Lords Sitting of 24 May 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 Hereford.

Lord Mitchell
Parry Andrew Mitchell, Esquire, having been created Baron Mitchell, of Hampstead in the London Borough of Camden, for life—Was, in his robes, introduced between the Baroness Jay of Paddington and the Lord Levy.
Lord Fyfe of Fairfield
George Lennox Fyfe, Esquire, having been created Baron Fyfe of Fairfield, of Sauchie in Clackmannanshire, for life—Was, in his robes, introduced between the Lord Graham of Edmonton and the Lord Carter.

Sickness and Disability Benefits: Medical Examinations
2.50 p.m.
Lord Ashley of Stokeasked Her Majesty's Government:
What deficiencies have been reported in the medical services responsible for examining claimants for sickness and disability benefits.
The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, the Social Security Select Committee recently published a report of its inquiry into Medical Services; that is, the services of the DSS. The report criticises the current service to claimants and makes recommendations for improvement in many areas. The Select Committee takes a similar approach to the Government on the measures needed to improve the quality of service provided by SEMA Medical Services.
Lord Ashley of Stoke: My Lords, I am grateful for that reply. Is my noble friend aware that the Select Committee was scathing about the private medical agency, the SEMA Group, which is used by the Benefits Agency to examine sick and disabled people who claim benefit? The Select Committee accused that group of imposing on sick and disabled people unacceptable delays, painful examinations, rude treatment and racial discrimination? Is my noble friend aware that, although the recommendations of the Select Committee are welcome, in my view they are wholly inadequate and the Government need to reconsider the use of these private medical agencies
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and certainly should get rid of the SEMA Group which is responsible for so much distress to many sick and disabled people?
Baroness Hollis of Heigham: My Lords, the Government will publish their response to the report of the Select Committee at the end of June. My colleagues in the other place and officials are working on that response. I do not for a moment dissociate myself from some of the comments made in the report. The Government accept the criticism that some of the 3,000 part-time and sessional doctors, not so much the 250 full-time doctors who were with the original Benefits Agency Medical Service (BAMS) when it transferred over, have exhibited the behaviour described by my noble friend. It is quite clear that some doctors have been somewhat crass in their response to patients' needs. I believe that the right response to that is that advocated by the Select Committee, which is significantly to increase the training available to doctors, particularly part-time ones. After all, those doctors provide advice on about £25 billion of benefit. As a result, it is crucial that we get the most highly qualified and best trained doctors to deal with a very sensitive area of medicine. That is why the proposals made by the Select Committee in terms of improving the training of doctors, the auditing of their reports and so on are being taken seriously by government.
Baroness Gardner of Parkes: My Lords, I make no comment on the findings of the Select Committee. If things are wrong, they must be dealt with. Is it not very important that people who claim a disability benefit are subject to an objective assessment of their condition in order that the money goes to those in real need because of their disability and that others who are not so entitled are sorted out from the genuine?
Baroness Hollis of Heigham: Yes, my Lords. The criticisms that are made by people who have been examined by doctors tend to be of two kinds. One relates to the process in which the doctor's behaviour may have been quite unacceptable. There are one or two—not very many—anecdotes of racist behaviour, and certainly some cases of insensitivity. But that is different from complaints which arise on appeal where the disabled person is perhaps less disabled than he or she believes and there is dissatisfaction with the decision based on the assessment. These are two separate considerations. The first must be addressed by training, which we seek to do. As to the second, the number of disallowed claims has remained exactly the same under SEMA as under the old Benefits Agency Medical Service. Therefore, we have no reason to believe that in terms of professional judgment there has been any diminution or alteration of standards.
Lord Addington: My Lords, does the Minister agree that the failure to provide a minimum of five days' training for the doctors involved is one of the basic problems that is highlighted in the report? Is the Minister able to provide an update on the establishment of the diploma in medical analysis which was recommended in the report? When will that

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become a regular part of the training of those who deal with this matter, or at least of the doctor in charge? Surely that degree of medical knowledge will remove many of the problems.
Baroness Hollis of Heigham: My Lords, as to the second point, I wonder whether the noble Lord refers to the newly established postgraduate diploma in disability assessment. If so, that is now up and running. I believe that 28 doctors are taking the diploma. Another seven are regarded as already qualified by virtue of the qualifications that they bring to it. The noble Lord is right that we must establish this as a proper, decent, honourable and esteemed clinical specialty alongside others, such as paediatrics, with which noble Lords will be more familiar.
As to the first point about SEMA's failure to provide the full five days' training, the noble Lord is absolutely right. SEMA has tried to increase the amount of training. We have asked for, and SEMA is providing, extra modules of training on disability and ethnic awareness, gender issues and the like. We must improve that. In addition, the Chief Medical Adviser insists that all reports from medical doctors are assessed on the basis of a 2 per cent sample. He also insists that all doctors are validated and, if necessary, revalidated in terms of their ability to practise. We take the issue of training and what both SEMA and the DSS must do very seriously. This report has shown up some of the flaws in the present system.
Lord Higgins: My Lords, first, I wish the noble Baroness a happy birthday. The noble Baroness will be aware that the committee suggests that because of the perceived failure of the complaints system many claimants choose to appeal rather than complain. Can the Minister give an assurance that details of the complaints procedures will be given to all applicants?
Baroness Hollis of Heigham: My Lords, I could not have had a nicer birthday present than this Question in the House today. I am sure that my noble friend Lord Ashley precisely tailored the Question for me. We are concerned that people should be made fully aware of their entitlement to appeal about the decision as well as about the complaints procedure. There are posters and we send out information. My honourable friend Mr Bayley has given an undertaking to look at the forms to see whether they require greater clarification on these points.
Lord Morris of Manchester: My Lords, naturally I warmly share in the birthday greetings extended to my noble friend. Since she did not dissociate herself from all of the findings of the Select Committee, are the Government considering any interim action in advance of a full response to the report? Meanwhile, is my noble friend aware that I am informed, by noble friends of hers and mine, that the evidence of racial discrimination is actual, not anecdotal?
Baroness Hollis of Heigham: My Lords, that may be right, but we do not know. The difficulty is that we do
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not collect statistics about the ethnic background of claimants of incapacity benefit or DLA. I do not know whether or not we should collect such information, and at some stage I invite your Lordships' views on the matter. We are aware that perhaps one-fifth or one-quarter of our doctors have an ethnic community background which should make for greater sensitivity in relation to some of these matters. Having carefully read the report of the Select Committee and some follow-up evidence associated with it, my understanding is that several stories tend to be recycled. How widespread is this undeniably crass behaviour we cannot tell, but clearly just one case is unacceptable. For that reason, the training that SEMA requires doctors to undertake includes increased ethnic and disability awareness training. We hope that as a result we do not experience such complaints in future.

West Coast Main Line
2.58 p.m.
Lord Berkeleyasked Her Majesty's Government:
Following Railtrack's network management statement of March that 12,000 line closures per year would be required for the next few years to upgrade the West Coast Main Line, what action they are taking to ensure passenger and freight services are maintained to an adequate quality.
The Minister of State, Department of the Environment, Transport and the Regions (Lord Macdonald of Tradeston): My Lords, the 12,000 engineering possessions a year which Railtrack considers will be necessary on the West Coast Main Line during the upgrading include about 9,000 required for maintenance purposes and are, therefore, independent of the upgrade. All 12,000 possessions are ones for which 30 weeks' or longer notice has been given to operators by Railtrack. Train operators will thus be in a position to make arrangements for passenger services to be diverted, amended or replaced by buses, and freight operators will be in a position to negotiate appropriate arrangements to enable disruption to be minimised. No permanent track closures will be involved in the upgrading works.
Lord Berkeley: My Lords, first, I declare an interest as chairman of Rail Freight Group. I thank the Minister for that Answer. My noble friend is right. One cannot have such a major upgrade for a new line without closures. He is also right that alternative routes need to be found.
When the line was electrified 25 years ago, alternative routes were provided. I am told that one such route was the Midland Mainline and Buxton to Matlock. Does my noble friend believe that that line could be opened? Derbyshire County Council and Railtrack have commissioned a study. Is he surprised that the strategic rail authority has refused to contribute any funds to that study?
Lord Macdonald of Tradeston: My Lords, the franchising director has received an application under

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the rail passenger partnership scheme for a feasibility study of the Buxton to Matlock reopening proposal. The rules governing the use to which rpp funds can be put preclude their use for financing feasibility studies. Projects have to be advanced beyond the feasibility study stage before the rpp assistance is sought. The franchising director has no other source of funding for private feasibility studies, although he has the ability under certain circumstances to commission feasibility studies of his own.
The Lord Bishop of Hereford: My Lords, following on from that question, may I ask the Minister whether any arrangements have been made, and, if not, whether he will press the Strategic Shadow Rail Authority to make arrangements to provide other trains on alternative routes? I refer, for example, to doubling the length of trains to Birmingham on the Chiltern line or providing some services to Manchester by the Midland Mainline even without the reopening of the Buxton section. Given the problems with train operating companies, does the Minister believe that such arrangements could and should be made?
Lord Macdonald of Tradeston: My Lords, I cannot answer on that specific line. However, Railtrack and the operators have agreed extensive diversions. They avoid some of the areas most affected. The strategic rail authority, with whom I have checked, has not received any representation from passenger operators concerned about the effects of any of the works on their business at present. As I said, there will be few long-term route closures. Most of the operational work will be undertaken at night and at weekends.
Lord Dubs: My Lords, will the Minister ask Railtrack and the operating companies to give passengers a little notice about closures and delays? At present one receives little notice. As a long-suffering user of trains to Cumbria I say that with much feeling. Some notice to passengers would not come amiss.
Lord Macdonald of Tradeston: My Lords, in the re-franchising process which is already under way it is our intention to ensure that the interests of rail travellers have a greater prominence than they may have had in the past. I shall bring my noble friend's comments to the attention of Railtrack and the operating companies.
Baroness Thomas of Walliswood: My Lords, first, I note the Minister's comments that most of the closures will be at night. That is fine for passenger train companies but not for freight companies. Can the noble Lord assure us that freight services down the West Coast Main Line corridor will not be interrupted in a way that will deter freight companies from putting their freight on rail?
Secondly, what is the Government's attitude towards compensating Railtrack for the £3 billion costs for the extra-contractual obligation to provide block signalling?
Lord Macdonald of Tradeston: My Lords, Railtrack and the operating companies have had an extensive
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consultation process. They have agreed well in advance the necessary diversions. It is easier to organise those diversions with freight than with passenger services. We have every confidence that that will be concluded.
The Rail Regulator is reviewing the costs of renewing and enhancing the West Coast Main Line as part of his periodic review of Railtrack's access charges. He intends to publish in June of this year that consultation document which sets out his provisional views on the efficient level of costs and who should pay for any cost overruns.

International Criminal Court: Progress
3.4 p.m.
Lord Archer of Sandwellasked Her Majesty's Government:
Whether the recent United States proposal to draft a supplemental document and to amend Article 98 of the Rome Statute of the International Criminal Court is likely to delay the process of ratification by the United Kingdom.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Scotland of Asthal): My Lords, the United Kingdom will ratify the Rome Statute of the International Criminal Court as soon as the necessary legislation is in place. The recent United States proposal has no impact on this process.
Lord Archer of Sandwell: My Lords, I thank the Minister for that unambiguous Answer. The American paper proposes to make the power of the court to try an offender conditional upon the consent of his state, and to make state authority a complete defence. Does my noble friend agree that that is a blatant attempt to undermine the jurisdiction of a court established under a treaty which now has 96 signatories by a country which has made clear that it has no intention of signing? Can my noble friend assure the House that even if Washington is set fair to lose all its friends, this country has no intention of being dragged by its coat-tails into an isolationist wilderness?
Baroness Scotland of Asthal: My Lords, I can reassure my noble and learned friend that. Her Majesty's Government's position will not change. I am not as downcast by the American position as my noble and learned friend appears to be. We are still hopeful that we shall be able to do sufficient to encourage our American colleagues to reconsider their position and to sign along with us. Indeed, conversations in relation to their proposals are ongoing.
Lord Avebury: My Lords, does the Minister agree that, as with domestic legislation, it is good to allow several years of operation before one considers amendment? Does she also agree that if one state

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attempts to amend the statute of the International Criminal Court it will open up an enormous can of worms because many other states, which were not fully satisfied, have accepted the final draft in a spirit of compromise?
Baroness Scotland of Asthal: My Lords, we agree with the proposals agreed at Rome. It does not appear that the amendment suggested currently by the United States will garner much favour. We hope to persuade it that the conditions which are inherent now are sufficient to meet its needs. We are not unhopeful of persuading the United States of that in the long term; but, of course, we accept that it is a challenge.

