this debate and she, too, thought that the history teaching that she had undergone—I was about to say "endured", but that would be the wrong word—in the past few years had been very good and most successful.
My second interest is one that I am particularly pleased to be able to declare. I was privileged to be taught history by someone whom, among a whole range of very fine history teachers, I believe was undoubtedly one of the finest history teachers that there has ever been. His name was Charles Keeley. He was brilliant; he was unique; and he sparked off not just my interest in history but also that of many other people, including the noble Lord, Lord Lloyd-Webber, who cannot be in his place this evening. He, too, was taught by Charles Keeley, who died at the close of 1998. I am glad to be able to pay him this tribute in the House tonight. He was one of many outstanding history teachers and will not be easily forgotten.
Perhaps I may begin my reply to the debate by assuring the noble Lord, Lord Luke, that the Government value the teaching of British history very highly indeed. We fully recognise the important role that the subject plays in a broader education. Of course, history fires pupils' curiosity about the past in Britain and the wider world. Pupils consider how the past influences the present, what past societies were like, how those societies organised their politics and what beliefs and cultures influenced their actions. To do this, pupils develop—and need to develop—a chronological framework for their knowledge of significant events and people.
Those noble Lords who spoke about time, like the noble Lord, Lord Pilkington, were quite right. Pupils see the diversity of human experience and understand more about themselves as individuals and members of society—the precise point made by the noble Lord, Lord Luke. What they learn can influence their decisions about personal choices, attitudes and values. But, of course, history is more than that: pupils find evidence, weigh it up and reach their own conclusions. They need to be able to research, sift through evidence and argue for their point of view—skills that are prized in adult life and, indeed, in this House. The importance that the Government place on British history was, we believe, reflected in the revisions that we made to the national curriculum last November.
In designing this new curriculum for history, we have reinforced the importance of pupils securing a knowledge and understanding of key dates, events and people, as well as the chronological framework that unites them. It is perhaps worth pointing out that on page 6 of the document, which I know many noble Lords have studied, History: the National Curriculum for England, and to which the noble Baroness, Lady Sharp, made specific reference, the first two items referred to under "Knowledge, skills and
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understanding" in the Programmes of Study which identified the aspects of history in which pupils made progress are "chronological understanding" and,
"knowledge and understanding of events, people and changes in the past".
It would be difficult to suggest that the present Secretary of State for Education and Employment was anything other than someone who values many of the traditional aspects of British history teaching. Indeed, to suggest anything else would not be right—
Lord Baker of Dorking: My Lords, before the Minister leaves this part of his speech perhaps he could reflect upon the fact that in the past three years the number of pupils aged 16 taking GCSE in history has declined by 5 per cent each year. So, at key stage 4 history is slowly beginning to edge out of the curriculum. As the noble Lord said that the Government value the teaching of history, would he consider making history a compulsory subject for the age group of 14 to 16, as it was when I established the national curriculum? One of my successors—foolishly, in my view—allowed pupils to opt out and not take history from the age of 14. The only other country in Europe that allows its children to choose whether to study history after the age of 14 is Albania.
Lord Bach: My Lords, it is always fascinating to hear the contributions of the noble Lord on this subject, not only because of his time as Secretary of State for Education but also because he is known to be an expert in the field. I shall return to the question he raised later in my speech.
The Government have worked hard to get the balance right between the key areas that should be compulsory, while still ensuring greater flexibility for teachers. Noble Lords will be aware that it was necessary to relax the existing primary curriculum in 1998 to enable the literacy and numeracy strategies to settle in. Although history has always been a compulsory part of the primary curriculum, we have now reintroduced a full programme of study for history and given teachers a clear framework for teaching.
The noble Lord, Lord Luke, suggested that the fact that history was no longer a compulsory subject under the curriculum post-14 was somehow new. It is not new. As I understand it, since the national curriculum came into being under the aegis of the noble Lord it has not been compulsory for pupils aged over 14 to take history. No doubt the noble Lord now thinks that it should be. I give way.
Lord Baker of Dorking: My Lords, when the curriculum was established in 1988 taking history was compulsory up to the age of 16; and that also applied to geography. However, one of my successors—someone in my party, I regret to say—made the decision to change the policy. In my opinion that was a grave error. I am innocent of the charge that the Minister has just made against me.
Lord Bach: My Lords, if I have wronged the noble Lord, I apologise. However, he will agree with me that the subject has not been compulsory for some years now.
From September this year all pupils from the age of five up to 14 will, of course, have an entitlement to the revised history curriculum. Beyond 14, pupils can opt to pursue their history studies, through GCSE, alongside the compulsory subjects of English, Maths and science, and on to A-level. I am pleased to say that many pupils follow this course. I am not in a position to argue facts and figures with the noble Lord, but nearly a third of the school population enters for GCSE history. One in 20 do so at A-level.
As regards the primary history curriculum, pupils begin to learn about British history from the very start of their school life. That is the way it should be. In primary schools, pupils study key periods in British history, as well as those in European and world history. At first they learn about people's lives and lifestyles. They find out about significant men, women and children and events from the recent and more distant past, including those from this country and the wider world. When they reach key stage 2, pupils move on to study change and continuity in their local area, in Britain and in other parts of the world.
Pupils between the ages of five and 11 study British history, starting with the Romans, Anglo-Saxons and Vikings, moving on to Britain and the wider world in Tudor times, and concluding with studies in either Victorian Britain or Britain since 1930. Children will undertake specific local, European and world history studies. In Europe, the Ancient Greek times offer a rich source of study, for example myths, legends, beliefs and customs.
I move on to the secondary history curriculum. Between 11 and 14, pupils learn about significant individuals and events from the Middle Ages to our time. They also learn about key aspects of European and world history. Pupils undertake three British studies, one European study and two world studies. What is studied in this curriculum? It covers all the key phases in British history from the Norman invasion on. Pupils investigate the major features of our medieval past—the development of the monarchy, significant events and characteristic features of the lives of people living in these islands.
Between 1500 and now the European study covers a significant period of events in the pre-history or history of our Continent. The world study before 1900 covers the cultures, beliefs and achievements of other countries and continents in the world. After 1900—this is particularly important—pupils study some of the significant individuals, events and developments from across the 20th century, including the two world wars, the Holocaust and the Cold War and their impact on our country, Europe and the wider world.
History has an important role in putting lives, beliefs, values and attitudes in a much broader context. How others lived their lives and how their moral, social and cultural frameworks shaped the world are
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vital aspects for us to learn. History shows us human frailty too. Pupils can be encouraged to understand that greatness does not always equal perfection.
I turn now to the heart of the noble Lord's Question—standards. The noble Baroness on the Benches opposite and others in this House have heard government spokesmen and spokeswomen over the years say that the raising of standards in education is the Government's highest priority in this field. Delivering a big change in achievement in primary schools has been our first priority. We believe that the literacy and numeracy strategies are on the way to success. It is right to point out that history has played its part, particularly in the literacy strategy. There are, of course, problems between the ages of 11 and 14. The success of primary school literacy and numeracy hours has only served to highlight the relative lack of progress between those ages. Over the next year or so the Government will be developing an ambitious programme designed to raise teachers' expectations of pupils and to support teachers in raising standards at key stage 3.
Teacher training is surely the key to all effective teaching. We need to ensure that initial teacher training equips trainees with the confidence and skills they need to deliver a broad and balanced curriculum. Recent Ofsted teacher training inspection evidence shows that the quality of secondary history courses is far higher, on average, than the quality for all secondary courses.
Time is against me, as it has been against all noble Lords who have spoken in the debate. As regards the teaching of history in primary schools, many pupils are making good progress and often demonstrate good knowledge. They are able to ask questions of evidence and draw conclusions. The vast majority of schools (over nine out of every 10) provide a curriculum that is rated as at least satisfactory.
That is also the case in secondary education. A recent Ofsted inspection shows that many pupils have a good working knowledge of the subject. In history, 58 per cent of pupils reach the expected level of attainment by age 14. The combined average for the other foundation subjects is 53 per cent. My figures suggest that the number of 15 year-old pupils achieving grades A to C in GCSE has increased over the past five years by nearly 6 per cent. The number of 17 year-old pupils achieving grades A to C at A-level has increased by nearly 8 per cent over the past five years.
I shall have to stop speaking shortly. However, everyone present, whatever their views about the teaching of history, accepts that it is a crucial part of our education system and should remain so. The answer to the noble Lord's Question is that the teaching of British history is satisfactory but it is much more than that: it has breadth and depth and we believe that it draws together all that is significant and influential in the life of our country today.

Financial Services and Markets Bill
8.37 p.m.
House again in Committee.
Clause 152 [Power of the Director to request information]:
Lord Saatchimoved Amendment No. 233F:
Page 71, line 42, after ("information") insert ("relevant to the investigation").
The noble Lord said: This is a relatively minor amendment. It is simply intended to qualify the power of the Director-General of Fair Trading in obtaining information for the purposes of an investigation being carried on by him. The amendment would require the information requested by the director-general and the notice referred to in Clause 152(3) to be information relevant to the investigation. I beg to move.
Lord McIntosh of Haringey: This is certainly a nice, straightforward amendment; unfortunately, accreted to it are many government amendments to which I must speak. However, I start by making welcoming noises to Amendment No. 233F.
The amendments in this group concern the investigation powers of the Director-General of Fair Trading and the role of the Competition Commission in the external scrutiny arrangements. Amendment No. 233F, to which the noble Lord, Lord Saatchi, has just spoken, would amend subsection (3) of Clause 152. This clause gives the director-general powers to require people to provide him with documents and information.
Documents and other information are dealt with separately, in Clause 152(2) and (3) respectively. In Clause 152(2) the director may require someone to produce a specified document which, under paragraph (c) relates,
"to any matter relevant to the investigation".
Clause 152(3), which concerns information, does not contain any similar provision. I agree that such a limitation would be appropriate. This would bring the clause into line with the analogous provision in Clause 26 of the Competition Act 1998. I am grateful to the noble Lord, Lord Saatchi, for bringing forward this amendment. If I may, I shall take it away and produce our own amendment on Report which will meet the point while ensuring consistency with the provisions of Clause 152(2)(c)—the main problem being the use of the words "relevant to" in the amendment.
Turning now to my own amendments in this clause—Amendments Nos. 234A, 234B, 234E, 234H, 234J, 234M and 234P—these amendments align the language in the Bill with that used to describe what the Competition Commission does in connection with mergers under the provisions of the Fair Trading Act 1973. In the case of mergers, following a reference by the Director-General of Fair Trading, the reporting side of the commission "investigates" a matter and reports its "conclusions".
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The language of this part of the Bill is partly consistent with this at present. For example, paragraph 1 of Schedule 13 refers to an "investigation" carried out by the commission, and Clause 153(8) talks about the commission's "conclusions". But there are also references to the commission "considering" a report at various stages and to the commission coming up with "opinions". The amendments we are proposing simply replace references to the commission "considering" the matter and coming up with "opinions" with reference to its "investigating" and coming up with "conclusions".
Finally, let me deal with Amendments Nos. 234G and 234R. These amendments affect what the FSA can be directed to do following an investigation by the commission. Clause 153 places the commission under a duty to come up with its conclusion as to whether regulating provisions or practices are anticompetitive. If it concludes that they are, then it considers whether the effect is justified. If it does not consider that the effect is justified, then it must say what it thinks should be done about it.
But Clause 153(7) provides that the commission must ensure, so far as is reasonably possible, that the conclusion it reaches should be compatible with the functions conferred on the FSA and the obligations imposed on it under the Bill.
Clause 154(7), which concerns the Treasury's power to direct the FSA to make changes, similarly provides that the authority may not be required to take action that would be incompatible with its functions or obligations.
Amendments Nos. 234G and 234R have not yet been spoken to. Although we can still deal with them in the same group, I would rather noble Lords opposite spoke to those amendments before I continue. I commend my amendments to the Committee.
8.45 p.m.
Lord Kingsland: My Lords, I shall now speak to Amendments Nos. 234G and 234R. So far as concerns Amendment No. 234G, under the procedure envisaged by Chapter III of Part X of the Bill, the Director-General of Fair Trading keeps the authority's so-called regulating provisions under review. If a report is made by the Director-General, the Competition Commission must consider the matter. However, under Clause 153(7) the commission must ensure, so far as it is reasonably possible, that the conclusion it reaches is compatible with the functions conferred, and obligations imposed, on the authority by or under the Bill.
This amendment proposes that the provisions of Clause 153(7) should be amended so that the Competition Commission must ensure that the conclusions it reaches take into account the functions conferred, and obligations imposed, on the authority by or under the Bill. The amendment would give the commission more flexibility in reaching its conclusions and it would not be restrained by the requirement that its conclusions must be compatible with the authority's functions.

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Amendment No. 234R is a probing amendment. Clause 154 of the Bill deals with the role of the Treasury once the Competition Commission has made its report under Clause 153. Clause 154(7) provides that the authority may not be required as a result of that clause to take any action—
"(a) that it would not have power to take in the absence of a direction under—
the clause—or,
"(b) that would otherwise be incompatible with any of the functions conferred, or obligations imposed, on it by or under this Act".
The precise effect of this provision is not clear. If the authority cannot be required to do anything which is incompatible with any of the functions conferred or obligations imposed on it by or under the Bill, it puts into doubt the effectiveness of the competition provisions set out in Chapter III of Part X. The authority could argue that the rules in question are necessary in order for it to meet its regulatory objective of, for example, protecting consumers. In those circumstances, can the Treasury really require the authority to modify its rules?
There seems to be, if I can put it this way, an unsatisfactory overlap between the powers of the Treasury under Chapter III of Part X and the functions conferred or obligations imposed on the authority by Clause 2.
Lord McIntosh of Haringey: I am grateful to the noble Lord for his explanation of Amendments Nos. 234G and 234R.
These amendments effect what the FSA can be directed to do following an investigation by the commission. Clause 153 places the commission under a duty to come up with its conclusion as to whether regulating provisions or practices are anticompetitive. If it concludes that they are, then it considers whether the effect is justified. If it does not consider that the effect is justified, then it must say what it thinks should be done about it.
But—almost in the same words as those used by the noble Lord, Lord Kingsland—Clause 153(7) provides that the commission must ensure, so far as it is reasonably possible, that the conclusion it reaches should be compatible with the functions conferred on the FSA and the obligations imposed on it under the Bill.
Clause 154(7), which concerns the Treasury's power to direct the FSA to make changes, similarly provides that the authority may not be required to take action that would be incompatible with its functions or obligations. I fear that the noble Lord and I are repeating each other to some extent.
The amendments tabled by the noble Lord would remove this constraint. I am afraid that I cannot accept this. The effect would be to allow the Treasury, following an adverse report by the Competition Commission, to direct the FSA to change its rules in a way which could mean that the statutory objectives were no longer met. For example, the Treasury would be able to tell the FSA to stop imposing requirements
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X" or "Y" or new entrants to the banking sector, where the effect of not imposing those requirements would be that consumers would not be adequately protected or that confidence in the financial system would not be maintained.
The purpose of this external competition scrutiny is not—let me emphasise this—to provide a means for the commission and the Treasury to second guess whether the objectives which Parliament has given to the FSA are the right ones. That would be the effect of these amendments. The purpose of this external competition scrutiny is to provide a mechanism for ensuring that where the FSA does not regulate at the right level—that is, where it fails to give sufficient weight to the matters set out in Clause 2(3)—then the Competition Commission can report its conclusions as to what action should be taken and the Treasury can direct the FSA to make any necessary changes to get regulation back to the right level.
That must surely be the right approach. Otherwise we would not need to put objectives or principles in the Bill; we could just give the Treasury a power to tell the FSA what its objectives should be from time to time. The noble Lord, Lord Saatchi, suggested that as a way of cutting out a lot of time-consuming debate at an earlier point in our proceedings. However, if we are serious about it, the Committee will agree that the current approach in the Bill is the better one.
Lord Kingsland: If that is so, why does the Minister need to interpose the Treasury at all in this part of the Bill? Surely, if the authority, in implementing the recommended changes of the Director-General of Fair Trading and the Competition Commission, is constrained by the objectives of the Bill, then surely the Treasury has nothing to fear from seeing what they conclude is implemented—because, by definition, it can only be implemented within the objectives.
Lord McIntosh of Haringey: That is nearly always the case, but, as so often, we have to provide a reserve power because the Treasury has to pay attention to other wider implications, such as our international obligations, which must override any other domestic legislation.
Lord Kingsland: I knew that there must be an answer to that. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringeymoved Amendment No. 234:
Page 72, line 3, leave out subsection (4).
The noble Lord said: I spoke to this amendment with Amendment No. 89. I beg to move.
On Question, amendment agreed to.
Clause 152, as amended, agreed to

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Clause 153 [Consideration by Competition Commission]:
Lord McIntosh of Haringeymoved Amendments Nos. 234A to 234F:
Page 72, line 20, leave out ("consider") and insert ("investigate").
Page 72, line 27, leave out ("whether, in the opinion of the Commission") and insert ("the Commission's conclusion as to whether").
Page 72, line 30, leave out ("significant anti-competitive effect") and insert ("significantly adverse effect on competition").
Page 72, line 34, leave out from ("section") to ("must") in line 35 and insert ("stating the Commission's conclusion that there is a significantly adverse effect on competition").
Page 72, line 39, leave out ("opinion as to the action, if any, that") and insert ("conclusion as to what action, if any,").
Page 72, line 42, leave out ("anti-competitive effect") and insert ("adverse effect on competition").On Question, amendment agreed to.
On Question, amendments agreed to.
[Amendment No. 234G not moved.]
Lord McIntosh of Haringeymoved Amendments Nos. 234H and 234J:
Page 73, line 3, leave out paragraphs (a) and (b) and insert ("its conclusions").
Page 73, line 7, leave out ("that conclusion or opinion") and insert ("them").
On Question, amendments agreed to.
Clause 153, as amended, agreed to.
Clause 154 [Role of the Treasury]:
The Deputy Chairman of Committees, (Lord Dean of Harptree): I call Amendment No. 234K. I should point out that there is an error in this amendment. It should read "153(2)" and not "154(2)".
Lord McIntosh of Haringeymoved Amendment No. 234K:
Page 73, line 12, leave out from ("section") to end of line 13 and insert (" 154(2) which states its conclusion that there is a significantly adverse effect on competition").
The noble Lord said: This amendment was spoken to with Amendment No. 232. I beg to move, as corrected by the Deputy Chairman.
On Question, amendment agreed to.
[Amendment No. 234L not moved.]
Lord McIntosh of Haringeymoved Amendments Nos. 234M to 234Q:
Page 73, line 14, leave out ("opinion,") and insert ("conclusion,").
Page 73, line 14, leave out ("anti-competitive effect") and insert ("adverse effect on competition").
Page 73, line 24, leave out from ("to") to ("section") in line 25 and insert ("any conclusion of the Commission included in the report because of").
Page 73, line 27, leave out ("anti-competitive effect") and insert ("adverse effect on competition").
The noble Lord said: These amendments have already been spoken to. I beg to move.
On Question, amendments agreed to.
[Amendment No. 234R not moved.]
Clause 154, as amended, agreed to.
Schedule 13 agreed to.
Clause 155 [The Competition Act 1998]:
Lord McIntosh of Haringeymoved Amendment No. 234S:
Page 74, line 25, leave out ("is required or contemplated") and insert ("in the agreement is encouraged").
The noble Lord said: In moving Amendment No. 234S, I should like to speak also to Amendments Nos. 234T to 234X. At present the Bill excludes from the scope of the Competition Act agreements or conduct which is "required or contemplated" by FSA regulating provisions or practices. The wording of this exclusion is carried forward from the Financial Services Act 1986. The competition regime in that Act was cast originally against the background of legislation which has been replaced by the Competition Act 1998. However, the exclusion in the Bill for things "required" by FSA regulating provisions is not necessary. As I have said, this is already the effect of the Competition Act. These amendments therefore delete the exclusion for things required. This just removes unnecessary words.
We are also taking this opportunity to narrow the exclusion from the Competition Act for things contemplated by the FSA's regulating provisions. This is in response to Don Cruickshank's interim report on banking services in the United Kingdom, which recommended removing any unnecessary exclusions from domestic competition law. We think that there is merit in exclusion from the Competition Act going wider than "things solely required" of the FSA. This is because the FSA may issue guidance or codes of conduct which do not require anyone to do anything, but which indicate a course of action which the FSA thinks is the acceptable way of complying with the rule or with the statute. Guidance cannot require something to be done. If people act in accordance with options afforded in guidance or a code, then it would not be fair if they could be penalised under the Competition Act.
In addition, guidance which represents the FSA's considered view as to acceptable ways of complying with rules would be undermined if those who follow it could be penalised under the Competition Act for doing so. In the absence of a provision to the effect of the amendment, we think that the FSA would come under pressure to write a very prescriptive rule book, which I think that everybody is agreed would not be the best way to regulate. However, we think that the current exclusion goes too far. What might be contemplated by the FSA's regulating provision could be things which the FSA had not considered in any depth, if at all, when drawing up these provisions. This represents a wide exclusion from the Competition Act.
In the exclusion we want to cover things to which, in drawing up the regulatory provisions, the FSA has turned its mind. Don Cruickshank, in commenting on our proposals, welcomed this change. We are therefore cutting back the exclusion for things which are encouraged by FSA regulating provision.