Ethiopia/Eritrea Conflict
3.6 p.m.
Lord Aveburyasked Her Majesty's Government:
What action they will take, in the United Nations Security Council and otherwise, to persuade the parties to the current military conflict between Ethiopia and Eritrea to resolve their differences about the technical arrangements for implementing the Organisation for African Unity's peace plan.
Baroness Scotland of Asthal: My Lords, we condemn the return to hostilities between Ethiopia and Eritrea. Fighting can only bring further suffering to the people of both countries. We urge both sides to cease fighting and to re-enter into negotiations with the Organisation for African Unity to achieve a lasting peaceful settlement.
We urge all UN member states to implement fully and to enforce effectively the mandatory arms embargo and the ban on related technical assistance and training imposed by the Security Council in Resolution 1298. We will continue to provide humanitarian aid to the region.
Lord Avebury: My Lords, I thank the Minister for that reply. Does the noble Baroness agree that the present offensive was initiated by Ethiopia, that in doing so that country was in breach of Article 2.2 of the charter of the United Nations, and that the Security Council should have said so when it considered Resolution 1278? Does she further agree that international pressure has to be concentrated entirely on Ethiopia which is the aggressor state in the present conflict, and that the visit by President Bouteflika, the current chairman of the OAU to Addis Ababa—I understand that it begins this afternoon—is to be warmly welcomed and supported? Pressure has to be exerted on both sides. It is easy at any point in history to put all the blame on one and not the other. That is not helpful. Our main focus must be on getting both sides back to the negotiating table and the cessation of hostilities. We shall commit ourselves entirely to that end.
Lord Howell of Guildford: My Lords, would the Minister agree that with the best will in the world it is
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a little late to think about a peace plan from the OAU or anyone else? The Ethiopians have broken through and are heading for the coast and they are determined to fight while negotiating. We are seeing the unfolding of further major bloodshed in the already blood-soaked Horn of Africa. At this stage, while the Eritreans are in retreat, is not the only hope to persuade the notorious Mr Zenawi and his troops to offer generous peace terms, not to push on with months of killing and fighting, and instead start fighting the famine which is blighting the whole of that area?
Baroness Scotland of Asthal: My Lords, we have taken every opportunity to highlight to Ethiopia the real tragedy to her people and the Eritreans. The noble Lord is right to concentrate on that. The Ethiopians have pushed forward, but it has been said that it is not their intention to go as far as Asmara. They are concentrating on regaining the land which they say was inappropriately and improperly removed from them. We must do all that we can to encourage them to that end. The OAU is still a useful organ which can and will be employed to the best possible effect. The noble Lord is right in saying that the situation is difficult and that we need to focus on its future resolution.
Lord Rea: My Lords, does my noble friend agree that if the Ethiopian offensive continues it is likely to trigger another humanitarian disaster in a region that has already had far more than its fair share? Does she also agree that if the offensive continues for long enough there is a danger of restarting the long and bloody guerrilla war which ended only 10 years ago?
Baroness Scotland of Asthal: My Lords, we are cognisant of that history. One of the tragedies of the development of hostilities between Ethiopia and Eritrea is that these two peoples have fought alongside each other; Eritrean blood runs in Ethiopian veins and vice versa. It is a tragedy. We shall continue to do all we can to encourage them to recognise that that tragedy can be averted and that hostilities should be stopped in order to reach a resolution to the difficulty which will allow both to go forward.
Lord Thomson of Monifieth: My Lords, on a more mundane level, what might the Government do to persuade the supporters of Ethiopia and Eritrea in London to stop fighting their war in the middle of Whitehall, to allow London to get on with its business and to relieve the over-pressed resources of the Metropolitan Police?
Baroness Scotland of Asthal: My Lords, I understand the noble Lord's sentiments. For a moment, I thought that he was talking about Members of this House. There has been a deal of disruption and the police are dealing with it cogently and properly. We have seen a peaceful demonstration and are anxious that it should continue that way. We exhort all those who are engaged in it to behave in a more proportionate and reasonable manner.

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However, looking at any given point in history one sees almost a competition between Ethiopia and Eritrea as regards which can be more unreasonable than the other.
Viscount Cranborne: My Lords, has the Minister seen press reports to the effect that one of the objectives of the Ethiopian army is to destroy the Eritrean armed forces? Can she say whether she believes that that is an objective and, if so, how it might be possible to exert the kind of pressure mentioned by my noble friend Lord Howell?
Baroness Scotland of Asthal: My Lords, it is impossible to say whether that is their expressed aim because they do not acknowledge it to be so. The Ethiopians have been clear in their view that land was wrongfully removed from them by an act of aggression on the part of the Eritreans and that they want to reclaim that land. They have indicated that once they have done so they may stop.
We do not know whether that is true. The position on the ground is changing rapidly. It has changed dramatically in the past 36 hours. I can say only that we shall continue to assess the situation and try to persuade the Ethiopians that that would be an inappropriate and improper aspiration to fulfil.
Baroness Trumpington: My Lords, is the Minister aware that I represented this country in Eritrea at her independence celebrations in 1992? I am concerned about two interests to this country. The first is the British Library in Asmara, which has never closed whatever conflicts have occurred, and the second is the war graves of British and Indian soldiers. Will they be cared for in the present difficult times?
Baroness Scotland of Asthal: My Lords, I am not able to give the noble Baroness a specific answer. Of course the war graves are a matter of great sentimental attachment to us all, and rightly so. I can undertake to discover what is happening, but I hope that the noble Baroness will appreciate that in these difficult and troubled times it is difficult to obtain an accurate account of what is happening on the ground.
Furthermore, I have no indication that the British Library has been adversely affected. Regrettably, I am not able to confirm that that is the case, but my reply is a negative as opposed to a positive. However, I shall see whether there is specific information about it and write to the noble Baroness if there is any change in what I have said today.
Lord Avebury: My Lords, whatever the professed aims of the Ethiopians may be, would the Minister agree that on the western front their forces have occupied vast tracts of the country which were not in dispute before the war? Would she also agree that yesterday they opened up a fresh offensive on the central front near Zalambessa? Therefore, whatever they may say in public, is it not likely that their aim is to destroy the Eritrean army?
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In those circumstances, does not the Minister consider that the Security Council ought to be reconvened in order to pursue the matters raised in its previous two resolutions and to impose fresh sanctions on the Ethiopians, who have flagrantly ignored the two resolutions already passed?
Baroness Scotland of Asthal: My Lords, the situation is rapidly unfolding. The noble Lord knows that it has changed even in the past 36 hours. It may be that their aspirations will be achieved in the next 24 to 36 hours. A constant reassessment is being made. I can certainly reassure the noble Lord that the Security Council will be capable of acting swiftly, as it acted on 12th May, if those changes merit that.

Business
Lord Carter: My Lords, before we move to the Private Notice Question tabled by the noble Lord, Lord Mackay of Ardbrecknish, perhaps I may draw the attention of the House to the guidance in the Companion. It states that proceedings on Private Notice Questions follow the rules for Starred Questions, in particular that supplementary questions should be short and confined to not more than two points. Discussions on a Private Notice Question are expected to take no more than 10 minutes.

New Millennium Experience Company: Chairman
3.17 p.m.
Lord Mackay of Ardbrecknish: My Lords, I beg leave to ask Her Majesty's Government a Question of which I have given private notice; namely, to ask Her Majesty's Government what was their role in the events leading to the emergency appointment this morning of Mr David Quarmby as chairman of the New Millennium Experience Company?
The Minister of State, Cabinet Office (Lord Falconer of Thoroton): My Lords, the Millennium Commission offered further funding to the New Millennium Experience Company (NMEC) on a number of conditions. It was for the NMEC board to determine whether to accept those conditions. The chairman of the board, Bob Ayling, decided to stand down, irrespective of the conditions laid down by the Millennium Commission. The board chose David Quarmby to succeed Bob Ayling.
While the Millennium Commission is chaired by the right honourable Chris Smith and includes among its members the right honourable Mo Mowlam, it is an independent body whose membership also includes the noble Lords, Lord Glentoran and Lord Dalkeith, the right honourable Michael Heseltine, Floella Benjamin, Judith Donovan, Simon Jenkins and Heather Couper. It is an independent body which acted in accordance with its remit.
Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble and learned Lord for answering

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this PNQ. However, would it not have been better if the Government had volunteered a Statement on these important developments? Does the noble and learned Lord recall the words of Oscar Wilde:
"To lose one parent … may be regarded as a misfortune; to lose both looks like carelessness"?
Are the events at the Dome carelessness or incompetence? First, the chief executive, Jennie Page; now the Blair-blessed chairman, Bob Ayling; who is next? Does the buck ever stop at a Minister? And is it the case that Michael Connor, the accounting officer for the Millennium Commissioners, requested a formal letter of direction from the Minister, Chris Smith, before he would agree to release the latest tranche of £29 million, and that Chris Smith ordered his Permanent Secretary, Robin Young, to write such a letter? If that is true, is it not the case that this is a fiasco which is rapidly becoming a scandal?
Lord Falconer of Thoroton: My Lords, first, so far as concerns the question of a Statement, a PNQ was put down, to which we agreed. That means that we are able to answer any questions that your Lordships may have. With regard to the circumstances in which Mr Bob Ayling was replaced by Mr David Quarmby, it was necessary to prepare a new business plan as a result of the original estimates of the number of visitors to the Dome being too high. It is worth pointing out that at the moment the number of visitors to the Dome is higher than for any other paying visitor attraction in this country. However, in view of the experience of the past four months, it was necessary to rejig the plans.
An application was made to the Millennium Commission, and the commission dealt with it on its merits. It is an independent body which includes, as I pointed out, noble Lords on the other side of the House, including the noble Lord, Lord Glentoran, who would, I believe, very much resent the suggestion that it is not an independent body. The commission reached the conclusion that the scheme was worth supporting. I have no idea about the detail of the circumstances in which the Millennium Commission came to that conclusion, save to say that it is an independent body which, I am quite sure, acted in accordance with its remit.
Lord Jopling: My Lords, has the Minister had time to look at the stinging criticism set out in a Motion in another place, signed by a former Labour Chief Whip and Deputy Chief Whip and by at least six former Labour Ministers and three chairmen of Select Committees in another place? Following the sacking of Mr Ayling, does he not believe that it would be wiser if he himself were to consider handing over responsibility for this major enterprise to someone who has experience of running such a thing?
Lord Falconer of Thoroton: My Lords, the enterprise is run by a commercial corporation, chaired until yesterday by Bob Ayling, who, in running businesses, rightly commands the respect of many people. It is
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now chaired by Mr David Quarmby, who is also chairman of the British Tourist Authority and the Docklands Light Railway. He also commands respect in the commercial world. The arrangements that were made for the running of the Millennium Dome involved setting up a company, and that was done under the previous administration. It was the right way to proceed because it meant that the disciplines of the market-place determined how the Dome was run. We believe that that is the correct structure.
Lord Marsh: My Lords, the Minister is distancing himself totally from this matter. Can the Government really do that? Surely the reality is that the only rescuer likely to be available was the lottery fund, and no one could have relied totally on that. That board—commercial or not—must have had cash flow forecasts and figures which demonstrated that at some point it would run out of the ability to meet its liabilities. It went to the fund for assistance, knowing that it might not receive that assistance. Can the Minister tell us when the board knew that it was likely to run out of its ability to meet its liabilities, and what the date was when that would have happened? Is it possible that it might, at least technically, have been trading while insolvent?
Lord Falconer of Thoroton: My Lords, plainly it was a matter for the board to determine whether or not it was trading while insolvent. It is a board of responsible people who, I am quite sure, would come to the right and honourable decision in that respect. The National Lottery Fund was the funder, just as is a bank of such an operation. The NMEC company had to make a convincing case to the Millennium Commission in order to receive further funding, which it did.
Viscount Falkland: My Lords, whatever their reaction to the basic concept of the Dome—and I confess that I myself had deep misgivings about it—many noble Lords and people outside the House felt that we needed to support what the noble and learned Lord was doing to make it a success. However, should we not now realise and recognise that the attendance figures have been disappointing, as has the reaction of large numbers of people who have visited the Dome, although some have enjoyed the experience?
It is also unlikely that at the end of the year this venture will be the success that we all hoped it would be. We are now in a situation where an additional sum of money has been committed. Whether that money was dependent on the removal of the chairman and whether he has been a scapegoat is open to argument. Undoubtedly, all that will come out in the books that will be written about this whole matter some years hence, or perhaps sooner.
However, as the spokesman on these Benches, I must say that we are concerned about the amount of lottery money that has been invested in this venture. Additional lottery money has now been committed and others will suffer as a result. Can the noble and learned Lord say what the future of the Dome will be

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if further setbacks are experienced? Will more money be put into it from lottery funds? It would be reassuring to hear his answer.
Lord Falconer of Thoroton: My Lords, with respect to the noble Viscount, I believe that he has understated the progress of the project so far. As independent polls have shown, it has received satisfaction ratings of between 80 per cent and 90 per cent. Yes, it has fewer visitors than were envisaged in the original projections, but as a business it still attracts more visitors than any other paying visitor attraction in this country. That it is perceived to be a commercial success can be seen from the fact that two highly expert commercial companies are keen to take it over from 1st January next year when the exhibition comes to an end.
So far as concerns lottery funding, the New Opportunities Fund has made it clear that the provision of more funding to the Dome will not affect any of its programmes.
Perhaps I may make one further point. When the Millennium Commission decided to go ahead with this project under the previous government, it believed that one reason for doing so was the legacy that it would leave for that part of London: 13,000 jobs in its construction; 25,000 jobs over the following seven years; and the fact that it would attract approximately £1 billion in tourism. That legacy is worth holding on for and questing for, and we believe that it is a worthwhile project.
Lord Peyton of Yeovil: My Lords, although I do not believe that there is any ground for rejoicing or for saying "I told you so", I believe that perhaps the noble and learned Lord would do well to offer some real thoughts about the future. How long will the Dome go on? Will any programme or timetable now be issued with regard to its performance on which it is possible for people to make a judgment?
Lord Falconer of Thoroton: My Lords, obviously the situation must be monitored closely, by the board, by myself as the shareholder and by the Millennium Commission. However, a competition has been running since March last year to determine who should take over the Dome at the end of December. The competition will be concluded at the end of June or the beginning of July. Whoever is selected will take over at the end of the year. That is the current timetable.
Viscount Cranborne: My Lords—
The Lord Privy Seal (Baroness Jay of Paddington): My Lords, before this Question began, the Chief Whip indicated to the House that it was not intended to take longer than 10 minutes. Of course, as the noble Viscount will be aware, when the clock shows 10 minutes, that means 11 minutes.