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Finally, Amendments Nos. 234T, 234V and 234X, delete references to "practices". As drafted, the exclusion in the Bill covers things which are done as a result of the FSA's regulating provisions or practices. However, again we think that this goes too far. If people are encouraged to do something by the FSA regulatory provisions, which have been through the consultation process, and will have been the subject of cost-benefit analyses that is one thing, but where people do things as a result of FSA's practices, we do not think there should be an exclusion. It will be up to firms to decide what they do in response to practices. They are not obliged to do anything. Where they do something which is anti-competitive, there will be no protection from the Competition Act. That is the current position under the Financial Services Act and we are simply reverting to that. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendments Nos. 234T to 234X:
Page 74, line 26, leave out ("or practices")
Page 74, line 29, leave out ("required or insert ("encouraged").
Page 74, line 30, leave out ("or practices")
Page 74. line 35, leave out ("required or insert ("encouraged ").
Page 74, line 36, leave out ("or practices")
On Question, amendments agreed to
Clause 155, as amended, agreed.
Clause 156 [Authority's power to require information]:
The Earl of Northeskmoved Amendment No. 234Y:
Page 75, line 4, leave out ("in writing").
The noble Earl said: I beg to move Amendment No. 234Y. I hope that it will be for the convenience of the Committee if I confine myself to this amendment. My concern here is unrelated to the subject matter of the others in the grouping, to which my noble friends will speak in Ale course in their place on the Marshalled List.
I begin by reassuring the Minister that this is very much a probing amendment and confess that I ought to have spotted the point of concern rather earlier in the Bill's passage. Indeed, in the interests of consistency I could perhaps have trailed though all the Bill's 408 clauses and 19 schedules, to delete all instances where the words "in writing" appear. As a marginal defence, I suspect that the query that I have may be especially apposite in the context of the authority's information-gathering remit. None the less, I hope that the Minister and the Committee will excuse me for succumbing to the convenience at this stage of limiting myself to probing this single example.
My purpose is straightforward. I simply want to clarify that the mechanisms for communication within, to, and from the authority are consistent with the provisions of the Electronic Communications Bill; in effect, that the Bill is entirely e-commerce friendly. Using the specific example that I am probing here, it would seem that the authority is required to serve a
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notice on an authorised person for the information it requires exclusively in writing. Perhaps I am being too stupid, but there does not seem to be any facility for allowing the authority to achieve the same end electronically, although I note the phrasing of subsection (5) that information can be provided,
"in such form as it [the authority] may reasonably require".
That may be the Government's expressed intention. It may even be that such an approach is appropriate in the context of this part of the Bill. But, as we all know, the Chancellor and the Government attach huge importance to speeding up the UK's progress towards an "e-shaped" economy. As we also all know, financial services are already well down that path. Accordingly, it is important to ensure that, where appropriate, facility for electronic communication is fully on the face of the Bill.
Perhaps I may therefore ask the Minister, in his absence, whether, in the context of this clause, it is the intention that the notices referred to should always be in writing—that is to say, paper based—or is it the intention that the drafting allows for an either/or interpretation that includes communication by electronic means? If the latter is the case, should not that be spelt out more clearly in the drafting? More generally, is the Minister satisfied, in his absence, that the whole Bill has been drafted to ensure that, where appropriate, facility to communicate electronically is explicit on its face?
I hope that the Government can give the Committee some comfort on these points. I beg to move.
9 p.m.
Lord Kingsland: I wonder whether this is an appropriate moment to speak to the other 17 amendments in the group.
Lord Bach: I am to reply to these amendments. I think that the noble Earl, Lord Northesk, was under a misunderstanding. The Minister, my noble friend Lord McIntosh, would not dream of disappearing while the noble Earl was on his feet. I am afraid that the noble Earl has me to reply to him.
Lord Kingsland: I see that the noble Lord, Lord McIntosh, finds the attractions of your Lordships' House quite irresistible because he is amongst us again.
Amendment No. 234YC follows on the requirement in Clause 157(5) that certain service providers to the person referred to in Clause 157(2), to whom the authority has given a notice under Clause 157(1), must provide all such assistance to the person appointed to provide a report under Clause 157(1). Those service providers could be bankers, lawyers and other advisers and indeed agents who owe fiduciary duties of confidentiality to their clients. The amendment makes it clear that those persons do not breach their duties to their clients by complying with the obligation imposed by Clause 157(5).

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Amendment 234YD makes the same amendment to Clause 159 by replacing the words "circumstances suggesting" with the words "reasonable grounds for suspecting". This is the judicial review point to which I have already referred. Interestingly, the words "has reasonable grounds for suspecting" were in the original draft of the Bill printed on 17th June 1999; but it was only later that the Government replaced those words with the words "circumstances suggesting".
Amendment No. 234YG also relates to the point about judicial review and adds the words "on reasonable grounds" to Clause 161(3)(a). Members of the Committee may recall, in the course of their preparations for work on the Bill, that it was remarked in the Committee stage in the Commons that the Government appeared to be determined to reduce the risk of the authority's activities being subject to judicial review. Many of the amendments to Part XI which we are now discussing are intended to redress this balance.
Clause 161(3)(a) deals with the powers of investigators appointed by the FSA or the Secretary of State. Normally the investigating authority must give written notice for the appointment of an investigator to the person who is the subject of the investigation. However, this requirement does not apply in certain circumstances, including where the investigating authority believes that the notice would be likely to result in the investigation being frustrated. Our amendment would require the belief to be "on reasonable grounds".
Amendment No. 234YH concerns Clause 161(6) of the Bill. Here the investigator must make a report of his investigation to the investigating authority. This amendment would require the investigator to provide also a copy of such a report, not unreasonably, to the person subject to the investigation.
Amendment No. 234YJ covers the same point. When a person is required to attend upon an investigator, to answer questions or to provide other information, the investigator should give that person a notice which specifies the provisions under which the investigator was appointed and which states the reasons for his appointment.
Amendment No. 234YK is similar to the amendments above and inserts the words "on reasonable grounds" to Clause 163(3). Clause 163(2) refers to the powers of the investigator to require a person, who is neither the subject of the investigation nor a person connected with him, to attend before the investigator to answer questions or otherwise provide information. The amendment would require the investigator to be satisfied "on reasonable grounds" that the requirement imposed on the person concerned was necessary or expedient for the purposes of the investigation.
Amendment No. 234YL makes the same amendment to Clause 164(3). Again, Amendment No. 234YM adds a "reasonable grounds" qualification when the investigator considers the matters in Clause 164(1).
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Amendment No. 234YN amends Clause 164 so that its provisions are consistent with Clause 162. It is not clear why the provisions of these two clauses differ, given that they cover the same point—an investigator requiring a person to attend before him to answer questions or otherwise provide information.
Amendment No. 237A is, I say candidly, a probing amendment. It is intended to raise the issue of the status of confidential information which is produced or disclosed to an investigating authority under Part XI. It is not clear under what obligation the investigating authority will be when, in the course of an investigation or in other circumstances, a person, whether an authorised person or not, produces documents or other information to the regulators. Is the authority under any obligation to keep that information confidential, or can it pass it on to other regulators, either in the United Kingdom or abroad? To what extent can the authority make the information publicly available?
Amendment No. 237B refers to Clause 166(6), which contains a specific provision to protect a person engaged in the banking business to take into account the duty of confidentiality owed by the bank to the customer. The amendment would extend the protections to others; for example, solicitors and persons acting as agents who owed duties of confidentiality as a result of acting in a fiduciary capacity.
Amendment No. 237C mirrors Amendment No. 234YA and provides that a "Relevant person" in Clause 166(8) means a person who, within the previous six years, has been a director, controller, auditor or another similar party, as set out in paragraphs (a) to (d) of Clause 166(8).
Finally, Amendment No. 237D makes it absolutely clear that the person upon whom an information requirement has been imposed has a reasonable period in which to comply with the information request. I shall have to reflect on Amendment No. 257D and come back to your Lordships.
Lord Grabiner: Perhaps I may comment on the fasciculus of amendments tabled by the noble Lord, Lord Kingsland, which are conveniently gathered together under Clause 159, Amendments Nos. 234YD to 234YF, and under Clause 161, Amendment No. 234YG. The import of the proposed amendments is essentially to delete the expression, "circumstances suggesting", and substitute, "reasonable grounds for suspecting".
The structure of Clause 159 in its bare essentials is subjectively worded; it provides that,
"if it appears to the Authority that there are circumstances suggesting that",
and there follows a whole series of matters that would give cause for concern to the regulatory body. In those circumstances, under subsection (3) the authority is empowered to,
"appoint one or more competent persons to conduct an investigation on its behalf".

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I am not sure what the relevance of "competent" is; one would assume that only competent persons would be appointed. However, we shall see that there is some origin to the prevision, which has to do with necessary expertise rather than ability. There are a number of legislative examples. There is a good record for the use of that language.
First, it is suggested by the noble Lord, Lord Kingsland, that the object of the exercise is to secure, so far as possible, some basis for introducing the application of the judicial review process. That is the purpose of the amendment.
First, if it does not "appear to the authority", that would be eminently judicially reviewable. If there are no "circumstances suggesting", again that would be eminently judicially reviewable. Therefore, I respectfully suggest that the amendment adds nothing to the debate because, under the Bill as currently drafted, all would be eminently and properly the subject of judicial review, or would be in an appropriate circumstance.
The only other point of principle that I make is that there is a great deal of relevant legislative history relating to this problem. This afternoon I dug out quite quickly some working examples. One appears in Section 177 of the Financial Services Act 1986, which provides:
"If it appears to the Secretary of State that there are circumstances suggesting that an offence under Part V of the Criminal Justice Act 1993 (insider dealing) may have been committed, he may appoint one or more competent inspectors"—
one sees the familiar expression—
"to carry out such investigations as are requisite to establish whether or not any such offence had been committed and to report the results of their investigations to him".
That is an example where the investigation could in due course lead to a criminal prosecution. Precisely the same formula is used in that Act as appears in the drafting of this Bill which the noble Lord seeks to amend.
Another example is to be found in Section 432(2) of the Companies Act 1985:
"The Secretary a State may make such an appointment [of competent inspectors] if it appears to him that there are circumstances suggesting",
that an investigation should be conducted.
The final example is to be found in the Fair Trading Act 1973. Sections 50 and 51 give power respectively to the Director General of Fair Trading and the Secretary of State, or the Secretary of State and any other Minister, to make a monopoly reference where it appears to him or them that a monopoly exists, or may exist. In that legislation the reference is to the Monopolies and Mergers Commission, now the Competition Commission. However, that legislation is unaffected by the introduction of the Competition Act 1998.
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Very similar provisions are to be found in Section 64(1)(a) of the 1973 Act in respect of a merger reference:
"A merger reference may be made to the Commission by the Secretary of State where it appears to him that it is or may be the fact that two or more enterprises … have … ceased to be distinct enterprises".
Similarly, in Section 75(1) provision is made for a reference in anticipation of a merger.
All of those examples turn upon the subjective judgment of the person who is charged with the duty to make the necessary appointment. Some of the examples can lead to criminal proceedings; others can lead to an expensive and complex inquiry by the Competition Commission. None of those examples incorporates the kind of language which the amendments suggest. I respectfully suggest that these amendments are entirely unnecessary and, if anything, indicate a little over-lawyering on the part of those who advise noble Lords opposite.
9.15 p.m.
Lord Kingsland: I believe I said, when I dealt with these amendments, that their object was not to convert matters which were not judicially reviewable into matters which were but to make them more easily judicially reviewable. The noble Lord, Lord Borrie, will recall that two years ago when we debated the Competition Bill—not at exactly the same length as this Bill but almost—an issue arose as to the investigatory powers of the director-general.
My memory may not serve me well and therefore I cannot claim certainty in this regard. I recall that in that Bill, in regard to the director-general, a similar form of words indicating subjectivity was used, but that in the course of the debate it was accepted by the Minister that the word "reasonably" could be incorporated into the text. In other words, that word impliedly qualified the discretion of the authority. If tonight the Minister is prepared to go as far as the Minister did in the context of the Competition Bill I shall be perfectly content. If not, I believe that my form of words makes it easier. I see the noble Lord, Lord Grabiner, nodding.
Lord Grabiner: I entirely agree with what the noble Lord says. The point is that the amendment would make the position too easy; and one would simply invite litigation as an entirely unnecessary exercise.
Lord Kingsland: I have the greatest admiration for the noble Lord, Lord Grabiner, but I regard it as a shocking allegation that I, of all people, should wish to encourage litigation. On the contrary, I wish to encourage a prudent authority. I believe that an objective requirement which makes the authority look before it leaps is likely to lead to much better decision making than is a subjective requirement. That was the force that drove me to table the amendments. It was not the honeyed words of the advisers to which the noble Lord, Lord Grabiner, referred.
Lord Grabiner: Before the noble Lord sits down, I am delighted that those words struck home!
Lord Bach: If the Front Bench can get a word in, this is my first entry into discussions on the Bill$ I believe that the same applies to the noble Earl, Lord Northesk. I do not know whether he thought of any animal analogies. I thought of shark-infested waters, but immediately put that to one side because it would not be a fitting description of any noble Lord. However, "Daniel in the lion's den" might be more suitable because a lion is more similar to a number of noble Lords.
The key to effective regulation is information. That is what this part of the Bill is about. To regulate effectively the broad range of markets and businesses for which it is responsible, and to take timely, well-considered and proportionate—that is an important word—regulatory decisions, the FSA must have access to detailed, up-to-date and relevant information. Equally, it must have effective powers to investigate possible wrong-doing in order to maintain the confidence of all players in our financial markets from the small investor to the large market professional. This is vital for maintaining the high reputation of the United Kingdom as a place in which to do financial services business.
The effectiveness of the powers in this part of the Bill is therefore central to the new, rationalised regulatory system. In keeping with our general policy of rationalising powers, Part XI of the Bill represents a careful synthesis of the different investigation powers exercised by the existing regulators. What we started with was a mixture of statutory and contractual powers—one kind of power for one kind of person doing one kind of activity, with another power for another person doing a similar sort of business.
Much of the debate in another place—it has been referred to—centred on the extent to which the FSA is required to act reasonably and to impose requirements only to the extent that they are reasonable. It was following that discussion that the Government agreed to review the use of explicit reasonableness references in the Bill more generally, with the result that we made a number of amendments to other parts of the Bill the other day. Clearly some of the more important amendments moved and spoken to today seek
to introduce further explicit references to "reasonableness". I do not think that the noble Lord will be surprised to hear that we do not consider those to be as helpful or as necessary as the other amendments.
Dealing with the amendments debated, but not necessarily in order, as regards reasonableness, Amendments Nos. 234YD, 234YE and 234YF seek to reverse changes made in another place by changing the trigger for the FSA and the Secretary of State to start an investigation into particular possible contraventions. This important clause, Clause 159, covers a broad range of possible contraventions, ranging from breaches of rules by authorised persons, through market abuse, to serious criminal offences under the money-laundering regulations, the carrying
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on of illegal regulated activity, the making of misleading statements and, last but not least, insider dealing.
When we introduced the Bill in another place, the clause was drafted on the basis that the trigger for an investigation power was where the FSA or the Secretary of State had,
"reasonable grounds for suspecting that".
a contravention may have taken place.
However, we concluded that that wording imposed too high a test for launching an investigation. We are talking about an investigation in this context. It is similar to, if not the exact equivalent of, the level of suspicion that a policeman must have in order to carry out an arrest and which would often be met only after some, perhaps considerable, investigation.
This is too high a test if we want to have a regulatory system that responds quickly and effectively to possible wrong-doing. We cannot have a system where the regulator must have the kind of case required to justify an arrest in other circumstances before investigations can begin. That might not matter when what is at issue is a breach of the rule by an authorised person, as the more general information gathering powers under Clause 156 would be available to build such a case.
However, the trigger is wholly unsuitable for investigating possible illegal regulated activity or financial promotion, market abuse and the other issues I raised. In such cases, there may be no alternative means for exploring the circumstances in order to build the kind of case that would be sufficient to meet the reasonable-grounds-for-suspecting trigger. We make no apologies for wanting to be sure that investigations can take place as and when the circumstances suggest that they are needed. Nothing is to be gained by having a regulator who cannot respond quickly or by encouraging wrong-doers to seek to prevent the launch of inquiries through procedural challenges in the courts.
Therefore, the Bill was amended in another place to align the trigger for these investigation powers with those currently applying to the investigations of insider dealing under Section 177 of the Financial Services Act 1986. My noble friend Lord Grabiner regaled the Committee with other examples which, perhaps to put it mildly, are telling.
We cannot accept any weakening of the powers. The FSA and the Secretary of State must have powers they can exercise on the basis of circumstances suggesting a contravention. Waiting until the existence of the kind of grounds which would in a different context be clear enough to justify an arrest means leaving things too late.
The noble Lord, Lord Kingsland, suggested that that has something to do with trying to avoid judicial review. That is not the case. As I believe my noble friend Lord Grabiner made clear, one cannot get rid of judicial review so easily. Judicial review will still exist. It is true that we do not want to encourage a situation in which every decision to launch an investigation is liable to be referred to the courts. That would severely

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reduce the effectiveness of the system in detecting wrong-doing and eliminating it from our financial markets. For those reasons, I invite the noble Lord not to move his amendments.
Amendments Nos. 234YG, 234YK and 234YM contain the phrase "on reasonable grounds" in connection with other judgments which an investigator y be called upon to make. We want investigation powers which are effective. A balance must be struck. The requirement for reasonable grounds perhaps seems more onerous than it sounds, bearing in mind that reasonable grounds for suspecting is the test which a police officer must satisfy before he can arrest a citizen.
We do not want to open up too great a scope for investigations to be tied up or frustrated. We want an investigator to be able to take a reasonable judgment about the prospects of the investigation being frustrated without a substantial risk that the investigation could then be frustrated by a subsequent challenge to the decision to withhold the notice. We want investigators looking into serious crimes such as illegal deposit-taking or insider dealing to be able to form a reasonable judgment as to the witnesses to interview without opening up the investigation to a risk of challenge.
After all, if the investigator is wrong to consider that a person can give information, he will gain no information as a result. We must not allow amendments to take place at the expense of the ability to launch investigations when appropriate, or the ability of investigators to take simple practical judgments about the proper conduct of those investigations. We believe that these three amendments go too far and, again, we would ask the noble Lord to withdraw them.
I move on because this is a large number of amendments, moved briefly by the noble Lord, Lord Kingsland. I deal next with Amendments Nos. 234YB and 237C. I shat come to the amendment of the noble Earl, Lord Northesk, when it is moved shortly. If I may, I shall call these the "statute of limitations" amendments. Amendment No. 234YB would impose a statute of limitations of six years on the period after which a person who used to be an authorised person may be required to provide regulatory information. Amendment No 237C would impose that same six-year limit on the period during which a former controller, auditor, actuary, accountant, lawyer or employee of a person under investigation could be required to disclose information covered by banking confidence.
I want to make it clear on behalf of the Government that it is not our intention that any person who has once been authorised, or who has held some position in relation to an Authorised person, should be subject to an endless stream of information requests for ever more. We considered the possibility of a cut-off period for those powers but concluded that, by its very nature, it was bound to arbitrary. We do not believe that we can afford to introduce some arbitrary period after
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which the regulator must simply wash his hands of an authorised person and the customers of that person for whom he bears some responsibility.
What would happen if, some years down the road, concerns emerged that there had been mass mis-selling along the lines of the pensions scandal about which the House heard so much. Surely that scandal is evidence enough that there can be a very real need for information about transactions carried out many years previously, certainly more than six. In order to assess the extent of the problem, the FSA may well need to have access to information from all those who were active in the market at the time, not only those who are still authorised. The Government are committed to ensuring that the regulator will have all the powers that he needs in order to deal with any future scandals of that nature. The Committee would not expect anything less.
Therefore, we have taken forward the existing approach—it is not a novel one—to be found in Section 39(8) of the Banking Act, which applies the power to collect information to former authorised institutions under the Act. However, it would be wrong to give the impression that those powers are not properly constrained. The power under Clause 156 is circumscribed, for example, by the requirement in subsection (4) of that clause, which limits it to,
"information and documents reasonably required in connection with the exercise by the Authority of functions conferred on it by … this Act".
That ensures that a former authorised person will not be pursued endlessly with information requests. Only when the FSA has some legitimate need for information in connection with the discharge of its functions may it invoke this power.
The same applies to the investigation powers. The information that the FSA can require from a former auditor, controller or employee is constrained by the purpose of the investigation. It is common sense that the longer the period since they held the position in question, the less likely it is that they will have relevant information required by the authority. However, if they have that information, why should we prevent the authority from requiring it?
I turn to Amendment No. 234YA, which I call the "without delay" amendment. It is important that the FSA can gain access to information and documents on a timely basis—obviously, the vital ingredient of effective regulation. That is why in our subsection (3) of the clause we provide that the FSA can require the information and documents "without delay". The noble Lord's amendment would require instead that all requests for information are subject to some specified period for compliance. Clearly, the intention behind the amendment is laudable. However, we maintain that it is unnecessary.
The FSA must, of course, be reasonable in its expectations of when information may be forthcoming. It is implicit in the use of the term "without delay" that what is being referred to is some unjustified or unreasonable delay. So the true meaning of Clause 156(3) does not enable the FSA to require a

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person to meet some unreasonable or impractical requirement. That would clearly be an absurd interpretation.
The noble Lord suggests instead that there should always be a specified period which is reasonable. That would be rather more bureaucratic and would place the onus on the FSA to decide what period must reasonably be allowed for producing the information, whereas the current wording enables the provider of the information to take such time as is necessary for providing the information, so long as he does not delay in the normal sense of that word.
I turn to Amendments Nos. 234YC and 237B which deal with fiduciary duties. The Government have sympathy with the noble Lord's wish to ensure that a person who is required to give assistance under Clause 157(5) cannot be sued for breach of fiduciary duty or other obligation as a result. That is clearly right. However, we have concluded that the insertion of an explicit provision is unnecessary. Compliance with the statutory duty imposed by subsection (5) would be a defence to any allegation of breach of a fiduciary or other duty.
Moreover, Amendment No. 234YC is potentially damaging because it could cast doubt on that principle in other cases by implying that compliance with a statutory requirement could otherwise give rise to an action for breach of some other duty.
Amendment No. 237B seeks to extend the additional protection for banking confidentiality under Clause 166(6) to duties of confidence arising from acting in a fiduciary capacity. Clause 166(6) follows the model under current legislation—specifically Section 105(2A) of the Financial Services Act, as inserted by the Companies Act 1989. We are not attracted to extending this special regime in the way suggested. For one thing the term "acting in a fiduciary capacity" covers a very broad range of circumstances: for example, professional advisers such as accountants, stockbrokers and solicitors who may owe duties to their clients; company directors in relation to their shareholders; and agents and trustees. Those are all people from whom the FSA may require information. But it is necessary to draw a line somewhere. Why should it not apply to other duties of confidence? We cannot draw up special rules for them all.
We are following the existing legislation in drawing it round the relatively well-understood legal concept of banking confidentiality. That is a concept which has grown up over many years and has a clear and accustomed meaning.That is less true of fiduciary duties, particularly given that that would include constructive trusts which can arise, as the Committee heard earlier, in a wide variety of situations. There is a danger that this amendment will give rise to many different interpretations and disputes over the exercise of these powers.
The noble Earl, Lord Northesk, has been very patient and I turn now to his amendment. Amendment No. 234Y would remove the need for a notice issued
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under Clause 156 requiring information to be "in writing". We were not sure what was the noble Earl's concern until he made his helpful speech, but it is about electronic communications. I can tell him clearly that the Electronic Communications Bill will enable the Government to ensure that all references like this in this Bill will be kept up to date with modern communications technology. So he need not fear that e-commerce will play no or little part in those transactions.
I turn now to the three amendments, Nos. 234YJ, 234YL and 234YP, which would require the investigator to issue copies of a notice setting out details of the investigation to anyone subject to a requirement under Clauses 162, 163 and 164. In the case of the former two clauses, that would apply only if the person on whom the requirement was being imposed was not himself the subject of the investigation. We do not believe that the amendments are necessary. If an investigator is to require anyone to comply with statutory powers to provide information or to attend for an interview or whatever, of course that investigator must produce evidence of their powers to so require. We see no advantage in specifying that that needs to take a particular form. The Bill has been criticised in some quarters as being too long and it has been alleged that that stems from too much readiness to write into statute that which is perhaps not needed. This amendment may be an example.
Amendment No. 234YP, along with Amendment No. 234YN, to which I shall speak also, would include an unnecessary additional reference to requirements being reasonably considered,
"relevant to the purposes of the investigation".
The Committee will have read the various subsections of Clause 164. We do not believe that there is any need for the new provision. Amendment No. 234YN would require an investigator to provide the person under investigation with a copy of the report at the same time as he sent it to the investigating authority, whether that be the FSA or the Secretary of State. We are bringing forward amendments which will provide persons against whom the FSA is taking disciplinary action with generous rights of access to material modelled on the criminal disclosure regime. The amendment would take transparency to a level that is—bizarre is perhaps too strong a word—rather too far.
To require an investigator to copy his report to the person under investigation as a matter of routine, even before the investigating authority had seen it or had had time to consider whether it should lead to any action, would be unprecedented. The investigating authority must be able to make a judgment on what action to take on the basis of the report it has commissioned. If a decision to take disciplinary action is taken, the rights of access to material will apply from the warning notice stage, subject to the necessary opportunity for the investigating authority to decide whether certain disclosures would be against the public interest, including, for example, disclosures which would unfairly identify the source of information or prejudice the source for the future or