The London and Frankfurt Stock Exchanges
3.29 p.m.
Lord Lamont of Lerwickrose to call attention to the merging of the London and Frankfurt stock exchanges, and the consequences for companies and investors, including pension funds, if shares have to be denominated in euros; and to move for Papers.
The noble Lord said: My Lords, I am extremely grateful to have the opportunity to introduce the debate on this important subject although possibly not one with quite the same appeal as the Millennium Dome. I am pleased that the noble Lord, Lord Layard, who has a formidable reputation, is to make his maiden speech. I am sure that I speak for everyone in the House when I say that we look forward very much to hearing his contribution.
I declare an interest as a director of a number of financial companies, all of them listed in the Register of Members' Interests and a number of which are investors or potential investors through the London Stock Exchange. In introducing this subject I hope that I do not have to convince the House that my own interest in the matter is not commercial but relates to the economic and financial importance of the British financial services industry and the London Stock Exchange.
It may well be argued that the proposed merger between the London and Frankfurt stock exchanges is hardly a matter for Parliament because it is not in the hands of government. But if they have decided that they have a watching brief in the negotiations between BMW and Austin Rover, as they quite rightly have, they are then equally justified in keeping an eye on the future of the London Stock Exchange, an institution of enormous importance for our economy.
The proposed merger of the two stock exchanges could be immensely beneficial to London and to the whole of Europe. The vision is a bold one. My speech is intended to be in the nature of a probing one. I am not opposed to the merger; nor, however, am I wholly persuaded of its merits. Much of what I have read leads me to believe that it has been somewhat hastily cobbled together, partly in response to past failures of technology, and also pressures from competitors like NASDAQ. The merger seems to be the classic response of the traditional monopolist to embrace a competitor.
Many of the details are extremely hazy. It is rather ironic that the Stock Exchange should propose a merger without a prospectus and without giving the kinds of detail that it would itself require from a company proposing to list on the exchange. It is very far from being a completed deal. We are not so far down the autobahn that other deals, if they come, along, could not be considered. Mr Levitt, the

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chairman of the United States Securities and Exchange Commission, who might be termed the Alan Greenspan of the securities business, is himself somewhat sceptical and has said:
"Having been an alumnus of six aborted (market) mergers in the USI wonder about how they are going to apply, and the likelihood of, a common listing and common governance structure".
There are a number of worrying points about the terms of the merger. On the German side, iX will have one shareholder with a 50 per cent stake; on the UK side there will be 298 shareholders, each with a 0.17 per cent stake. Looking at those figures, no one would imagine that the London Stock Exchange had seven times the assets of its German counterpart or that there was twice the trading volume in London as in Frankfurt. On the face of it, it does not look like a merger of equals. One is puzzled by the concessions which have been made.
I appreciate that the Deutsche Borse has said that it is going to vote only in accordance with the votes passed by its members rather than using its entire shareholding. Nonetheless the structure sends a strange message. The proposed structure of the growth stocks market with NASDAQ also seems strange with six out of the 12 directorships going to the United States and the rest split between Germany and the United Kingdom.
I agree that the consolidation of stock exchanges throughout Europe may make good sense. It is not satisfactory to have 40 different exchanges serving a single market. When the LSE and the Deutsche Borse come together they could be a formidable force, accounting for 53 per cent of trading in equities in Europe. It is argued that that will reduce costs, spreads and increase liquidity. I shall come to those matters.
But how much do formal exchanges matter? Are they going to be relegated to the scrapheap of history, just like the idea that a building, a trading floor and a lot of shouting jobbers used to constitute an exchange? The real battle is between traditional exchanges, Internet dealing and ECNs, the electronically order-driven networks. Many of the questions that this merger is attempting to answer will be decided, not by officials of the markets, but by the markets themselves. They may well turn out to be very different from those wished on us by the officials of the two exchanges who, incidentally, stand to make huge sums of money out of these proposals.
I turn now to a number of questions of which I have given prior warning to the Minister and on which I hope he will be able to comment. Under the terms of the merger it is intended that the 300 to 500 English and German blue-chip larger companies will be quoted in London. Some people have speculated that this will mean the end of the FTSE 100 and all-share indices. There is nothing terrible about that, although it is important that there should be a credible replacement index because unless there are derivatives attached to those indices one will not get the liquidity in the market that is the whole point of the merger.
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While the older, mature companies are to remain quoted in London, the exciting new growth stocks are to be in a new exchange to be set up jointly with NASDAQ in Frankfurt. No company wants to be described as a low growth company, but one wonders what is going to happen to the medium capital stocks, like Babcox. One wonders whether things really will work out precisely in this neat, clear-cut way or whether the markets themselves will decide which stock is quoted in which market.
If the division between Frankfurt and London turns out as planned by the two exchanges, what will that mean for London's initial public offering business? Will it continue in London? What guarantee can there be that when growth companies, the new electronics companies, become the blue-chip companies of tomorrow, they will mysteriously return to London? It is noteworthy that Microsoft in the United States has chosen to continue to remain quoted on NASDAQ. If the new, exciting UK companies of the future are all of necessity driven to Frankfurt, there is a very considerable risk that they will be followed by an exodus of professional firms, advisers and investment banks.
That leads on to the vital question of either the opportunity or the danger, according to one's point of view, of regulatory arbitrage. In the United Kingdom we have a more fully developed and efficient system of regulation than in Germany although it is fair to say that Germany is rapidly improving. Is Daimler Chrysler really going to want to be regulated by the FSA, which is now the London listing authority, and submit itself to all the requirements of the Hampel report on corporate governance and the role of non-executive directors and directors' remuneration? I hope so, but I have my doubts.
At the other extreme, will the new small technology companies be able to side-step UK standards of reporting and accounting by being quoted in Germany? The dangers to investors of the volatility of these so-called exciting companies have been vividly illustrated in the recent past. But if they are to have lower standards of regulation in future, they will lose much of their attraction to UK pension funds and institutions. It is a very great pity that the FSA cannot be the regulatory authority for both exchanges.
There is the question of the transparency of trading in the market. A modern market needs transparency and German trading rules are notoriously opaque. Huge block trades are carried out without reporting and in secret. It seems inevitable from the arrangements put forward that this anti-competitive practice will be extended.
The justification for this deal is economies of scale. But economies of scale do not come about just by putting together two organisations called exchanges. The real economies of scale could come in relation to clearing systems. Eighty per cent of transaction costs occur in back offices and efficiencies come from lower down the curve than from where the trade happens.
A low-cost pan-European equity trading market needs a common settlement system. Yet the proposed arrangements exclude Deutsche Borse's 50 per cent

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stake in Clearstream and also leave in place the multiple expensive settlement arrangements such as Crest Cedel and Euroclear.
What had been planned in London and, according to newspapers, promoted by the Bank of England was a larger role for the London Clearing House whereby it would have been a central counter-party for all markets and allowed net trading. As the LCH already acts as a central counter-party to the international derivatives business, which flows through LIFFE with all its financial and commodity products, the International Petroleum Exchange and the London Metal Exchange, the City was on the verge of capturing even greater efficiencies. It is not clear whether that has been compromised or just ignored in the deal with Frankfurt. But what is worrying is that Euronext, the merged French, Belgian and Dutch exchange—a competitor to this proposal—has addressed the clearing matter.
Whatever else may be said about this deal, one point, which must be warmly welcomed, seems certain. It must mean the end of stamp duty on shares. If the merger goes ahead, the Chancellor will have no choice in that matter; otherwise share trading will move wholesale to Germany.
The issue of trading platforms is to be tackled, but for many people that will bring tears to their eyes rather than joy. The Sets system, installed only three years ago at such expense, is to be scrapped in favour of the German Xetra. No one, least of all the former Chancellor of the Exchequer, will easily forget the terrible problems that the London Stock Exchange has had in recent years with computerised trading systems.
Both Sets and Xetra were designed by the same firm, Andersen Consulting, so any bugs that are in the two systems are likely to be rather similar. It has been reported that Xetra has been out of action quite a lot in the recent past, including last week. Both systems are old, and faster and more advanced systems are becoming available. This time I hope that the right choice has, at last, been made but yet another change will be extremely expensive for the small brokers, even if it is petty change to the big investment banks. Small brokers are entitled to know how much this will cost and what they will be expected to pay.
One of the suspicions about the merger is that it is driven by the needs of the large investment banks with insufficient regard for retail investors and institutions. No one admires the American investment banks more than I do, but what is good for Goldman Sachs is not necessarily good for a free, open share market. Such concerns have been intensified by the somewhat insensitive handling of the matter of the euro by the stock market. Whatever Mr Cruickshank now says, certainly the Stock Exchange originally intended that all companies should be quoted in euros. Now, I am pleased to say, that the exchange seems to have retreated somewhat from that position.
To compel companies to be quoted in euros, even though Britain continues to stay out of the euro, would be to impose an extra cost, both on the retail investor and on the UK pension funds. The liabilities of the
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latter are expressed in sterling and they are obliged by law to match their liabilities and assets. The 20 per cent fall in the euro has already translated into a significant fall in pension fund assets, which has to be made up either with the use of derivatives to hedge the risk or from other sources. Obliging companies to quote in euros would add to the risk and add to the cost.
There are strong views on this issue, but surely it is another matter that should be decided by the market. As long as Britain is outside the euro, companies, taking into account the views of investors, should decide in which currency they wish their company shares to be quoted. A modern trading platform should easily be capable of that.
In conclusion, there are many question marks against this merger. It is not clear that the proposals are in the interests of investors. It may be that the competition authorities in Brussels will be able to examine the matter and obtain some of the detailed information that has been missing from the debate. I would be grateful if the Minister would comment on the competence of the Brussels authorities to do that. In the meantime, unless the Stock Exchange stops giving the impression of making things up as it goes along, and until it provides answers to some of the questions asked, I fear that members of the Stock Exchange may well believe that they have ample justification, at least for the moment, for withholding consent from this proposed deal. I beg to move my Motion for Papers.
3.45 p.m.
Lord Layard: My Lords, I am extremely grateful to the noble Lord for proposing this debate because our economic relations with the rest of Europe are so important to us. As an academic economist, I should declare an interest. I have always tried to do something else as well as economics, so for many years I spent time on the politics of unemployment, after which I spent some time on the politics of reforming Russia, which was not quite so successful; and recently I have spent time on the reform of education and employment in Britain. However, my main job is running a research unit studying the causes of national prosperity, which include two key factors underlying this debate: the issue of industrial structure and the issue of currencies.
On industrial structure and mergers in general, I would simply say this. When the information revolution was getting under way, many people thought that it would reduce the need for large companies and large banks, because it would so greatly reduce the cost of transactions between different separate companies. In fact, the reverse has happened because the cost of transactions has fallen, even more inside companies than it has between companies. So we now see mergers taking place in every industry and we are not necessarily reducing competition because the pace of globalisation is so rapid. The same general logic is behind the merger that we are debating today.