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involve an unjustified disclosure of commercially sensitive information about the business of others. The amendment would by-pass all those important judgments. I believe that a like amendment was moved in another place.
Amendment No. 237D, to which I shall come in a moment, leads me to Amendment No. 237A, which we believe to be unnecessary. Of course it is necessary for investigators or an investigating authority to respect the confidential nature of information which has come under its possession in the course of its duties, unless disclosing it is necessary for the performance of their functions. Clause 338 provides for that already. It makes it cleat that any confidential information obtained by any one of a number of primary recipients must be kept confidential. Subsections (5)(a) and (5)(c) define the FSA and the Secretary of State as primary recipients. Subsection (5)(d) does the same for persons appointed to make a report under Clause 157.
The Committee will perhaps be pleased to hear that I turn finally to Amendment No. 237D, which again raises a debate familiar from another place. We do not believe it is necessary. No warrant will be issued if the justice of the peace or sheriff is not satisfied that there has been a failure to comply with the requirement. If a reasonable period had not been allowed for compliance, no doubt the justice of the peace or the sheriff would say in a robust way that the test had not been met, so no warrant would be forthcoming. All that the amendment would achieve is to require arbitrary timescales to be set on all information requirements under this part. We do not believe that that is the best way in which to carry on.
I have attempted to answer the many amendments raised by noble Lords opposite. I have tried to explain why we must resist them. I hope that they will withdraw them.
9.45 p.m.
Lord Kingsland: Does the Minister believe that Article 6.1 of the European Convention on Human Rights applies to this part of the Bill?
Lord Bach: I believe that Article 6.1 of the European Convention on Human Rights applies to all parts of the Bill. I shall be surprised if it does not.
Lord Kingsland: I am much obliged and thank the Minister for that reply.
Lord Elton: Before my noble friend replies, in speaking to Amendment No. 234YH the Minister sought to dissuade my noble friend from proceeding with his amendment on the grounds that—I think I quote his words exactly—"We are bringing forward amendments to provide generous rights of access". Can he tell us when that will be and where they will strike?
Lord Bach: At Report stage, the noble Lord will be pleased to hear.
Lord Elton: I have to say I am pleased only for the sake of getting to bed earlier tonight. It would be better to have discussed them in Committee, unless they are entirely uncontroversial.
The Earl of Northesk: I am grateful to the Minister for his diligence in responding to this grouping. I apologise for my slight confusion at the start of this mini-debate. As the noble Lord pointed out, after all these hours in Committee, it is a happy coincidence that the stalwarts of the respective Front Benches have found themselves making their first forays into the lions' den.
I accept that the grouping is something of a miscellany, but it is an important one, not least because of the inclusion of Amendment No. 234Y. We shall want to reflect carefully on the Minister's comments, particularly as regards the amendments spoken to by my noble friend Lord Kingsland. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 234 YA and 234 YB not moved.]
Clause 156 agreed to.
Schedule 14 agreed to.
Clause 157 [Reports by skilled persons]:
[Amendment No. 234 YC not moved.]
Clause 157 agreed to.
Clause 158 agreed to.
Clause 159 [Appointment of persons to carry out investigations in particular cases]:
[Amendments Nos. 234YD to 234YF not moved.]
Clauses 159 agreed to.
Clause 160 agreed to.
Clause 161 [Investigations: general]:
[Amendments Nos. 234YG and 234YH not moved.]
Clause 161 agreed to.
Clause 162 [Powers of persons appointed under section 158]:
[Amendment No. 234YJ not moved.]
Clause 162 agreed to.
Clause 163 [Additional power of persons appointed as a result of section 159(1)]:
[Amendments Nos. 234YK and 234YL not moved.]
Clause 163 agreed to.
Clause 164 [Powers of person appointed to investigate as a result of section 159(2)]:
[Amendments Nos. 234YM to 234YP not moved.]
Clause 164 agreed to.
Clause 165 [Admissibility of statements made to investigators]:
Lord Bachmoved Amendment No 235:
Page 81, line 42, leave out from second ("to") to end of line 1 on page 82 and insert ("action to be taken against a person under section 113—").

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The noble Lord said: Amendment No. 235 has already been debated with Amendment No. 219. However, I should like to make a point to the noble Lord, Lord Kingsland.
The noble Lord asked me a question concerning Article 6 of the ECHR. I was tempted into making a response that may yet prove to be correct. However, I have to tell the noble Lord that I do not yet know whether it is. I undertake to research the matter and I shall write to him with a view. I felt that it would be best to put this matter on the record straightaway.
On Question, amendment agreed to.
[Amendment No. 235A not moved.]
Clause 165, as amended, agreed to.
Clause 166 [Information and documents: supplemental provisions]:
Lord McIntosh of Haringeymoved Amendments Nos. 236 and 237:
Page 82, line 30, leave out from beginning to ("a") in line 32.
Page 82, line 32, after ("required") insert ("under this Part").
The noble Lord said: Amendments Nos. 236 and 237 have already been spoken to with Amendment No. 89. I beg to move.
On Question, amendments agreed to.
Lord Boardmanmoved Amendment No. 237A:
Page 82, line 33, at end insert—
("( ) Where confidential information is produced or disclosed to an investigating authority under this Part the investigating authority shall keep such information confidential unless it is necessary to disclose such information for the purposes of the proper performance of its functions under this Act.").
The noble Lord said: On behalf of my noble friend, I should like to move Amendment No. 237A. I am still concerned about these amendments and the replies which the Minister gave a few moments ago to other similar points that have been made as regards the breach of confidentiality that applies throughout this Bill.
These clauses provide for a free-for-all supply of information from those sources that are essentially looked upon as being confidential; namely, bankers, lawyers and the like. While I understand the need to get hold of such information, I am still concerned at the inclusion in the Bill of phrases such as,
"such information as is necessary",
without any controls and breaching every established rule of confidentiality. I worry tremendously.
One safeguard that helps to maintain the rule of law is that people who have doubts about their affairs are prepared to take advice. I believe that there is an advantage to be had when individuals can, as it were, put their head on someone else's shoulder, speak of their troubles and receive appropriate advice. That established the convention of confidentiality between lawyers and their clients. The same applies to a great extent to bankers.
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I deplore the way in which breach of confidentiality is incorporated into the Bill whenever someone thinks that it is right that such confidentiality should be breached. It is a great pity that this should be allowed to pass without any form of scrutiny. I beg to move.
Lord McIntosh of Haringey: I take it that the noble Lord, Lord Boardman, is moving the amendment tabled in the names of the noble Lords, Lord Saatchi and Lord Kingsland. I had thought that this amendment was not going to be moved on the basis that the matter has already been debated. These amendments have been spoken to by the noble Lord who moved the whole group, and have already been replied to by my noble friend Lord Bach.
Lord Boardman: These amendments were not grouped with the amendments to which my noble friend spoke and the noble Lord, Lord Bach, replied. I know my noble friend touched on the subject many times, but he did not speak to these amendments. I refrained from entering into the debate at the time because I thought that we would come to them later. They are quite separate amendments from those which my noble friend moved and to which the Minister replied.
Lord McIntosh of Haringey: Clearly I am ultimately responsible for the groupings that come before the Committee. If I have made a mistake, I apologise. My firm understanding was that we proposed to Members of the Committee opposite a grouping for the amendments which included Amendments Nos. 237A to C. I know that my noble friend Lord Bach responded specifically to those amendments. If I am wrong, I apologise to the noble Lord, Lord Boardman. Perhaps my noble friend could write to him amplifying his responses.
In case there is any suggestion that we may have been breaching well established rules of confidentiality, let me say that we inserted into this Bill, in the form of amendments last week, firm protection for legal confidentiality. We shall have to think about whether there is any analogy with banking confidentiality which ought to be enshrined in the Bill.
Lord Kingsland: I apologise to my noble friend Lord Boardman. I ought to have come back to the noble Lord, Lord Bach, who replied and said something further on the question of confidentiality, if only to warn the noble Lord that the Opposition intend to return to it on Report.
This point is linked with the issue of privileged communications in Clause 401, which we have not yet reached. I recognise that Members of the Committee opposite have given some consideration to this matter, but I share my noble friend's anxiety as to what happens to information given to the investigators once it is in their hands, particularly in relation to other authorities. This was a vexed problem at the time we debated the Competition Bill and I should like to go back and look at the solution there in order to inform myself as to what the solution should be here.

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There is a linked issue with privileged communications and when we reach Clause 401—I intend to table an amendment to that—we ought to be able to reopen this topic. To that extent I can reassure my noble friend and at the same time let the Government know, roughly speaking, what my position is.
Lord McIntosh of Haringey: That is fair. We are happy to debate this when we reach Clause 401 in Committee or indeed on Report if Members of the Committee prefer.
Lord Boardman: In view of those assurances that we will come to this matter in the future—confidentiality is a matter of considerable importance and must be preserved—I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 237B and 237C not moved.]
Clause 166, as amended, agreed to.
Clause 167 [Entry of premises under warrant]:
[Amendments Nos. 237D and 237E not moved.]
Clause 167 agreed to.
Clause 168 agreed to.
Clause 169 [Obligation to notify the Authority]:
10 p.m.
Lord Kingslandmoved Amendment No. 237F:
Page 85, leave out lines 32 and 33 and insert ("A person may not acquire—").
The noble Lord said: In moving Amendment No. 237F, I shall speak also to a long list of other amendments connected to it by the grouping.
Amendments Nos. 237F to 237H should be read together. Their purpose is to tighten up the current drafting in Clause 169 which is concerned with the acquisition of control, additional kinds of control or increases in relevant kinds of control over a United Kingdom authorised person. Failure to comply with Clause 169(1) is a criminal offence. That fact can be gleaned from Clause 182. Therefore it is particularly important that persons seeking to acquire control or to increase control over a UK authorised person should know exactly where they stand.
The present wording in Clause 166(1), which refers to a step which a person proposes to take, is not particularly satisfactory. What kind of step would result in acquiring the relevant control? Is it when the managing director of the acquirer decides to make the acquisition, or when his board endorses the decision, or at some later stage? Moreover, the use of the word "step" is confusing in this context because it has a particular meaning in Clauses 171(2) and 172(2).
These amendments would make the position clear beyond doubt and also mirror the corresponding provisions in Regulation 41 of the Investment Services Regulations 1995 which implement the Investment Services Directive in United Kingdom law. The amendments are also consistent with the relevant provisions of the Investment Services Directive.
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Neither the directive nor the regulations refer to "steps" that a person proposes to take. The requirement in the directive and in the regulations is straightforward and clear; namely, a person cannot acquire control (or increase control) of an authorised person unless he has first notified the competent authorities. As I have already mentioned, the criminal sanction for breach of Clause 169(1) requires a clear procedure with no room for uncertainty.
Amendments Nos. 241A and 241B deal with the corresponding case of where a person ceases to hive control, or reduces his control, of a UK authorised person. Again, there is a requirement to notify the authority before taking the relevant action. Under Clause 182, failing to give notice is a criminal offence. For the same reasons given in relation to Amendments No. 237F to 237H, greater certainty is required. These amendments follow precisely the same approach as the amendments to Clause 169. Amendments Nos. 241C and 241D are consequential.
Amendments Nos. 241E and 241F and I believe Amendment No. 254L all relate to the same point. Clause 247(2)(e) and (h) refer to persons "exercising influence over" other persons. There is an extended definition of "controller" in Clause 397. It would be more satisfactory to use this defined term rather than the somewhat vague expression of persons "exercising influence over".
Amendment No. 278A is a technical but very important amendment. Clause 397 defines who is to be a controller, which is important, for example, in relation to the whole of Part XII—the part concerned with control over authorised persons. The proposed amendment relates to one of the definitions of "associate", which is to found in subsection (4)(g) of the clause. This is a crucial term because, when determining whether a person does acquire control, it is important to look at that "person's associates", as is clear from subsection (3). Subsection (4)(g) is far wider than I think is needed, or required, by the Disclosure of Major Shareholdings Directive, which is used to define who acquires control, so that the acquisition can be regulated under the directive.
Paragraph (g) is far too wide, as, in effect, it requires even more than double counting the shares or other interests where a certain Mr X owns those shares or other interests but uses a broker to buy or sell them for him or a nominee to hold them. The broker's or nominee's own holdings have to be aggregated with those of Mr X. I understand that the Department of Trade and Industry has accepted that the nominee would not hold a disclosable interest for the purposes of the disclosure provisions of Section 198 of the Companies Act (which is also based on the definitions in the Major Shareholdings Directive) where the nominee cannot exercise or control the exercise of voting rights otherwise than at the direction of Mr X. This is clear from Section 109.
It is also important to persuade the Treasury to agree to this proposal. We are aware of a particular instance where a leading merchant bank was told by its lawyers that it would have to aggregate, for the