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A related logic is producing mergers between currencies. As capital flows have become ever easier between currencies, the cost of exchange rate uncertainty and exchange rate fluctuations have risen and the benefits from using a single currency have, therefore, increased. This is the second big issue behind the debate and the aspect on which I want to concentrate. It is a very controversial issue and this is a maiden speech. However, it is often said that if you laid all the economists in the world end to end, they would never reach a conclusion! That is not fair, but on this occasion I shall not come to a conclusion.
However, I shall set out some facts about a single currency, its impact and how it works, which may not be as well known as they should be, although I believe that most of the facts I shall quote are those with which the majority of economists would agree. The basic fact is that a single currency increases trade and capital flows within the area that it covers. Thus, it increases productivity and living standards. An obvious example is Canada. Canada has its own currency, but it shares a very long land border with the United States, so most parts of Canada are nearer to the United States than they are to the rest of Canada. Canada also speaks the same language as the United States and has a free trade area with the United States, but it has a different currency.
The result is that a typical Canadian province does 20 times more business with another Canadian province than it does with a US state which is equally distant and equally wealthy. Since trade in a large market increases competition and increases productivity and living standards, Canada's separate currency is an important reason why Canada is only four-fifths as rich as the United States. Therefore, free trade is not enough—not enough for a truly free flow of goods and not enough for a truly free flow of capital, and that doubtless lies behind some of the earlier remarks which were made by the London Stock Exchange.
If one looks at the movement of exchange rates between different currencies, it is not difficult to see why a common currency is so helpful. Ideally, of course, we would like, for example, the sterling exchange rate to move smoothly to offset differences in inflation rates between us and our competitors, so that we would have a stable level of competitiveness in world markets. But the story of the past 30 years has not been at all like that. The exchange rate has in fact been a major source of shocks and uncertainty, rather than a smooth mechanism of adjustment, and the main source of fluctuations in our national competitiveness, of which today's exchange rate is just one example.
Conversely, of course, there are other kinds of shocks, apart from exchange rate shocks, which can affect a country. The main argument against EMU, of course, is that we would lose our ability to vary our interest rates so as to offset those shocks which particularly affect Britain because of our particular economic structure. However, on inspection, it turns out that our industrial structure is, fortunately for us, very similar to the average of Europe as a whole. There
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is much less difference between Britain and the rest of Europe than there is between a typical US region—for example, the Texas region—and the rest of the United States, yet all those regions of the United States happily share a common currency.
My final point concerns the question whether a single currency needs a large federal budget. It is true that if Texas has a bust, the US federal government in Washington helps it out with higher unemployment insurance and lower tax claims. People often argue that a single currency in Europe can work only if there is a large federal budget in Brussels. However, this overlooks the simple fact that US states are mostly forced by law to balance their budgets year by year, so they need that external support from Washington. The fact is that in Britain we already have more automatic stabilisation from within our own national budget than any US state receives from Washington. It is not true, therefore, that a single European currency would need a large federal budget in Brussels to enable it to work.
The basic situation is that the new technology is driving us towards a new world in which there are more large companies and more large currencies. In this context, the Stock Exchange and the nation as a whole have to make key decisions, and I hope that the facts which I have quoted are of some relevance.
In conclusion, I should like to say that in the past two weeks I have received a most wonderful welcome in this House, for which I thank your Lordships and the staff most warmly. I have also received a number of lessons on etiquette. In that connection, I have heard that in the debates in Parliament on the Irish potato famine the potato was always referred to as "that vegetable". The word "potato" was never used; nor have I used the word "euro"!
3.55 p.m.
Lord Northbrook: My Lords, I am sure that the whole House would wish to join me in congratulating the noble Lord, Lord Layard, on his excellent maiden speech. The noble Lord is one of Britain's leading applied economists and has created, at the Centre for Economic Performance, one of the world's top economic research centres. Through his researches, he laid the intellectual foundations for welfare to work, and he promoted those ideas most effectively by founding the Employment Policy Institute. We look forward with interest to his useful, thoughtful contributions.
First, I declare an interest as a director of a fund management company based in London. Therefore, I speak with some experience of using the London Stock Exchange. In my short contribution, I wish to focus on the practicalities of the proposed merger between the London Stock Exchange and the Deutsche Borse. It is far too often claimed that the investment management and stockbroking firms which act for individual investors are always against change. Just like anyone else in finance, they recognise the need for these necessary changes and plan for them. Strategically, the alliance between the London Stock Exchange and the

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Deutsche Borse is a good one. Companies which seek to offer their goods and services outside their own geographic borders often most successfully do so by acquisitions and mergers, especially as competition becomes fiercer. A combination of NASDAQ Europe, electronic crossing networks, to which my noble friend Lord Lamont referred, JIWAY and persistent rumours about tradepoint, means that the choice strategically for the London Stock Exchange appears to be either alliance or decline.
Five markets are effectively formed by iX. The first is the blue chip market, which will take Europe's top 300 to 500 companies and will trade in either sterling or euros, depending on the company and its primary trading currency. The second is a high growth market for technology companies, which will be formed on a 50:50 basis between NASDAQ Europe and iX. These stocks are expected to trade in euros. UK and German companies that do not qualify for either the blue chip or high growth markets will continue to trade on their own local exchanges. In addition, the AIM market will continue as before.
I deal now with my general areas of concern about the merger. I agree with the Shadow Chancellor that stamp duty disparities, regulatory problems and the aim of doing all trading in euros are major problems, especially for the private investor. I also wish to concentrate on a few specific problems of detail from a practitioner's viewpoint. First, there is the problem of the high technology area of iX. The high technology companies will come from the Frankfurt Neuer Markt, the London Stock Exchange's Techmark stocks, excluding the upper tier, blue chip ones, and from NASDAQ. These stocks are expected to trade in euros. We are faced with a situation where a quoted London technology stock outside the top 300 to 500 European top companies will find that it not only may see the currency of its share price change but also that it will be regulated by the German regulator. Such a change may discourage technology companies from coming to the market and will also create problems if they move from one level to another. UK investors may also be deterred from investing in them with a euro share price. Also, there may well be extra custody costs in holding the share.
Going on to more detailed concerns, there are two main administrative areas where major upheaval will occur as a result of the merger. The first area is trading platforms. The market for blue chip stocks will be regulated in the UK but will abandon the SETS system, to be replaced by its German cousin, Xetra. While the Stock Exchange system fails from time to time (the most notable occasion being 5th April this year for almost the whole day), Xetra fails too, and more often. Thus there will be one set of costs to change to Xetra from SETS then a second and much bigger cost to rebuild the whole entity to give, as the exchange press release said,
"a Common Market model and regulatory approach",
offering trading in all UK equities. Some have estimated the cost of the first change to be at least £500,000 per firm and the second step—the major rebuild—to be many more times that.
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The settlement situation for stocks is also undecided. Crest, the UK system, is a European leader in terms of the capability of its market systems and its multi-currency facility. Its lead is further emphasised by the need for the Deutsche Borse clearing system to be rationalised as it will be merging with Cedel to form Clearstream. If Clearstream were to be adopted as the settlement system, then the costs to all brokers and investment houses in the UK would be significantly greater than the costs associated with changing the trading platform.
My next area of concern is that of a central counterparty. Neither the Deutsche Borse nor the London Stock Exchange has one. However Eurex (the European Futures and Options Exchange) does, and it is part of the deal. Work is also underway with the London Clearing House to create a central counterparty for SETS. The proposition is that the UK will continue to build the central counterparty. It is then to be linked to Euronext (the French, Dutch and Belgian Exchanges proposed merger) followed by a third set of changes to create a central counterparty for the entire merger. The UK Stock Exchange, in its recent press release, states,
"It is intended that trading on the unified Pan-European market will ultimately feed one central counterparty".
Who will pay for that? And is it to be in the UK or Germany? Those matters need to be clarified by the London Stock Exchange in its forthcoming information memorandum.
My next area of concern is the regulation of the merged markets. The "big five" brokers expressed the following concerns about the regulation of the merged stock markets. They believe that, while it is not practical to have a single unified market for all equity securities, given different liquidity characteristics, it is essential to have a single regulatory system which is transparent and flexible. They believe that this also needs one set of listing requirements and trading rules with fully transparent trading so professionals can see both what securities are changing hands and at what price. They believe, as my noble friend Lord Lamont stated, that German rules are notoriously opaque and less demanding than the FSA. Brokers can carry out huge block trades in secret. Frankfurt listing rules are also unnecessarily complicated. The brokers believe it is surprising that the FSA, which has taken over from the Stock Exchange as the UK listing authority, has not made that point where it is overwhelmingly best placed to be iX's regulator as well as the single listing authority.
Current shareholders in the Stock Exchange will ultimately decide its future at the forthcoming EGM. Well before that EGM is reached, more answers on how this alliance is going to work need to be given. To get that right, first, the exchange needs to publish details of the changes as soon as possible, including costs, outcomes and alternatives, and let the market users decide the most appropriate solution. It should be one which is relevant to all sectors and not preferentially weighted against any. Secondly, iX should take responsibility for at least some of the

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changeover costs of the users. Thirdly, continuous consultation should take place which actively responds to concerns.
Not only the institutions should be consulted, but the private investor must not be excluded, especially at a time when the Government are urging people into ISAs, employee share schemes and stakeholder pensions. In the first three months of this year, more than 6 million bargains were traded for the private investor. That is not a small number and therefore the brokers and fund managers who look after them must be consulted too.
4.5 p.m.
Lord Haskel: My Lords, I too congratulate my noble friend Lord Layard on his maiden speech. Not only is he one of our leading economists, he is also an inspirational teacher. I happen to know that because he taught my son and inspired him to become an academic economist too. I warmly welcome the noble Lord to the House.
I thank the noble Lord, Lord Lamont, for moving this Motion. Surprisingly, I share many of his concerns. But I wonder why we are debating the merger now. Despite yesterday's decision by the supervisory board in Frankfurt, as the noble Lord, Lord Lamont, said, the deal is not done and there are many important details to be settled.
Unlike my noble friend Lord Layard, I shall mention the euro because it is referred to in the Motion. Indeed, the wording of the Motion leads me to believe that perhaps the reason for moving it is that the noble Lord, Lord Lamont, sees this as yet more "euro creep"; yet another way that the euro is entering our lives, and perhaps he does not like it. But, like it or not, this is an inevitable part of being engaged in Europe. Mergers and consolidations are part of this engagement. They are part of being more competitive in the single market. As my noble friend Lord Layard said, economics is the driving force here, not politics.
The noble Lord, Lord Lamont, is concerned about companies denominating their shares in euros. There is no question of force. In fact, some companies already do this because it suits them. Indeed, our top 300 companies are quoted in both euros and sterling every day, as we can read in the Financial Times. Other companies have secondary listings in New York, again because it suits them. Currencies are a matter for the users of the market. Exchanges cannot force companies to take currency risks.
The Motion is concerned about currency risk for our pension funds. But the merger changes very little. If investors want their investments to remain in sterling, the shares will continue to be quoted in sterling. The risk will remain the same as it always was for as long as we remain outside the euro and for as long as pension funds pay out their pensions to us in sterling. The real currency concern is that the merger is taking place when the euro and sterling are misaligned and do not represent economic fundamentals. The undervaluation of the euro and the
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overvaluation of sterling could cause misleading measures of market capitalisation. That is the currency concern.
If we are to debate the iX Stock Exchange in Parliament, our concern must be how well it will serve the British economy and British business. Will iX be more efficient? Will it be a more efficient market with lower transaction costs and more liquidity? Will British business be disadvantaged, and I mean all British business and industry? Unlike the exchange rate, which only affects some parts of our economy, this will affect every part because every part of every sector of our economy is quoted on stock markets. The uncertainty will affect our businesses. While the deal is being negotiated, there will be uncertainty and financial markets do not like uncertainty. The uncertainty surrounding this merger may have an adverse effect on output and jobs in the real economy—and that is where it matters. The fact that the London Stock Exchange is now in play only adds to that uncertainty. Therefore, I hope that the terms of the merger will be finalised as soon as possible.
I agree with the noble Lord, Lord Lamont, that at first sight this merger would seem to benefit large companies and financial institutions. They should be able to benefit from greater exposure, lower transactions costs and greater liquidity. I am not so sure about small and medium-sized companies. Their recent experience of the London stock market has been decidedly mixed. For them, the market has been much more volatile, with huge fluctuations. Thanks to the gung-ho attitude towards dot.com businesses, many good companies have seen large declines in their share valuations, and declines in their valuations relative to their continental competitors.
For example, on the London Stock Exchange, the recent PE ratio for consumer durables has been about 8.9, whereas in Germany it has been 11, and in France it has been 14. That has caused some medium-sized companies to seek to withdraw from the London Stock Exchange by selling out to private equity funds. We are seeing quite a lot of activity in that area. Will this merger change any of that? Will it provide them with a better or larger PE ratio? Like other noble Lords, I am anxious to see.
Like the noble Lord, Lord Lamont, I too have concerns about the implications of this merger and its impact on our economy. Will it be a suitable market for the investment of our pension funds? If the iX is to be a privately owned, centrally organised monopoly market, it may offer our pension funds a poor deal. It must be an efficiently run, competitive market because those competitive markets make money for the participants. That is what I should like to see. Those matters of corporate governance and competition must be clarified and they must be got right.
Will there be access for the small investor and the small broker? There will have to be a common technology platform in the iX market, and the costs of changing over to the common system would be considerable. The noble Lord, Lord Northbrook, explained that.