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purposes of the present "acquisition of control" provisions in the third life assurance directive, all the holdings of its nominee, whoever the nominee was holding for, even if the nominee could not vote in its own discretion; and also had to aggregate all of the holdings of the stockbroker that it used to acquire the shares—again, whoever the stockbroker had been acting for. I believe that I have spoken to all the amendments in the group. I beg to move.
Lord McIntosh of Haringey: I shall speak first to Amendments Nos. 237F to 237H and 241A to 241F. We are broadly in agreement on the objectives of these amendments. We are keen that we do not go too far down a chain of causation, and that it is only the step which results in the acquisition of control that should need to be notified. It is also important that it should be made clear that the acquisition of control cannot proceed without approval.
When I looked at these amendments I had two thoughts. First, they appeared to be drafting amendments. They seemed to say the same thing as the Bill, but rather more elegantly than the Bill says it. I shall no doubt get into terrible trouble for saying that. I understand now that there may be points of substance in the difference in drafting. We believe that the text of the Bill is correct as it stands. However, I wish to think about the points that have been made by the noble Lord and, if necessary, consult further with our lawyers to make sure that no amendment is required. I should not like to think that we had turned down something which either constitutes more elegant drafting or which makes more clearly a substantive point that we wish to make. I hope that on that basis the noble Lord will not press the amendment.
Amendments Nos. 254L, 254M, 254YL and 254YM are also matters to which we have given much thought. The term "controller" has been defined—and has been included in the Bill rather late—in order to set thresholds for the point at which a person comes under the obligation to notify the FSA of their control. The term is defined in strict terms in Clause 397.
Clauses 247 and 265 do not set out a strict threshold test for the exercise of the FSA's powers to authorise or order the end of authorisation of a collective investment scheme. They are concerned with the matters which may be taken into account when the FSA is revoking an authorisation order for a collective investment scheme or when deciding whether an operator of an individually recognised overseas scheme and its trustees or depositories are fit and proper persons.
It would be absurd if, when making an assessment, the FSA could take into account the fact of a 10 per cent holding but not that of a 9.5 per cent holding. That would be the result of replacing "any person exercising influence" with the stricter term "controller", which is what these amendments would do. The amendments would introduce an artificial restraint on the FSA in the proper conduct of its duties. I hope that the noble Lord will not press these amendments.
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Amendment No. 278A is also interesting. The noble Lord explained it clearly. I am sympathetic to the point that he raises. I agree that there may be a degree of unnecessary double counting of shares and voting rights in the Bill as currently drafted. The noble Lord referred to a particular merchant bank and to a particular example. As I do not know which merchant bank he is talking about, I should be grateful if he will write to me about it and we can discuss the matter more effectively than we can across the Floor of the Chamber.
The amendment as drafted would breach the European directives—Article 11 of the Second Banking Directive and Article 9 of the Investment Services Directive—which state that a holding of voting rights or capital must be notified. The point raised by the amendment does not stand alone; it is one of several issues thrown up by the definition of "associate" in Part XII of the Bill.
There could be a similar difficulty in relation to provisional agreements between buyers and sellers of shares. We are considering the point that has been raised. As I say, we shall be glad to discuss the example that the noble Lord has mentioned. However, we recognise that there may be a need in the context of Part XII to take other steps to cut back on the existing procedures.
The noble Lord told the Committee that the DTI has advised that there is no need to aggregate nominee holdings for the purpose of the major shareholdings directive. The difficulty did not arise with the major shareholdings directive but with the investment services directive and the second banking directive, to which I have referred. They apply the requirements to holdings of shares or voting rights, and both count equally for these purposes. I hope that there will be no conflict between one directive and another, otherwise we shall get into deeper waters than we can deal with in the Committee.
Our aim is to strike the right balance between giving full effect to the requirements of the directives while not going too far the other way and imposing unnecessary, onerous requirements on people. This is a difficult exercise. We are currently trying to find a ready solution to the point that has been raised that is compatible with the directives. One approach we are considering is to introduce a power to exempt particular circumstances from the requirement to notify. But clearly further thought is required on these matters. On the basis of my response, I hope that the noble Lord will not press these amendments.
Lord Walker of Worcester: When the Minister said that he thought the amendments would add elegance to the Bill, I thought that he would immediately accept them. Anything that can add elegance to this Bill is something to be welcomed.
In reality, my noble friend made a very important point, which needs clarifying. I hope that if the Government do not take action we will return to it at Report stage.
Lord McIntosh of Haringey: I did not reject the amendment on the ground of inelegance, nor did I put that forward as being the only consideration. I hate to say it, but in many ways this is a very beautiful Bill. It uses common language to give precision in a way that I have not encountered before in legislation. I am rather proud to be involved in it in that respect.
But my arguments against the amendment were not about the elegance or inelegance of the language but about compliance with European directives.
Lord Walker of Worcester: I can only say that, in all the legislation with which I was involved in the previous government, no Bill was beautiful if it needed several hundred government amendments.
Lord Kingsland: The Minister's emollient observations have had a suitably disarming effect on the Opposition Front Bench. It is the first occasion during the Committee stage of the Bill that I have been offered by the Minister what I would call "the Lord Hunt of Wirral facility"—that is to say, the offer to talk to me in private before the next phase. I feel particularly flattered that I have at last reached the point where I have been put on the same pedestal.
Lord McIntosh of Haringey: My door has been open throughout. It is always open.
Lord Kingsland: I like to wait for an invitation.
Lord McIntosh of Haringey: The invitation is now suitably made in public.
Lord Kingsland: I notice that I did not speak to Amendment No. 241M. Perhaps I might rather unconventionally do this now so that when we get to Amendment No. 241M I shall not have to speak to it again. I hope that the Minister will tolerate that because the amendment should be part of this group.
Part XIV of the Bill deals with disciplinary measures in the event of a contravention by an authorised person of a requirement imposed on him by or under the Bill. The authority has two basic disciplinary measures: the first is that the authority may publish a statement to the effect that it considers that an authorised person has contravened a requirement—the so-called naming and shaming measure in Clause 198; the second is that the authority may impose a financial penalty, and here the Committee has to look at Clause 199 to understand the details of that.
I understand that it has been a source of controversy that the regulators under the current regime have imposed substantial penalties on authorised persons, not only for breaches of business conduct rules but also for breaches of the FSA's statement of principles. As the Committee is aware, the statement of principles is drafted in very wide and general terms. For example, the first principle is that a firm should observe high standards of integrity and fair dealing. The second principle is that a firm should act with due skill, care and diligence. Because of the very wide scope of those
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principles, the regulators have found it relatively easy to establish breaches, and they have not hesitated to impose substantial fines in cases of those breaches.
In most of the cases of breaches of the principles a better remedy, I would submit, is the naming and shaming remedy in Clause 198. Therefore, Amendment No. 241M provides that:
"The Authority may not in respect of any contravention or a statement of principle or code of practice with respect to the conduct expected of an authorised person … require a person to pay a penalty under this section".
Lord Bach: I am not sure that Amendment No. 241 M has been taken in the right order, but I am quite happy to reply to it briefly, if that would be to the convenience of the Committee. It does stand on pits own in that sense.
As the noble Lord has explained, the effect of the amendment would be that an authorised person would not be required to pay a financial penalty in respect of a contravention of a statement of principle or code of practice. My honourable friend the Financial Secretary to the Treasury dealt with this amendment in some detail in another place. The only place in the Bill where statements of principle or codes of practice are provided for is Part V, which applies to approved persons rather than authorised persons. Part VIII of course applies for the market abuse code. Financial penalties for market abuse are provided for under that part, not Part XIV. In addition, a penalty under Part VIII is for committing market abuses defined in Clause 109, rather than for a breach of the code as such.
The principles for business are in fact not, in the terminology of the Bill, statements of principle, but are rules under Part X, albeit ones that are set at a very high level of generality. People certainly could be disciplined for a breach of them in the normal way. Most of the cases expected by the FSA will involve breaches of detailed rules and only some cases on the basis of the principles alone. As its use would be rare, it would not be sensible to remove the authority's ability to take action for breach of rules, even high level rules like the principles for business. Detailed rules are never going to be able to cover every eventuality, particularly in innovative markets. If an authorised person does breach a high level rule in a way which is not foreseen in more detailed rules, his conduct may just the same harm the interests of consumers. We believe it is right that the regulators should be able to take appropriate action. Without this option, the authority would inevitably, in the interests of protecting consumers, draw up more and more detailed rule books; a regime which was more highly prescriptive would serve only to increase costs and deter business. We do not want that. Nor do we believe it is what the industry wants either.
A Joint Committee under the noble Lord, Lord Burns, considered this issue at some length and came to the conclusion that strengthening the role of guidance was a better way to meet legitimate demand for greater certainty than writing more rules. The principles for business will be elaborated on by a body