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Then, firms will have the cost of adapting to whatever settlement system the providers of settlement services decide on. That is where the main costs lie. Those costs may be prohibitive for the small investor and broker.
There are other matters to be agreed. Will there be common accounting? Accounting is different in the UK from in Germany. There was a report in the newspapers last Thursday that regulators had agreed a common set of accounts for listing on stock exchanges anywhere in the world. That may be good news, but I do not advise noble Lords to hold their breath because the committee charged with carrying out that work was set up in 1973.
That leads me on to regulation. There will obviously have to be some harmonisation. Regulatory rules in Britain and Germany are different, but they are converging. But the ethos is different too. There cannot be a dual system. I imagine that the FSA will continue to operate in much the same way, but on a larger canvas. There will have to be broad agreement, not only on the rules of market behaviour but also on the level of consumer protection, education and information. I assume and hope that the regulators are already talking to each other about that. I hope also that the lawyers are talking too because, as we have recently learned, there are differences in the takeover codes. For example, in Germany, the code demands that employees are informed about the likely effect on jobs in the event of a takeover. Here in Britain, the code hardly makes any reference to workers. How will that difference in attitude be reconciled without any reduction in standards of consumer protection and tolerance of market abuse?
The noble Lord, Lord Lamont, is right also about stamp duty. That will have to be addressed. Duty is payable on UK shares wherever they are traded. However the ADR loophole which enables British shares to be traded in New York has operated for some 10 years, I think. Will there be a similar loophole in Frankfurt or, as the noble Lord, Lord Lamont, said, will stamp duty have to be abolished? What index is used and how it is determined is also important. Not being in the main index has significant implications for investors and, more importantly, for companies, whether they are in or out of it.
I am not really sure of the value of debating this merger in Parliament. The noble Lord, Lord Lamont, said that few of these questions are matters for the Government. This is a merger—and merger matters are largely for the competition authorities, the regulators, the shareholders, the staff and directors of the companies themselves. That is where it needs to be discussed.
We want to see the information memorandum, normally prepared for the shareholders involved in a merger, because that memorandum should address and clarify the concerns which the noble Lords, Lord Lamont and Lord Northbrook, and I share. I look forward to reading it.
4.15 p.m.
Lord Desai: My Lords, first, I thank the noble Lord, Lord Lamont, for introducing this debate. It timely. I believe that we should discuss this issue way before all the conditions have been settled so we can express the doubts and reservations that we have. That may help those concerned to do a better job.
Secondly, I must warmly welcome my long-time friend and colleague, the noble Lord, Lord Layard. Among his many achievements is that he survived a couple of lectures I gave him on price theory. It does not seem to have done him much harm and he has gone from strength to strength, so he is fairly robust.
I should declare a small interest. I am a non-executive director of a small City firm, Hythe Securities, which trades in Eurobonds. Do not ask me how, but I am a non-executive director of that firm.
In terms of economic theory, mergers are seldom economically efficient. Every time economists study mergers, they find that they give tremendous help to the managers but never help the shareholders and very seldom help the consumers. They are fashionable and all sorts of City firms make a lot of money out of mergers, acquisition business and so on. But seldom can we subscribe to a Darwinian notion that mergers take place for efficiency considerations or because the more efficient firms take over the less efficient ones. Normally, the cash-rich, less efficient firm takes over the rapidly growing, cash-strapped firm. That is very often the case.
In this case that is not a bad analogy because we have a large Stock Exchange—historically, the largest in Europe—merging with a fast-growing exchange. The growth rates of the German Stock Exchange are quite spectacular. Between 1995 and 1998, in terms of new funds raised on the market, the German market doubled every year. While London was nine times Germany in terms of funds raised in 1995, it was only five times by 1998. We can see the way that the growth rate is going.
So there is a great deal of complacency in London and we really must watch it. London tends to regard itself as absolutely the best because it is the largest. The largest markets have to watch and make quite sure that they are as competitive as the small markets coming through. Over the past five years especially there has been a rapid growth of small equity markets all over Europe. They are very innovative markets. Although at present they are small in relation to London, they need to be watched.
One consideration about this merger will be whether the London market can make itself more competitive; in other words, if the merger were to fail, could it actually improve its practices and learn from other markets? Can it survive at the top? Alternatively, if a merger is the solution, it will need the infusion of new blood, new techniques and new practices. It is possible that the establishment of a totally new exchange for iX will prove to be the solution.
Obviously these markets have a physical location only, as it were, by an old-fashioned definition. We can now trade on any market from anywhere. Therefore,

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as Don Cruickshank said to today's Financial Times, we are talking about frameworks of governance when we talk about London or Frankfurt. These are not just geographical locations. The fact that stocks are being traded on the Frankfurt market does not reduce the number of jobs in London. That is not a relevant consideration. We must consider what kind of efficient combinations can emerge as a result of the merger.
There is also one very important point that we ought to bear in mind. Stock markets are agents only; they are intermediaries. The fact that they have to be efficient is in all our interests. The more efficient they are, the more our savings will come back to us in the form of pensions and so on. So it is in all our interests that markets are efficient and deal in low-cost transactions. I do not care where my pension fund puts its money as long as it gets me a large return. I do not care about the colour of the currency in which it trades or where it puts money: I want my pension fund to give me an income that will keep me happy as and when I retire. Therefore, to that extent, I consider the question of which currency markets trade in to be a purely technical one and of no significance.
We are talking about smart people; they should know how to hedge against exchange rate risks. If they do not, they should not be in the market. They are not ordinary consumers or workers; they are very smart people who trade very fast and who are supposed to know about all the instruments relevant for hedging exchange rate risks. As my noble friend Lord Haskel said, where companies choose to trade, what currencies they want to trade in or how many currencies they want to have are entirely matters for them. It is not of any concern to anyone else.
The one question to ask about this merger is: will it increase efficiency? Right now we do not know. There is insufficient information on hand to consider the question carefully. What we have had are news headlines about growth stocks over there and blue-chip stocks over here, which, when it comes down to it, are basically very cool classifications. One of the reasons behind the merger was the fact that NASDAQ was threatening to come to Europe. Indeed, one thing that such a merger will do is to stave off a separate NASDAQ/Europe and integrate NASDAQ into iX. Therefore, to that extent I believe that it will lead to a richer set of markets.
It is also premature to consider that question because this development may trigger other mergers. No doubt there is a Paris/Amsterdam merger, but there are also the Italian and Portuguese markets which might come on board with German and UK markets. Of course, as has already been said, it remains to be seen. However—this is independent of the merger—the stock exchanges have not proved themselves to be very efficient in the technology that they deploy. Basically, it is quite pathetic that they cannot get a proper computer system designed to do business; indeed, it is very costly to have inefficient machinery. I am surprised that the management concerned is not of sufficiently high quality to sort out
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such matters. I do not believe that one could afford that kind of inefficiency through technology in any other sphere.
However, we know about trading on Wall Street in the United States. There is so much trade inside the US that 97 per cent of all trades are netted out. They do not really have separate settlements, but that is not yet the case in Europe. There are far too many different markets and one has to settle bilaterally with lots of different markets. The more that markets merge, the more we shall be able to net out. That will lead to a tremendous growth in efficiency. There is one factor that we do know: convergence and integration will lead to cost cutting. For the rest of it, I think that we have to hope that the institutional arrangements that are unveiled, and subsequently the management of the exchanges, are of better quality than what we have had thus far. We must also hope that iX will be able to stand up to the more efficient markets across the Atlantic.
In conclusion, I thank the noble Lord, Lord Lamont, for allowing us to discuss this most important question. It is one to which we shall no doubt return when we know more about the merger. In the meantime, I think we can say, "Well, the jury is out".
4.25 p.m.
Lord Lea of Crondall: My Lords, perhaps I may, first, welcome this debate. It is useful to have the opportunity to clarify some of the issues in what is undoubtedly a development of immense practical and symbolic significance. In that respect, I echo what the noble Lord, Lord Lamont, said. I also welcome the fact that we are holding this debate in a cool atmosphere—unlike the debate in another place, where last week Mr Michael Fallon said that the Stock Exchange had not only surrendered the towels round the pool to the Germans but also given up the hotel as well. Indeed, some members of the party opposite increasingly resemble a collection of anoraks festooned with badges saying, "Save this" or "Save that". First, we had "Save the Pound" and now we have "Save the Stock Exchange". Perhaps we shall soon see a badge saying "Save our Foreign Exchange dealers" on the grounds that some of them may need to be redeployed. I still own an anorak, and would be happy to lend it to the noble Lord, Lord Lamont, if he would like to borrow it sometime.
Perhaps I may also congratulate my noble friend Lord Layard on his excellent maiden speech. We were contemporaries at Cambridge, both guinea-pigs of C P Snow's "Two Cultures" experiment to turn us into scientists—with limited success, certainly in my case. So we became economists instead. I look forward to hearing many more contributions from my noble friend.
The wider significance of this debate is that it is bringing into focus—and will do so increasingly—a degree of objectivity in the analysis of our relationship with the rest of Europe. It will bring into focus such questions as the larger size of the German economy and the hugely greater size of the eurozone as a whole

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than the sterling zone. There will also be the question of the difficulties caused by the volatility of sterling. Today is not the day to debate the crisis facing manufacturing industry, but sterling is now a relatively small currency pushed between the two tectonic plates of the euro and the dollar.
Our exposure to greater foreign exchange risk has been clear ever since the euro project got off the ground; indeed, I would say that it has got off the ground successfully. Of course, time will tell but that is my prediction.
The idea that we are in the "Last Chance Saloon" as regards the role of the London Stock Exchange may now be associated with some of the remarks attributed to various people during the past few days. However, I do not think that this has been said by the incoming chairman, Mr Don Cruickshank. I quote the words of a respected financial journalist, Mr Anthony Hilton, the City Editor of the Evening Standard. He wrote on 18th May,
"People fail to realise that the London Stock Exchange was negotiating with a pistol held to its head. Both it and the German Exchange are shedding their mutual status but the capitalisation of the German market was destined to be two to three times greater than that of the London Exchange—and it was also planning to raise a cash war chest. So in a few months' time the Germans could have mounted a hostile bid that London would have found impossible to resist.
Faced with this option, Casey [the chief executive] has struck easily the best deal available for London—a much better deal than his hand would have suggested. Those who oppose it should stop and think what the alternative is. Casey deserves credit, not brickbats".
I shall concentrate on two points in the substantive part of my remarks: the currency question and the importance, or lack of importance, of that; and the perspective of pension funds, in which, of course, the trade unions have a major interest. We need to be explicit about what will happen as regards the use of sterling or the euro. The structure of the merger gives this question greater significance than my noble friend Lord Desai has acknowledged. However, that debate will continue.
By the end of next year—I am trying to keep my exposition simple—all the continental-owned companies are likely to be quoted uniquely in euros. My expectation is that many British companies will also be quoted uniquely in euros. I say "uniquely" because, although a sterling facility will be available and will be used if a company is quoted in euros, the actual listing on the board will be in only one currency. There will no dual currency listings. Indeed it has been made explicit in the prospectus—if that is the appropriate word for the relevant document—that,
"dual pricing will not be allowed",
because that could lead to imbalances and resultant wider spreads. That is the position. I quote from today's Financial Times where Deutsche Börse states,
"A company's shares will be traded in only one currency in order to concentrate the liquidity in one order book".
There could be no clearer statement than that.
The fairest statement on the relationship between the merger and the euro must therefore be that, although the issue is not a major one at the present
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time, it will become one if we stay out of the euro for a long time. One thing we are all clear about is that, whereas we could all foresee circumstances in which all trades were in euros, no one could foresee circumstances in which they would all be in pounds. I would be surprised if that contention were challenged today. I asserted that premise even before I read the article that I have just quoted. I go a stage further and assert that if someone wished to set up a new European fund in the next year, they would in all probability denominate it in euros. Could anyone doubt that?
The Financial Times has been cautious about the merger but its general assessment is worth reminding ourselves of as it is an interesting perspective. 1t states,
"at least it is a bold attempt to break the deadlocked self-interest that has bedevilled all attempts to create a much needed pan-European market".
That takes us into a slightly broader field which I wish to touch on. If I were a betting man I would say—I would have said this yesterday, but my view is reinforced by today's news from Frankfurt—that the merger will go ahead for the following fundamental reason, which has not been made explicit so far today. We have in the world today three basic time zones: Asia, Europe and America. Given that 24-hour trading will not be followed to the letter with stockbrokers working through the night—that will be the day, or the night!—the relevant trading hours for the large internationally traded stocks will be eight hours in Tokyo, eight hours in this part of the world and eight hours in New York. That is the logic of the matter.
That logic relates to another logic; namely, the integration of European industry is a fact of life which no one, however Eurosceptic, would deny. Therefore there will be three big players around the world in the sense of three time-zone players. That is the typical kind of oligopoly that exists in many industries at the present time. Incidentally, it throws up the need for parallel regulation, which I do not feel that we have.
One does not need to be reminded that at the present time many industries that wish to have a spread of investments—I refer to the motor car industry in this connection—need to look to Europe, America and Japan, not to UK equities. That is the way that pension funds invest. One could give half a dozen examples of such industries. To say that this process incurs an extra cost for pension funds is an optical illusion. At least, it is an illusion to think that extra costs will result from what may become euro-denominated prices in Frankfurt. The exposure and the volatility are no different as regards a non-sterling company. At the present time there are foreign exchange transaction costs. Therefore, a myth has developed with regard to extra currency costs in this area. Pension fund managers will have to ask themselves the same questions, whatever the currency involved. We are told that at present pension funds' exposure to Europe is about 10 per cent. That is a figure of about £40 billion out of a total of £400 billion.
We cannot easily measure trends at the present time because the relevant financial statistics are not satisfactory. Will the Government provide the figure