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of rules, evidential provisions and guidance. The FSA make clear in its response to consultation paper 17 the importance of ensuring that the application of the principles of business is reasonably predictable. We agree with that. On that basis I hope that the noble Lord will consider withdrawing his amendment.
Lord Kingsland: I am sorry if I spoke to that amendment out of turn. I had the impression that it was part of the group that I had previously dealt with. I am obviously not going to press this amendment, but I think the point that lies behind the amendment is a point that has lain behind a number of other amendments to the systems of codes, rules, guidance, principles and so forth. What the Opposition are seeking is as certain an environment as possible for authorised persons operating in markets.
In that respect, I believe that there is room for improvement in the Bill. I am not particularly concerned about how it is achieved—whether it is achieved by greater precision of principles or allowing guidance to have greater weight in terms of protecting an individual or even giving him a safe haven. The method used is not the most important part. The most important part is that the overall framework should provide a suitable degree of certainty; so that the market can remain confidently innovative without in any way being fraudulent or corrupt. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments No. 237G and 237H not moved.]
Clause 169 agreed to.
Clauses 170 to 172 agreed to.
Clause 173 [Notification]:
Lord McIntosh of Haringeymoved Amendments Nos. 238 and 239:
Page 88, line 10, after ("may") insert ("reasonably").
Page 88, line 12, leave out ("considers reasonable") and insert ("reasonably considers necessary in order to enable it to determine what action it is to take in response to the notice").
The noble Lord said: These amendments were debated with Amendment No. 155. I beg to move.
On Question, amendments agreed to.
Clause 173, as amended, agreed to.
Clauses 174 to 176 agreed to.
Clause 177 [Objection to acquisition of control]:
Lord McIntosh of Haringeymoved Amendment No. 240:
Page 89, line 28, leave out from ("of") to ("would") in line 30 and insert ("consumers").
The noble Lord said: This amendment was debated with Amendment No. 62. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendment No. 241:
Page 89, line 44, at end insert—
("( ) "Consumers" means persons who are consumers for the purposes of section 129.").
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The noble Lord said: I should have moved Amendment No. 241 with Amendment No. 240. I beg to move.
On Question, amendment agreed to.
Clause 177, as amended, agreed to.
Clauses 178 to 180 agreed to.
Clause 181 [Notification]:
[Amendments Nos. 241A to 241E not moved.]
Clause 181 agreed to.
Clause 182 [Offences under this Part]:
[Amendment No. 241F not moved.]
Clause 182 agreed to.
Clauses 183 and 184 agreed to.
Clause 185 [General grounds on which powers of investigation are exercisable]:
Lord McIntosh of Haringeymoved Amendment No. 241G:
Page 94, line 28, leave out ("in relation to a regulated activity carried on by the firm").
The noble Lord said: This amendment concerns the FSA's powers of intervention in respect of an incoming firm; in other words, a treaty or EEA firm which is exercising its treaty or passport rights to carry out a regulated activity in the United Kingdom in accordance with Schedules 3 and 4.
Clause 185 provides that the FSA may exercise its power of intervention in respect of an incoming firm if it contravenes a requirement or knowingly or recklessly gives the FSA false or misleading information. The FSA can also exercise its power of intervention if it is desirable in order to protect the interests of consumers. However, the current clause limits that power to protecting the interests of consumers in relation to a regulated activity carried on by the firm. That limitation would prevent the FSA from taking steps to protect consumers generally from systemic risks which may be posed by the firm, rather than just to protect the firm's own customers in relation to regulated activities carried on by it.
For example, the FSA might have concerns about the impact of an incoming dealer or hedge fund, which could go wider than considering just the firm's own customers in relation to a regulated activity, which might themselves be wholesale firms. Those concerns could extend to the customers of those firms also.
A similar restriction is to be found in subsection (1)(c) of Clause 42, which provides for the exercise of the FSA's own initiative power where it appears to it to be desirable to vary a Part IV permission in order to protect the interests of consumers or potential consumers in relation to a regulated activity covered by the permission.
It is the Government's intention to introduce further amendments on Report to remove the limitation in that clause also, and to align these grounds on the basis of consumers and potential consumers generally. I beg to move.
Lord Kingsland: This is a tidying-up amendment of which we approve.

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On Question, amendment agreed to.
Clause 185, as amended, agreed to.
Clauses 186 and 187 agreed to.
Clause 188 [Procedure]:
On Question, Whether Clause 188 shall stand part of the Bill.
Lord McIntosh of Haringey: I gave notice of my intention to oppose the Question that Clause 188 stand part of the Bill. That notice is the introduction to a horribly long list of amendments on the groupings list which I shall not weary the Committee by repeating. Amendment No. 254A, an opposition amendment, appears to have crept into the group by mistake. I apologise for that. I shall expect noble Lords to speak to it when we come to that point on the Marshalled List.
Perhaps I may now speak to the amendments. This is the first of a series of groups of amendments which take forward the rationalisation of the decision-making procedures. The amendments may seem rather daunting. These are important changes and have taken some time to work through. I recognise that Members of the Committee may wish to subject these aspects of the Bill to further scrutiny on Report.
As I explained to the noble Lord, Lord Saatchi, in my letter to him on 22nd March, which was copied to all Members of the Committee who have taken part in these debates to date, we have been acutely conscious of the need to give your Lordships as much opportunity as Possible to study the changes and to debate them. It is for that reason that we have brought forward these amendments in the manner that we have. We have made them available at the earliest opportunity in order that noble Lords can see and debate the overall effect of the changes.
As well as the amendments that we have tabled, we have made available the texts of the amendments that we propose to table on Report. In other words, these are the amendments to parts of the Bill that have already been dealt with in Committee. There may be some further refinements to be made on Report, perhaps reflecting points raised today.
In the light of what was said by the noble Lord, Lord Saatchi, and others at the outset of this Committee stage this afternoon, I appreciate the particular point that was raised; namely, that the co-ordinates of these draft amendments are to the Bill as printed in Committee. I undertake to provide a concordance very rapidly between those amendments and the Bill as amended in Committee, which will be produced at the end of this week or the beginning of next week, so that noble Lords who have taken the time to study the draft amendments will see how they fit into the debate on Report.
Lord Saatchi: I thank the Minister very much for dealing with a large part of our concern.
Lord McIntosh of Haringey: I am grateful for that response.
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These rather technical amendments to Parts XIII and XVII of the Bill—quite technical and complex parts in their own right—should assist in understanding the critical changes to the decision-making procedures which we shall come to debate when we reach Part XXVI of the Bill.
Perhaps I may outline the overall intention of the changes that we seek to make, which are twofold. First, we seek to enhance the rights of persons who are subject to disciplinary-type action, including market abuse and the other powers to impose penalties or make public statements about misconduct, or whose livelihoods are threatened by a proposal to cancel permission under Part IV, or to withdraw approval or issue a prohibition order under Part V. Secondly, we seek to ensure that these protections, which considerably enhance those that exist currently, apply only where appropriate and not generally to routine supervisory actions. We do not want a regulatory system that is too hamstrung by its procedures to respond in a timely fashion to market developments.
I remind the noble Lord, Lord Kingsland, of the distinction that I drew earlier in Committee between routine supervisory decisions and those decisions which, by their nature, remove or damage a person's ability to pursue his business. It is not the case, as the noble Lord appeared to suggest last week, that we are insensitive to the potential effect of a range of regulatory decisions on the livelihoods of financial services professionals. We attempt to strike a careful balance between the need for effective regulation and the legitimate expectations of those involved in the industry. While it is simply not appropriate to deal with the generality of supervisory-type decisions as if they were disciplinary actions, we recognise that there is a class of decision which implies the permanent or long-term removal of the ability of a person to pursue his current line of business. As I have indicated, this includes those cases where the FSA proposes to cancel an authorised person's permission under Part IV, or to withdraw approval or issue a prohibition order under Part V. The full disciplinary procedures will apply in those cases.
I deal briefly with the procedures for these disciplinary-type decisions. The FSA's disciplinary procedures have rightly attracted considerable interest at every stage in the consideration of this Bill. En response to concerns, the Government have stressed the importance of the new, independent first instance tribunal. However, the Government have also built in a number of further administrative safeguards, some of which draw on the procedural provisions which apply to the criminal law—for example, those contained in the Criminal Procedure arid Investigations Act 1996. Some noble Lords may remember that with the same pain as I recall.
In disciplinary-type cases, Part XXVI will require the FSA to give persons, including third parties who may be affected by the decision, the right to make representations and refer matters to the tribunal. Persons affected will be given access to the FSA's material, including evidence which it considers might undermine the decision. The FSA will be required to

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set up procedures which ensure that the person who prepares the FSA's case is not also involved in the FSA's decision. The FSA will not be able to implement the decision until the person's remedies, such as his right to refer the matter to the tribunal, have been exhausted.
However, it would not be right or effective to require the FSA to treat all its decisions as if it were conducting something akin to a criminal prosecution. That would introduce an unnecessary level of formality into the FSA's day-to-day supervisory relationship with the firms that it regulates; and it would add substantially and unnecessarily to the costs of FSA supervision, which could adversely affect the competitive position of the United Kingdom. It is the Government's policy that the FSA should apply light touch regulation where possible and effective consumer protection where necessary. For example, the FSA's supervisory functions may require it to act swiftly in an emergency so that decisions have to be taken by an appropriately senior person within the FSA, notwithstanding that he may have been involved in some way in gathering the evidence or have an existing supervisory relationship with the firm concerned. When faced with a difficult and important decision whether to intervene, we expect that those responsible will want to test their options. It must be clear that the senior executives within the FSA can explore the options without denying themselves the ability then to act as necessary to protect the interests of consumers. Similarly, it is not practical or sensible in supervisory cases to require the FSA to provide access to all the material which it may have considered in the background to its decision.
The other main area in which we are rationalising procedures relates to applications to the FSA, whether they seek the FSA's approval of some change in relation to a firm or scheme or a variation in requirements which the FSA may already have imposed.
If the FSA decides to grant an application in full or decides to remove a requirement on a firm, it is clearly not necessary for the full warning notice and decision notice procedure to apply. In other cases where the decision will not be so welcome to the person concerned, we are taking the opportunity to align the warning notice/decision notice procedures throughout the Bill so that the same safeguards can apply.
The government amendments relate specifically to the exercise of the powers of intervention in relation to incoming EEA and treaty firms under Part XIII and collective investment schemes under Part XVII. Similar provisions will be introduced on Report into earlier parts of the Bill such as in relation to the exercise of the FSA's own initiative powers under Part IV. Draft texts of those amendments have been made available with the explanatory notes.
In Part XIII, Amendment No. 241H introduces a new clause setting out the procedure for exercising its power of intervention in relation to incoming firms. This clause replaces the existing Clauses 188 and 189. The clause is modelled on the procedural provisions currently adopted in Clause 314, which concerns a
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direction in relation to former underwriting members at Lloyd's but will itself be enhanced, first, to allow the FSA to extend the period for making representations; secondly, to provide that a decision notice must be issued if the FSA decides to refuse an application to vary or revoke a requirement; and, thirdly, to provide that a decision to refuse can be referred to the tribunal. Under this procedure the subject of the decision will enjoy standard rights to know the reasons for the decision, to make representations and to refer the matter to the tribunal.
However, it is not possible to introduce a standard clause for all procedures because of the particular circumstances relating to each of the FSA's supervisory intervention powers. In Part XVII, Amendment No. 254S introduces a similar clause in relation to authorised unit trusts which replaces the existing Clauses 252 and 255.
Amendment No. 254YE introduces a similar clause in relation to a decision to suspend the promotion of a collective investment scheme recognised by virtue of being constituted in another EEA member state. The new clause replaces the procedural provisions contained in Clause 261.
Finally, Amendment No. 255G introduces a similar clause in relation to other recognised schemes. It replaces Clauses 274 and 275.
The other government amendments are minor consequential or drafting changes to reflect the approach I have just outlined in relation to applications to the FSA.
I think the best way for me to illustrate the effect and operation of these amendments will be to consider them in the context of the helpful amendments that have been made by noble Lords on the Opposition Benches. Amendment No. 254Y concerns the emergency procedure for the FSA's powers of intervention under Clause 250 whereby the FSA may require the manager to suspend the operation of the scheme until a specified date or require the manager and the trustee to wind the scheme up by a specified date. The amendment would restrict the emergency exercise of the FSA powers in accordance with Clause 255 to cases in which it considers that urgency is desirable in order to protect the interests of participants or potential participants.
As I have already outlined, the Government propose to replace Clause 255 with a new procedure introduced by Amendment No. 254S, but the amendment helpfully raises a point of principle which is of wider application. The new clause in Amendment No. 254S replaces the existing provision in Clause 255 for dealing with urgent applications by allowing the decision to take effect on a specified date or immediately in accordance with subsection (2) if the FSA, having regard to the ground on which it is exercising its power, considers it necessary for it to take effect immediately. The grounds on which the FSA may exercise its powers under Clause 250 are that the requirements for the making of an authorisation are no longer satisfied; that the manager or trustee has contravened, or is likely to contravene, a requirement;