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for the European component of pension funds' investments overseas in the financial statistics? There is no such figure in the financial statistics at the present time. The stock of equities in this country in relation to GDP is much larger than that of the Germans. If the Germans go in the Anglo-Saxon direction, I believe that they will soon have a bigger equity stock.
I conclude by saying that I believe that the merger will be in the interests of pension fundholders in this country. I welcome it.
4.37 p.m.
Lord Barnett: My Lords, I begin by congratulating my noble friend Lord Layard on his maiden speech. I declare an interest in that he has never lectured to me! He said that his speech was non-controversial. I look forward to hearing him when he is being controversial!
I make it clear that I agree with what he said although I imagine that one or two people may have considered his speech controversial, not least the noble Lord, Lord Lamont, who was non-controversial today. I congratulate him on his speech. When I read it in the Financial Times earlier today I thought that we had moved into a new era of having our speeches printed in newspapers. I have the article here. I was glad to have a copy of the noble Lord's speech in advance! I enjoyed both the article and the noble Lord's speech. I agreed with much of what the noble Lord said, which surprised me considerably. I shall return to some of the points that he made. I willingly concede that on this occasion the noble Lord was non-extremist in his views. I know that I upset him once when I accused him of being extremist.
It was always inevitable, I suppose, that reference to the euro in the Motion—I do not know who drafted the rather badly worded Motion; I should be surprised if it was the noble Lord—would immediately provoke some people (both in this Chamber and outside) into expressing the usual reaction. I am glad that the noble Lord, Lord Lamont, did not express that reaction—although in the Financial Times he could not resist referring to the "insensitive handling" of the euro. I shall come to that in a moment.
The noble Lord, Lord Lamont, said, sensibly and rightly, that many questions need to be asked in regard to the proposed iX. I agree with the many questions that the noble Lord and others have put. Without the answers, I join him in being a "don't know". We need answers to many of the questions about the details of the merger proposals.
I fear that there will be a knee-jerk reaction from some politicians. Who is right: the politicians or the market? I am rather surprised that some Conservative politicians—of all people—have said that they should tell the markets how to handle the merger. I do not include the noble Lord, Lord Lamont, among them. He deliberately excused himself from that—although he did not refer to his right honourable friend the Shadow Chancellor of the Exchequer.
In The Times on Monday, the Shadow Chancellor, Mr Portillo, put forward three basic arguments for rejecting the merger—not for seeking details, but for
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rejecting the merger. Perhaps I may refer to those arguments and comment on them briefly. All three arguments have been referred to, of course, by the noble Lord, Lord Lamont. He obviously does not take instructions on these matters but, nevertheless, he has read what his right honourable friend said.
Mr Portillo's first argument was that hi-tech stocks will move to Frankfurt and will involve a serious shift of business from London to Frankfurt. Secondly, he raised concerns about the German regulatory system, which I shall refer to in a moment. Thirdly, he thought that all equity trades would be in euros. I wish to deal with all those arguments, which, as I said, were also referred to by the noble Lord, Lord Lamont.
First, on the fear that hi-tech stocks will move to Frankfurt, we have not yet heard in detail how the merger will work, but I assume that, as it is a merger and not a takeover by one of the other, not surprisingly some parts of the merged exchanges will have some parts of the business. On the other hand, London is far and away the bigger financial centre; it is hugely bigger.
Perhaps many of the banks that the noble Lord has told us he represents will be based in both centres—I do not know—but I hope that he advises them from a professional point of view rather than from his views on the euro. That is an aside; I am sure that he does. I am sure that the pensions of my noble friend Lord Desai and myself would be in good hands if they were in the hands of the institutions the noble Lord advises.
Given that London is so much bigger than Frankfurt now—and is likely to be so in the future—and that it will be handling the major FTSE equities, the likelihood surely is that if there is to be any shift at all it will be from Frankfurt to London rather than the other way round. However, it is at least possible that there will be such shifts. Indeed, they are inevitable in a way because we are dealing with a different kind of market.
As to the worry about German regulations, there are serious differences between the regulation of our market and the regulation of the German market. We have the greatest living expert on our regulatory authority—the noble Lord, Lord Saatchi—who will reply to the debate for the Opposition. I hope that he will reply, not on the basis of advice that he has received from his right honourable friend Mr Portillo, but from his own considerable knowledge, having now sat through many long, tedious hours listening to, as well as taking part in, our debates.
As to the issue of the euro, the Motion states:
"if shares have to be denominated in euros".
As the noble Lord, Lord Lamont, knows—as he willingly concedes—the market will decide these matters; shares will be denominated in the way that the market wishes them to be denominated. To table a Motion which refers to a fear of denomination in euros is clearly a nonsense; it is unlikely to happen.
I get confused between Mr Portillo and the noble Lord, Lord Lamont, but one of them said that even if we are outside the euro zone, denomination will be determined by market forces. I think that that must

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have been said by the noble Lord; he is more sensible than his right honourable friend. Whether we are inside or outside—I hope that we will be inside soon; I know that that is contrary to the hopes of the noble Lord—the euro arguments and the euro fears are quite unnecessary and irrelevant.
Probably the most serious matter in regard to the success of the London market is the question of stamp duty. Even the noble Lord, Lord Lamont, is in favour of harmonisation between ourselves and Frankfurt in this respect. At least he wants harmonisation between ourselves and Frankfurt. Perhaps my noble friend can indicate what the Chancellor has in mind in this regard. I am not asking him to tell us what will be in the next Budget, but it would be reassuring to know that the Chancellor and the Treasury are aware that there is a problem.
Decisions should be taken by those directly concerned—the markets—and not by politicians, whether in government or opposition. In my view, it is right that the merger should happen now, but it will happen soon anyway. As the noble Lord, Lord Lamont, said in the Financial Times, and similarly in his speech:
"A merger of the London and Frankfurt stock exchanges on the right terms could be immensely beneficial to all concerned. The vision of a market that covers half the equity trading in Europe is a bold one".
I am sure that most people, on either side of the argument, would agree with that. I certainly hope they would. We are now living in a global market and it must be sensible to move in that direction.
I hope that the decision will be taken on the basic facts and not on any false political rhetoric, especially if it is based on irrelevant and—dare one say it?—anti-foreign prejudice. We know that that exists. I am not suggesting that any noble Lords opposite have such prejudice—and that includes the noble Lord, Lord Lamont, no matter how much I describe him as an "extremist" on this subject.
Certainly there is a Eurosceptic argument. I take the other side of that argument, but I believe that it would he not only sensible but right to move in that direction in the way suggested by the noble Lord, Lord Lamont. I hope that the merger will take place as soon as possible. In my view, it will inevitably take place in the not too distant future, even if it does not take place now.
4.48 p.m.
Lord Blackwell: My Lords, I, too, thank my noble friend Lord Lamont for instigating the debate and for provoking what has so far been a remarkable outbreak of consensus. I shall try to be relatively brief in adding to that. consensus.
A common view among noble Lords who have spoken is that the outcome of a merger of this kind will be ultimately determined by the markets, and that the markets will prosper only if they provide an effective and efficient trading system that meets the needs of customers. There are plenty of competitors around who will displace the merged exchange if it does not achieve that position.
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There has been widespread acceptance that the principle of global exchanges is now an important one; that there are benefits to be had from liquidity in depth; from the growth in size and scale of exchanges; and from the bringing together of trading that reflects the increasingly international trading portfolios of many investors.
But size of itself is not always the answer. The question is not so much whether the strategy is right but whether, as many noble Lords have said, it will be conducted in a way that is likely to succeed. While that is primarily up to the participants to determine, I would like to add a few observations in view of the importance of this to the wider economy.
I think the most critical question now, in ads ante of the merger, is whether the two parties can agree terms that will allow the optimum market outcome to emerge unconstrained by political compromises, fudges and woolliness that are likely to cause problems later. The noble Lord, Lord Desai, mentioned that many mergers fail to deliver benefits and I think that research would say that, where mergers fail to deliver, it is often because there are unresolved and unstated objectives and reservations between the two parties. During the courtship they may give different answers to different audiences, and thus fail to get clarity in advance on where they are actually taking the merged organisation. It is particularly important to understand and agree how power will be distributed once the two organisations have come together. The issues of power are often convenient to put aside, ignore or obfuscate, but if the issues of power and control are not understood by everyone, problems can emerge.
One critical area is obviously where the operation, control and wealth creation will lie between the two organisations as they come together. As the noble Lord, Lord Desai, and others have said, we have to remember here that we are not really talking about physical geographical locations in the merger because we are in an environment where electronic trading is leading to vast new developments. Physical location—what is going to be "in Germany" and what is going to be "in the UK"—is much less important in terms of the operation of the exchanges than where the traders, their screens, the users and the customers are located. As we know, that can be anywhere.
That is for the market to determine, but I think most people would expect that the focus of traders and screens will remain in London. There are a number of reasons for that; not least because that is where most of the major institutions are already located. Their resources, systems, infrastructure and their people are there and nothing in the merger itself would prevent that situation from continuing and indeed accelerating. However, for that to happen all the participants must be ready to accept that this will be the outcome should the merger take place. We should not try to build in any artificial barriers, constraints or political inhibitions that could stop the merger happening, because that would cause strains, contradictions and inefficiencies to re-emerge.

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The noble Lord, Lord Northbrook, among others, mentioned the importance of the "back office", the settlement and clearing systems. There again, the physical location is much less important because the most critical thing is that the exchanges ultimately end up using the most efficient settlement system that can be put together, whether it is a utility across Europe or a number of local systems. Again, given the evolution of electronic processing—"global straight-through processing" I think is the new term—the physical location will become increasingly irrelevant in the development of the systems. There is nothing per se in the merger that would prevent that happening, so long as vested interests do not try to stop it happening in fixed locations in one place or another.
The other aspect of power that is important, as some other speakers have suggested, is that the power to set the rules lies outside the exchanges themselves. This is an area where we need greater clarity in order to understand what the future of the merger would be. As the noble Lord, Lord Lamont, and others have said, efficient markets clearly need the right balance between, on the one hand, transparency and, on the other hand, the avoidance of undue burdens being placed on the listing companies and the traders. I think it is also important, given the tradition that we have in the United Kingdom, that the markets continue to allow the effective operation of takeover rules and the corporate activity which is important to economic efficiency.
Given all that, I think that the market participants will want reassurance that the volume market, the large stocks, will continue to operate within the successful and open United Kingdom regulatory framework that has evolved and that this will not be distorted by compromises or harmonisations that introduce some of the distortions and the lack of transparency that has perhaps characterised some of the continental exchanges, or that places barriers in the way of takeover activity.
The regulations, as has been said, are equally important for the proposed smaller company exchange, where over-rigid listing rules could block the raising of new capital. If, as is suggested, that is to operate under German regulation initially, then in this country we need to be fully satisfied that such regulation will meet the needs of United Kingdom companies and United Kingdom investors in high-risk and high-tech shares.
We also need to understand, if we can, at this point rather than leaving it until later, what the ultimate objective is, in terms of separate regulation in these two markets: whether the intent would be to bring them together ultimately under some common regulatory framework to allow shares to move from one to the other, and to have some harmonisation. Would it ultimately be acceptable if it proves to be the FSA which provides that control? If the very clear intent is to keep them separate, then we need to understand that this implication is creating two
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markets which ultimately may well be competitive rather than complementary. Those issues need to be explored rather than left under the carpet.
Finally, alongside regulation another critical power concerns tax policy. My noble friend mentioned that the United Kingdom risks being disadvantaged by stamp duty. One of the powers that may be lost here is the ability to sustain a policy on stamp duty in the United Kingdom which is different from the rest of the Continent. Again, we need to understand whether or not the Government are prepared to accept that implication. All these issues of how power will be exercised and what the implications are need to be addressed in advance of the merger taking place; otherwise, if pushed aside, these difficulties can come back later and unravel the process.
On the subject of currency, as other speakers have said, the Stock Exchange itself has now recognised that attempting to enforce a single currency trading in euros, if that ever was contemplated, is not a valid option. As with other aspects of exchange, it is the needs of customers that will prevail. It is true that many United States investors may prefer to have a single currency across Europe, because to them it is all foreign currency. However, as has also been said, as long as the United Kingdom is outside the euro, it will be important for United Kingdom investors to be able to invest in UK-denominated assets, and they will want to be able to do so. Therefore, at a minimum, it is important to offer choice as to which currency shares are traded in, according to whichever currency the listers choose. It may well be, if this merger goes ahead, that the exchange will have to offer dual currency trading in a number of shares. If it does not, investors will go elsewhere.
To sum up, it is vital to be clear about the execution issues in advance. That means facing the issues as to where power will lie both within the exchanges and in the setting of regulations around them.
5 p.m.
Viscount Chandos: My Lords, while thanking the noble Lord, Lord Lamont, for introducing this debate, I am struck by the coincidence that 18 years ago I made my maiden speech on the arcane subject of a European Commission directive on accounting by banks. Today, in my first speech since my recycled return to the House—but not a maiden speech, unlike that of my noble friend Lord Layard who gave us an excellent contribution, so I can expect no mercy from noble Lords—the noble Lord, Lord Lamont, has given me an opportunity to venture into similarly complex territory.
Although I am no longer the practising investment banker that I was originally, I still have interests to declare, both as the director of a number of companies quoted on the Official List of the London Stock Exchange or traded on the AIM market. I am also an adviser—in commercial rather than political terms—to a member of the London Stock Exchange specialising in "growth" companies.

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I listened with interest to the speech of the noble Lord, Lord Lamont, and I welcome at least the open-minded position towards to the proposed merger from which he starts. However, I had the impression that the further information that the two stock exchanges have been able to release since the first announcement of the intended merger and since the noble Lord first tabled the Motion, in particular in relation to the use of the euro, perhaps led to some reshaping of his line of attack.
None the less, during his speech the noble Lord voiced his well-known concern about the euro and highlighted the alleged losses suffered by UK pension funds from holding securities currently traded for settlement in euros. It is with some trepidation that I suggest that a distinguished former Chancellor has fallen victim to an economic fallacy, even when the same argument has been advanced by the Sunday Telegraph, but I will have the temerity to do so.
The euro-denominated securities held by UK pension funds are predominantly equities and hence real assets rather than monetary ones. It is possible to assess the performance of such an equity portfolio only by considering the aggregate effect of the movement in the share price and the exchange rate. Since the launch of the euro, eurozone equities have generally performed well, not least because in many cases companies have benefited from the competitive exchange rate in which they trade. The denomination or principal currency of settlement for an equity security is essentially a veil. For that reason, I welcome the clarification from the London Stock Exchange and the Deutsche Börse that it will be their customers who determine in which currency or currencies shares will be traded.
As the noble Lord, Lord Lamont, and other noble Lords have already made clear, the London Stock Exchange is a commercial organisation with no monopoly or privileged status beyond the legacy from its earlier, more protected position. In commenting on the noble Lord's Motion, I shall try to bear in mind strictly the limitation on the roles of both the Government and Parliament in this matter, although, like other noble Lords, I believe that a significant national interest needs to be considered as a result of the proposed merger.
That national interest certainly includes the maintenance and, if possible, enhancement of London's position in the global financial markets, generating employment and other economic benefits. However, even more in the national interest is to see the most efficient and dynamic capital markets made available to UK companies of all kinds to finance their investment, expansion and growth.
When my noble friends and I were still speaking from the Benches opposite, I cited the work of the American economics writer, Professor Brock, who has argued convincingly for a causal connection between the superior record over the past 10 years of the US in net job creation and in the vibrancy of its capital markets, in particular NASDAQ and the venture capital community. Of paramount importance,
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therefore, for the promotion of new companies and new jobs in the new economy is the closing of that gap between Europe's capital markets and those in America. We should not shrink from sacrificing, if it is necessary, 1,000 jobs in the City if, by so doing, some 5,000 lasting new jobs are created in emerging companies, financed by a strengthened stock market.
As it is, from the information currently available, I believe that the proposed merged exchange—iX— offers the best prospects for enhancing the provision of capital to small, medium and large companies, while at the same time promoting the best of the established strengths of the City. The prospective efficiency gains which I understand could be achieved through massively increased netting of counter-party risks should, through reducing the capital needed by member firms to support their customer business, lower the cost of dealing for all investors; as importantly, any capital thereby freed up will then be available to support proprietary trading by member firms, the trading which in large part determines the market liquidity available to long-term investors.
The separation—in both the British and German markets—between stock exchanges, clearing houses and settlement systems means that a simultaneous resolution of all these detailed issues is impracticable I believe that, in the first instance, the merger of the two exchanges is the best possible way of achieving the desired efficiencies in settlement and risk management.
I shall touch only briefly on the issue of the growth company market, which I recognise is perhaps the most difficult area for many market participants and commentators. There is no doubt that the German Neuer Markt has been highly successful. Furthermore, while intuitively the ceding of the centre of the new growth market to Frankfurt feels threatening to UK technology and other high growth companies, I believe that the more rational sentiment should be that if the strengths of the Neuer Markt and NASDAQ can be brought to bear for the benefit of UK companies, then this will be for the national good.
Perhaps I may finish by urging the member firms of the London Stock Exchange, who will ultimately determine whether the merger will proceed, to look at the industrial, commercial and financial world around them. The very structures and institutions which may have served industry well 30 or 40 years ago are unlikely to be appropriate now, as companies both large and small trade in a hugely more open and international market.
I cannot forget the views expressed during the first debate in your Lordships' House in which I spoke. The leaders of some of the country's largest merchant banks urged a continuation of banks' ability to conceal their actual profitability through the use of hidden reserves. I recall an argument that took place at around the same time with a then banking colleague who vigorously asserted that it was in our employer's interest to continue as long as possible the archaic system of a Bank of England queue for new issues in the London stock market to protect the status quo and our banks' established positions.

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I fear that, for all the traditional strengths of the City, it was attitudes such as those which contributed to the virtual disappearance of British-owned investment banks. I very much hope that all members of the London Stock Exchange will embrace the challenge and change involved in this proposed merger with an eye to the future and not to the past.
5.8 p.m.
Lord Newby: My Lords, like other noble Lords, I congratulate the noble Lord, Lord Lamont, on tabling this Motion—and also on his timing. Clearly, events have moved on significantly since the Motion first appeared on the Order Paper. I suspect that had this debate been scheduled even for yesterday afternoon, before we knew the outcome of the vote in Frankfurt, the tenet of our contributions might have been somewhat different. No doubt, if we were to hold a similar debate in 10 days' time, or even two months' time, they would be different again.
In many respects, the background to the situation in which we find ourselves is typical of Britain's relations with Europe. I believe that the London Stock Exchange and the City began this process with a fair degree of complacency. That was mentioned by the noble Lord, Lord Desai, and the noble Viscount, Lord Chandos. It was felt that we were pre-eminent in the field and that that pre-eminence was unlikely to be challenged by any continental upstart. However, a recognition has grown that something is going on and that it is something to which we need to respond if we are not to lose that pre-eminence; unless we get a move on, the consolidation will take place without us. Now, there is common consent that there was such a rush before the French alternative scheme carried all before it that we have something of a "cobbled together" scheme. That was the phrase used by the noble Lord, Lord Lamont, and I agree with his description.
Where do we go next? It is important for a number of reasons that, having reached this stage, the merger should now take place. The Deutsche Börse has approved it; therefore, there is a body of support for it on that side of the Channel which needs to be borne in mind. If London were to pull back, having come this far with German support, it would lead to a major question of credibility for the London Stock Exchange. As the noble Lord, Lord Lamont, and other speakers have said, there is now an increasing number of options in terms of new systems of stock market trading, which means that we cannot merely fall back on our past position. We must move forward. Having arrived at this point, surely this is the way in which the Stock Exchange should move forward.
That said, there are clearly a number of concerns and questions that need to be addressed both before the merger is consummated and after it has taken place. One question that spans both time-scales relates to the regulatory framework. There clearly is a different regulatory framework in Frankfurt. It has lower disclosure standards and, by common consent, a less consumer-friendly style than the London Stock
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Exchange. Although there is some movement in a London-ward direction in Frankfurt, clearly it will not lead, before any merger is completed, to a single regulatory framework. To put it no higher, it is slightly odd that within the single body of the merged exchange the listing requirements and virtually every aspect of the way in which a stock is treated will depend on exactly where it will be listed first. That seems unsustainable in the longer term.
There is also a question of taxation and stamp duty. When one discusses individual taxes rather than the generality of tax harmonisation, it is noticeable how many times we find arguments in favour of a common European tax level, and this is no exception.
The matter arises also of how to deal with smaller and medium-sized stocks—which is not wholly clear at present. Within the question of scale is a further question of consultation. It is clear that the very large players have been consulted up to now but the medium and small players in London have not. That does not seem a satisfactory way of proceeding. The noble Lord, Lord Northbrook, talked about consulting the private investor and about the large numbers of people who were taking up ISAs and similar financial products. I suspect that consulting them on some of these issues is impractical and is unlikely to lead to a clear view being expressed. The general principle of maximum consultation has been debated a great deal in relation the FSA. It has not been followed in this case to the extent that we would wish.
There is clearly a question about the cost of switching from the existing settlement system to the Xetra system and who bears the changeover costs. There is a lack of clarity regarding the possibility of, as it were, centralised funding from the exchange to help the smaller traders.
There is the issue of which shares will be quoted in euros, and whether having some quoted in euros and some in sterling will cause difficulties. I have a very simple answer, but I am not sure that the noble Lord, Lord Lamont, would find it acceptable. We shall see whether it proves in reality to be a problem—some speakers have suggested that it will and others that it will not.
There is also the question of whether the merger will lead to Frankfurt or London being pre-eminent. Considerable concern has been expressed in London that the longer-term effect of the merger will be that the bulk of business will go to Frankfurt, because that is where the new stocks will be traded, including the high-tech stocks. There have also been fears in Frankfurt that it is in a sense giving up the scope for growth: that companies will opt to list stocks in London when they have the option. That possibility was referred to by the noble Lord, Lord Barnett. Normally, when both sides express equally strongly held fears that the other side has the advantage, one has an instinctive sense that they have got it just about right. One can only hope that they have in this case, but it is difficult to know at this point.

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A matter of considerable concern to individual consumers is the index that will be used. Given the growth of tracker funds in particular, if a new index is adopted there will at the very least be a big re-education job to be done.
All these issues are ones with which Don Cruickshank is now grappling. Anyone who has followed his career up to now would probably agree that he has the ability both to see the big picture and to grapple with the details, which suggests that he will do it very well.
Stepping back from the short term, there are one or two broader lessons or features of this episode that I should like to draw to your Lordships' attention. First, there is the generally accepted view that a consolidation of Europe's stock exchanges must make sense—that 40 is simply too many. The noble Lord, Lord Desai, and the noble Viscount, Lord Chandos, referred to the gains in terms of efficiency. In the single European market a consolidation of exchanges will make mergers and acquisitions across Europe easier, and it will be easier for individuals to hold shares. That makes a tremendous amount of sense.
A point that is relevant not just here but to a number of other developments within the EU is that the impetus for this European movement is not coming from an over-powerful Commission in Brussels or from the Council or the European Parliament. It is coming from American merchant banks. When discussing, as I am sure we shall in the months ahead, the future of the various aspects of the European economy, we shall need to give considerable weight to market pressure rather than merely the views of politicians. Politicians—and we all fall into this category—are coming very late to this issue. We were not debating it six months ago. In a sense, we are now following the market. In a number of economic issues that is a good principle.
If we accept that consolidation in Europe makes sense, and that it should be market driven, but if we see a broader consolidation than at present, it must make sense to have a single regulatory platform. Therefore, while I do not suggest that we move to that in the short term—this is particularly heartfelt for those of us who have just gone through the Financial Services Bill—there will come a time when it makes sense to be looking at a European framework document so that we do not have long arguments about exactly what is happening in Frankfurt, Paris or London. I can see that the noble Lord, Lord McIntosh, is already looking forward to that day.
This has been a useful debate. The exact shape of the exchanges in London and across Europe must be market-driven. But one of the roles of this House is to give voice to the concerns expressed by those who are affected by economic and social change. It is also the case that, where there is a regulatory role to play, we have spent a great deal of time thinking about how to achieve a fair and transparent system. I hope that in this debate we have achieved the first of those purposes. A detailed examination of the revised regulatory requirements is, I am glad to say, for another day.
5.20 p.m.
Lord Saatchi: My Lords, I am most grateful to the noble Lord, Lord Lamont, for introducing this timely debate. Many noble Lords who had the good luck to take part in the proceedings on the Financial Services and Markets Bill will be aware that this subject emerged in the course of those debates.
Lord McIntosh of Haringey: My Lords, perhaps it could be described as "grown men weeping"
Lord Saatchi: My Lords, many noble Lords have illuminated this subject with their contributions, perhaps none more so than the noble Lord, Lord Layard. I congratulate him on a marvellous maiden speech. The noble Lord is a great addition to your Lordships' House, and I hope that he will play a full part in its deliberations. The noble Lord exhibited great judgment in making one point very clear. As proof of that, it is precisely on that point that I wish to concentrate my remarks. The noble Lord spoke of the logic of globalisation which underlay the merger. He also spoke of the "related logic" of the merger of currencies. It is on the historic inevitability of the merger described by the noble Lord that I concentrate my observations. The same material determinism was reflected in the remarks of the noble Lord, Lord Haskel, who said that mergers and consolidations were inevitable.
What are those who have Britain's interests at heart, including all noble Lords present this afternoon, to make of this merger? Is it true, as the noble Lord, Lord Haskel, suggested, that this merger is nothing to do with Parliament or the Government; or is it true, as my noble friend Lord Blackwell said, that the merger has wider implications for the economy; or is it the case, as the noble Viscount, Lord Chandos, said, that there is a vital national interest at stake? Why has the merger struck such a chord in the minds of so many people? This is a dress rehearsal for what promises to be the most contentious debate of modern times about Britain's place in Europe and whether or not it should join the euro. When the time comes for that great national debate, the proponents of integration will put forward the very arguments that we hear in relation to this issue.
The noble Lord, Lord Layard, made the link explicit, for which I am grateful. This debate is a potent symbol of things to come. The financial services industry is a modern miracle. To my knowledge, it is the only UK industry in which Britain leads a global market. Yet the chairman of the London Stock Exchange, the jewel in the crown of British industry, tells us that Britain cannot make it on its own. He says that,
"the London Stock Exchange could not go it alone".
In evidence to the Select Committee in another place, Mr Kidney asked Mr Cruickshank:
"Is it implicit in deciding to do the deal at all that you have come to the judgment that the British Stock Exchange on its own cannot compete in international markets?"