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that the manager or trustee has given the FSA false or misleading information; or that it is desirable to give a direction in order to protect the interests of participants or potential participants. The interests of participants or potential participants are likely to be a very important factor in the FSA's decision whether to exercise its powers. However, there may be other equally urgent considerations.
For example, it may be that the scheme as constituted is unlawful, so that the FSA is bound by UK law or EC directives to suspend the operation of the scheme with immediate effect even if the participants are benefiting from the illegality. The scheme may also be competing unfairly or unlawfully with other schemes and damaging the interests of their participants, or damaging the financial system generally.
We therefore think it is best to rely on the test in subsection (2) which is wider in terms of possible grounds, but narrower in the sense that the FSA must consider that immediate effect is necessary, rather than merely desirable in the interests of participants.
Subsection (4)(c) will also require the FSA to state its reasons for the determination as to when the direction should take effect so that those affected will in any event be able to make urgent representations to the FSA and if necessary to the tribunal or the court.
Amendment No. 254UA concerns the procedure under Clause 253 by which the FSA refuses to revoke or vary a direction under Clause 250. It provides that the decision notice procedure in subsection (3) applies only if the FSA has previously given a warning notice. I can quite see the concern behind this amendment, which again is or wider application, that it is unclear when the status of a continuing condition such as a refusal to act might trigger the formal decision notice part of the decision-making procedure. However, Clause 253 is also the subject of government Amendment No. 254V which rationalises the wording of subsection (3) with the warning and decision notice procedures in the rest of the Bill. The Government's amendment makes clear that subsection (3) involves a definite act by the FSA; namely, a decision to refuse to grant an application.
Amendment No. 254X concerns the procedure in Clause 254 for revoking or varying a direction under Clause 250 on the application of the scheme's manager or trustee. It would require the FSA, in granting the application, to give written notification of its decision to both the manager and the trustee, rather than just whichever one of them was the applicant. It is conceivable that the application by one of them, and the terms of the FSA's written notice in response, might contain information which is confidential to the applicant, so that it might be necessary for the FSA to notify the other party in different terms.
As the FSA already has power to do this under subsection (4), by publishing such information about the revocation or variation, in such way as it considers appropriate, I hope that Members of the Committee will not press the amendment.
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Finally, Amendment No. 254KA concerns the procedure under which the FSA may refuse to approve a change of manager or trustee sought through an application under Clause 244. It would provide that, if both the trustee and manager are given a warning or decision notice, neither of them is to be treated as a third party.
The treatment and status of third parties has now been rationalised by the Government's amendments which will be debated later (Nos. 275L and 275M) so that third party rights will not now attach to notices given under Clause 245. The amendment is therefore unnecessary. I should add that subsection (5) would currently require the FSA to give a person a decision notice if, having given a warning notice, it subsequently decides to approve the proposal. However, Amendments Nos. 254H and 254K now ensure that this requirement is subsumed in the approval procedures under Clause 244(4)(a), which now require the FSA's approval to be by written notice.
I beg to oppose the Question that Clause 188 shall stand part of the Bill.
Lord Kingsland: Perhaps I may ask the Minister an orientation question. I believe that in his presentation he dealt with issues of investigations and open-ended investment companies. If not, it is getting very late indeed.
Lord McIntosh of Haringey: I was dealing with three kinds of business: incoming firms under Part XIII and unit trusts and recognised overseas schemes. Open-ended investment companies come later on.
Lord Kingsland: So I would be wrong in believing that the Minister sought to deal with Amendment No. 252VA in the group and that that will come later. It is on page 15.
Lord McIntosh of Haringey: We shall come to that when we consider Part XVII of the Bill.
10.45 p.m.
Lord Kingsland: Perhaps I may also ask about Amendment No. 275N, which relates to access to evidential material.
Lord McIntosh of Haringey: That is not included in this group either.
Lord Kingsland: Does it come later? That simplifies my task enormously. I believe, therefore, that I shall speak to only two amendments in this group; that is, Amendments Nos. 254X and 254Y. Do we agree? I must be very careful after my previous errors.
Amendment No. 254X concerns Clause 254. That clause deals with the procedure whereby the authority decides on its own initiative to revoke a direction made by it under Clause 250. Under Clause 256, either the manager or the trustee may apply to have the direction revoked or varied and, as presently drafted, Clause

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254(2) provides that if the authority decides to revoke or vary the direction, it must give notice of the revocation or variation only to the person who is applying. However, both the manager and the trustee will have a valid interest in any revocation or variation. In our view, and in those circumstances, it would be more appropriate for any notice to be given to both the manager and the trustee. That is the sole purpose of Amendment No. 254X.
So far as concerns Amendment No. 254Y, Clause 255 allows the authority to give directions in urgent cases without going through the warning notice procedures. Therefore, as presently drafted, there is no qualification to the authority's power to give a decision notice under Clause 255(1). Amendment No. 254Y would qualify the authority's powers in such circumstances to cases where it is desirable in order to protect the interest of participants or potential participants.
Lord McIntosh of Haringey: I shall deal, first, with Amendment No. 254X. I quite see that both the manager and the trustee would need to be informed. However, I tried to make the point clearly and effectively that it is conceivable that the application by one of them and the terms of the FSA's written notice might contain information which is confidential to the applicant. Therefore, it might be necessary for the FSA to notify the other party in different terms. The FSA already has the power to do that under subsection (4) by publishing,
"such information about the revocation or variation, in such way, as it considers appropriate".
That will allow notification to be made both to the manager and to the trustee, which is what the amendment seeks, but to be made in a different way which would maintain confidentiality, which is, I hope, what the noble Lord would seek.
Amendment No. 254Y relates to the emergency procedure for the powers of intervention under Clause 250. The amendment would restrict the emergency exercise of the powers to cases in which it is considered that urgency is desirable in order to protect the interests of participants or potential participants. It is not that we disagree with that, but that we believe that it is dealt with by our Amendment No. 254S, which is the replacement for Clause 255. Again, I hope that, on reflection, the noble Lord will feel that we have covered his point.
Lord Jenkin of Roding: Perhaps I may make a remark. I started by trying to listen very carefully to what the noble Lord, Lord McIntosh, said in introducing this group of amendments. It is late and he left me behind. I read the notes, which he was kind enough to circulate to me, along with others, over the weekend. They were very condensed.
Perhaps I may put it this way. If a group of bankers or investment brokers had listened to the proceedings in this Committee over the past hour or so and had heard the noble Lord, Lord Bach, replying to the long string of amendments that had been tabled—even
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more so, had listened to the noble Lord, Lord McIntosh, galloping through (I hope that I am not being unkind) the explanations that he gave—quite frankly, I believe that they would have been horrified. Moreover, they would wonder how many of us understand what we are doing. I am sure that the noble Lord, Lord McIntosh, understands it. Indeed, I have been full of admiration for him. I am sure that my noble friends on the Front Bench understand it. But those of us trying to follow it on the Back-Benches are, I must confess, totally floundering.
There is enough in this group of amendments for a small Bill which would have merited half a day of discussion, taking them seriatim and recognising that they covered a whole range of different points. They may all be part of a common strategy. But we are rewriting a very large part of the Bill, late at night, in a Committee which is not well attended. How many people would be able to follow this matter?
I believe that this is a monstrous way of trying to legislate for a Bill of this sort. These amendments are being introduced late in the proceedings, long after the Bill started its passage. They will have a profound effect on the way that thousands of people carry out their professional activities in this field.
I hope that the Government will resolve not to impose on the House and on Parliament this kind of procedure and process for legislation. To pretend that we are dealing with it effectively really would be a complete fiction. It cannot be done. I feel that I must protest that we are being hustled along, amid all these complexities. We are dealing with matters in half an hour or an hour which should take half a day. I must protest.
Lord McIntosh of Haringey: I do not believe that the Committee would appreciate it if I repeated the remarks which I made on the Motion that the House do resolve itself into a Committee at the beginning of this afternoon.
I fully understand the points made not only by the noble Lord, Lord Jenkin, but also by many other noble Lords. I fully appreciate the difficulties that they have and, indeed, which the Government have in dealing with opposition amendments but I do not complain about that. I fully appreciate that this is not an ideal way in which to consider legislation. I only hope that, in the end, the justification will be that the people outside to whom the noble Lord refers will feel that they have a better Bill as a result.
Clause 188 negatived.
Lord McIntosh of Haringeymoved Amendment No. 241H:
After Clause 188, insert the following new clause—
PROCEDURE ON EXERCISE OF POWER OF INTERVENTION
(".—(1) A requirement takes effect—

(a) immediately, if the notice given under subsection (3) states that that is the case;

(b) on such date as may be specified in the notice; or

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(c) if no date is specified in the notice, when the matter to which it relates is no longer open to review.

(2) A requirement may be expressed to take effect immediately (or on a specified date) only if the Authority, having regard to the ground on which it is exercising its power of intervention, considers that it is necessary for the requirement to take effect immediately (or on that date).
(3) If the Authority proposes to impose a requirement under section 187 on an incoming firm, or imposes such a requirement with immediate effect, it must give the firm written notice.
(4) The notice must—

(a) give details of the requirement:

(b) inform the firm of when the requirement takes effect:

(c) state the Authority's reasons for imposing the requirement and for its determination as to when the requirement takes effect;

(d) inform the firm that it may make representations to the Authority within such period as may be specified in the notice (whether or not it has referred the matter to the Tribunal); and

(e) inform it of its right to refer the matter to the Tribunal.

(5) The Authority may extend the period allowed under the notice for making representations.—
(6)If, having considered any representations made by the firm, the Authority decides—

(a) to impose the requirement proposed, or

(b) if it has been imposed, not to rescind the requirement,

it must give it written notice.
(7) If, having considered any representations made by the firm, the Authority decides—

(a) not to impose the requirement proposed,

(b) to impose a different requirement from that proposed, or

(c) to rescind a requirement which has effect,

it must give it written notice.
(8) A notice given under subsection (6) must inform the firm of its right to refer the matter to the Tribunal.
(9) A notice under subsection (7)(b) must comply with subsection (4).
(10) If a notice in forms a person of his right to refer a matter to the Tribunal, it must give an indication of the procedure on such a reference.").
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On Question, amendment agreed to.
Clause 189 negatived.
Clauses 190 and 191 agreed to.
Clause 192 [Rescission and variation of requirements]:
Lord McIntosh of Haringeymoved Amendments Nos. 241J to 241L:
Page 99, line 3, at end insert—
("(2A) Section (Procedure on exercise of power of intervention) applies to the exercise of the power of the Authority on its own initiative to vary a requirement as it applies to the imposition of a requirement.
(2B) If the Authority proposes to refuse an application for the variation or rescission of a requirement. it must give the applicant a warning notice.").
Page 99, line 4, leave out from ("Authority") to end of line 5 and insert ("decides to refuse an application for the variation or rescission of a requirement—").
Page 99, line 6, leave out ("that person written notice of [he refusal") and insert ("the applicant a decision notice").
On Question, amendments agreed to.
Clause 192, as amended, agreed to.
Clause 193 negatived.
Clauses 194 to 196 agreed to.
Schedule 15 agreed to.
Clauses 197 and 198 agreed to.
Clause 199 [Financial penalties]:
[Amendment No. 241M not moved.]
Clause 199 agreed to.
Clauses 200 and 201 agreed to.
Lord McIntosh of Haringey: I beg to move that the House be now resumed.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
House adjourned at four minutes before eleven o'clock.