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Mr Cruickshank replied:
"I think that is a fair conclusion to reach".
I have no doubt that what the chairman of the Stock Exchange says is true. He explains to us that mergers of stock exchanges follow in the train of mergers of companies. Those mergers are a response to the dominant feature of our age—globalisation—to which the noble Lord, Lord Layard, referred.
It was in 1982 that the term "globalisation" first appeared in the pages of the Harvard Business Review. There it was famously said that companies which adopted this new approach would "literally pave over" companies still trapped in the old national ways of doing things. At the time that was a controversial notion, but today it is a truism. Twenty years later this merger of exchanges is the result.
It has been said today by my noble friend Lord Lamont and the noble Lord, Lord Newby, and by many outside this House, that American companies may have been behind the merger. That may well be true. Consider the view of Europe from the 67th floor of a US corporate headquarters building in Manhattan, Cincinnati or Washington. I believe that it would be to the following effect, "In Europe there are different countries with people having different habits, practices and customs. How tedious. If only those people were more similar. Then, instead of having six factories in 10 countries, with four research and development facilities, producing 32 products in 62 package sizes, we could have two plants, one R&D facility, and produce three standardised products for the whole of Europe. Think of the cost savings". That demonstrates the economic power of globalisation to which the noble Lord, Lord Layard, referred. That is quintessentially the American perspective.
In addition to economic power, it has a strong philosophical underpinning which was perfectly, and elegantly, described by Professor Sir Isaiah Berlin:
"The American vision is larger and more generous; its thought transcends the barriers of nationality and race and differences of outlook in a big, sweeping single view … and, therefore, to it the differences and conflicts which divide Europeans in so violent a fashion must seem petty, irrational and sordid, not worthy of self-respecting, morally conscious individuals and nations; ready, in fact, to be swept away in favour of a simpler and grander view of the powers and tasks of modern man".
That is the power of the economic and philosophical logic behind this merger which so many noble Lords today either welcome or regard as inevitable. However irresistible may be this logic, we can still ask certain basic questions of our Government before they give their blessing to this marriage. Such questions are especially appropriate in the light of the revelation in the evidence given to the Treasury Select Committee that the London Stock Exchange received "no representations" from the Treasury, the Bank of England or the FSA about the merger before it was announced. Mr Cruickshank was asked:
"Did the FSA or the Bank of England or the Treasury have any role in the negotiations before the deal was struck?"
He replied "No", but went on to say:
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"For the avoidance of doubt, there were no representations to me from senior officials or Ministers, officials of the Bank or of the FSA, as regards the terms of this arrangement".
A number of key issues emerge. The merger creates one exchange but leaves two regulators, two tax systems and two currencies. Taking each in turn, as to regulation the Minister conceded that the,
"appropriate regulatory arrangements for the merged body are not clear".
Many noble Lords in this debate have referred to that. He went on:
"I can, however, reassure the noble Lord, Lord Haskel, that the regulators are talking because the FSA has issued a press release stating that it is working closely with our German supervisory colleagues to arrive at a sensible regulatory outcome for iX".
However, the question is whether the resulting system will bear any resemblance to the regime under the Financial Services and Markets Bill over which Parliament has toiled for the past two years. The Government, extraordinarily in my view, say that the outcome of those talks between the regulators is "not a responsibility of the Government". But who will be responsible for ensuring a level playing field of regulation for all the participants in a merged exchanged? How can the FSA be the regulator for the exchanges of several countries and, at the same time, have the duty to look after the competitive position of the United Kingdom which is about to be given to it by Parliament under Clause 2(3)(e) of the Financial Services and Markets Bill? I hope that the Government will take a little more time, perhaps while the Bill is in the Commons, to think about the regulatory implications of these great proposed changes.
As to tax, my noble friends Lord Lamont and Lord Northbrook and the most distinguished former Chief Secretary to the Treasury, the noble Lord, Lord Barnett, have sought to deal with the anomaly that the UK imposes stamp duty on share transactions at the rate of 0.5 per cent whereas the German rate is nil. Is our tax regime to be harmonised? How can it not be?
I turn again to the evidence of the London Stock Exchange to the Select Committee. Mr Wheatley was asked about this point and said:
"Our position is that stamp duty will over time become something that is disadvantageous to United Kingdom companies raising capital".
According to the Treasury's projections, stamp duty will this year contribute £3 billion to the Exchequer. If stamp duty is abolished to match the position in Germany, which it surely must be, what new tax will be raised to generate the missing billions? It is the question to which the noble Lord, Lord Barnett, wanted an answer.
I conclude on currency. I do not think that it is wise to go over this sensitive ground. It has been addressed by many noble Lords. However, perhaps I may say how nice it would be for all those who are deeply interested in this merger if the Minister would state from the Dispatch Box in a clear strong voice—I hope that his cold is now much better—in terms as unequivocal as those of the noble Lord, Lord Barnett,

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the noble Lord, Lord Layard, and my right honourable friend the Leader of the Opposition, his plans for the future of our currency.
5.30 p.m.
Lord McIntosh of Haringey: My Lords, I have to start with an apology. The Takeover Panel stole my vocal chords last week and it has not had the grace to give them back again. If I have difficulty in communicating, noble Lords must blame the Takeover Panel and not me.
It has been a remarkable debate. The noble Lord, Lord Blackwell, said that up to his speech we had achieved consensus. We achieved consensus virtually all the way through the debate and without being boring. That is quite an achievement. We did so without repeating ourselves and while providing an opportunity for my noble friend Lord Layard to make a quite outstanding speech which contributed not just to this debate but to my thinking about the basic economic issues lying behind the subject matter of this debate. We must all be grateful to the noble Lord, Lord Lamont, for making this possible.
First, I shall set out the Government's stance on the merger and then talk about some of the regulatory issues and matters related to trading in euros and pension funds. I shall give some thoughts about the blue-chip markets and growth markets. If I have time, I shall then respond to points raised in the debate.
As many noble Lords have said, this merger is clearly part of the consolidation process in European and global equity markets. The noble Lord, Lord Lamont, went so far as to say that that development may make good sense. It is no surprise that the London Stock Exchange, as one of the world's leading equity exchanges, is involved in this process. As the noble Lord, Lord Blackwell, said, if we are moving to global exchanges we are doing so because we have to reflect the creation of international trading portfolios. The exchanges are simply a reflection of the markets in which they operate.
If one has broader and deeper equity markets, one has advantages for companies and investors. Companies have a larger and deeper pool of investors to tap. Investors have a wider range of investment opportunities. All sides benefit from the lower trading costs which should result. Many noble Lords have said that this may not be the end of the game. It is highly likely that in five or ten years' time there will almost certainly have been moves in the direction of greater concentration in exchanges as well as markets.
The terms of the deal to create the iX are a commercial matter for the parties concerned, subject to their obtaining the clearances from the relevant regulatory authorities. Our interest as a nation, as a society—if I may be so bold as to agree again with the noble Lord, Lord Blackwell—is to look for an optimum market outcome rather than more temporary issues.
There has been reference to the terms of the merger. Much of it is still not known. Perhaps the Stock Exchange and the Deutsche Börse were slow
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off the mark in making their intentions clear. There have been criticisms along those lines, with some justice. If they are going to go ahead, and if the London Stock Exchange membership is going to confirm the decision of the supervisory board of the Deutsche Börse, the London Stock Exchange will have to satisfy its members that it represents a good deal, as well as providing the necessary assurances to the regulatory authorities. It is difficult for me to comment on a deal which is still in progress and on which many of the details are still not known. Those questions are for the Stock Exchange rather than the Government. The noble Lord, Lord Desai, said that it would be premature for us to answer. It is more than simply premature. They are questions which it is in principle inappropriate for us to answer.
I was interested to hear the noble Lord, Lord Saatchi, in his interventionist mode suggesting that it was a responsibility of government to become involved in the process of the merger. I find it difficult to see how we should do so.
I turn to the regulatory issues. It has been made clear—the noble Lord, Lord Saatchi, did so when quoting from the FSA—that the regulatory authorities in Britain and Germany are working together. They are considering the practical implications. They will both have to be satisfied with the regulatory arrangements if the merger is to proceed. However, the broad outlines are already clear. The blue chip market will operate out of the United Kingdom; it will be subject to UK regulation. It will be a recognised investment exchange in the UK. The noble Lord, Lord Blackwell, wanted reassurance on that point. He can have it.
The noble Lords, Lord Northbrook and Lord Newby, raised this issue. It is not proposed that the FSA should perform a single regulator function for both the UK and Germany. There is some need for movement in the German regulatory regime. But it is clear that that is already happening. Werner Seifert is quoted in today's Wall Street Journal as saying that the Deutsche Börse is moving in that direction. He says that, beginning next year, German companies must report results quarterly rather than twice a year if they want to qualify for the Xetra tax index of 30 bluechip companies. I do not think that it needs heavy-handed intervention from the Government or the Treasury. The impetus towards harmonisation of regulatory regimes will happen on its own.
It is not that there is difficulty about operating as they are. I made it clear during debates on the Financial Services and Markets Bill that that already happens with the OM group, which owns the OM Stockholm exchange, under Swedish regulation and the OM London Exchange, which is a recognised investment exchange in the UK. It works perfectly well there. I repeat what I said when we considered amendments to the Financial Services and Markets Bill. We have no doubt that the provisions of the Bill relating to the recognition of exchanges are able to cope with structures such as the proposed international exchange.

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The details of which companies will be listed have not yet been sorted out, but no companies will be forced to move their listing from one company to another. German companies listed in Germany will be traded in the same market as UK companies listed in the UK. People in the UK can already trade German shares. They are aware that the listing regime is slightly different. The fact that shares are traded on the same market does not necessarily mean that investors will automatically assume that the same listing regime applies.
I turn to the issue of trading in euros. To some extent, the fears that were expressed in the wording of the Motion when the noble Lord, Lord Lamont, first tabled it have been allayed by the clarity we now have from the London Stock Exchange that it will be for the market to lead. After all, the stock market is there to serve its customers. It will follow what its customers want to do in relation to the currency used for trading shares. Even if the majority of share trading moves to euros, the Exchange will continue to provide prices of UK stocks in sterling.
My noble friend Lord Lea of Crondall is sceptical about that. I can say only that on that issue we shall have to wait and see. While not in any way diminishing the authority with which my noble friend Lord Layard spoke, I do not believe that issues for the UK's entry into the euro arise from the merger. The position is unchanged. It is as set out by the Chancellor of the Exchequer in October 1997 and confirmed by the Prime Minister in February 1999.
I turn to pension funds, which were a proper concern of my noble friend Lord Lea. If the trading currency for a particular stock changed from sterling to euros, we would not expect that to impose a significantly greater amount of currency risk to most investment funds. Already 40 per cent of UK investment fund assets are in non-sterling securities. Approximately 10 to 15 per cent of those are in eurozone currencies. My noble friend Lord Lea made a good point about the need for a new series in financial statistics and I am sure that the Office for National Statistics will pay attention to what he said.
The review of the minimum finding requirement will be wide-ranging and take into account several important developments since the original test was formulated. That will provide an opportunity for issues such as this to be addressed. Short-term volatility in the stock markets may be an issue. To the extent that the quoting of stocks in euros has any effect on this, it will be carefully considered.
I turn to the issues raised in the debate particularly by the noble Lord, Lord Lamont, who was kind enough to give me notice of the questions he raised. However, some of his points were also raised by other noble Lords. He asked, first, about medium cap stocks, which are not quoted on the London bluechip exchange or the Frankfurt high growth companies market. I understand that the iX will continue to run national markets in addition to the pan-European markets. Therefore, British companies which do not
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fall into either the blue-chip or high growth categories will still be quoted and traded on the London exchange.
The noble Lord asked about the effect on London's IPO business. I believe that he answered his own question because I am sure he was right in saying that it will be market driven. There cannot be a guarantee that when growth companies become large companies they will return to London. However, the intention is to retain national markets as well as the pan-European markets. IPO's will continue to take place in London. While the pan-European growth company market will be operated in Frankfurt, it is not necessarily axiomatic that all such IOP business will be conducted out of Frankfurt rather than London.
I return to UK regulatory requirements and the Code of Corporate Governance, to which the noble Lord, Lord Lamont, referred. We do not yet know the details of the standards which will be applied in the various markets. However, the current position is that foreign companies with a listing on the London Stock Exchange are not required to comply with all the provisions of the UK listing rules. Therefore, there is not absolute uniformity and any changes which might take place may be a difference in degree rather than in kind. As I have said, the European blue-chip companies based in London will be a UK-recognised investment exchange under the Financial Services Authority.
The noble Lord asked whether small technology companies will be able to side-step UK standards of reporting and accounts by having their quotation in Germany. Again, that question answers itself. Clearly, UK registered companies must follow the requirements of UK company law, regardless of where they are quoted and traded. As he said, the customers of exchanges take the standards of regulation into account when deciding where to do business. Such companies will have to take account of what the market wants and whether by departing from accepted practice they lost their attraction to pension funds.
The noble Lord raised an important point about transparency. I agree that there are differences in transparency between regulatory requirements in Britain and Germany. I do not know—I do not believe that anyone yet knows—whether the proposed merger will lead to more block trades. However, the intention is for the London Stock Exchange to continue to follow the existing requirements whereby members doing bilateral trades off the order book would need to report the trade to the Exchange.
That brings me on to the important issue of clearing and settlement, where there are potentially huge advantages and savings if existing practices can be extended. The noble Lord, Lord Northbrook, properly referred to the need for a central counterpart. My noble friend Lord Barnett made a similar point. The proposed merger does not cover clearing and settlement, but the boards have said that they consider that settlement should be delivered ultimately on a consolidated pan-European basis. They will be consulting users for their views on the management, ownership and structure of potential settlement infrastructure. However, in the

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expectation that there will be significant consolidation and rationalisation over the coming years, the merger is the first step on that road.
I was asked whether this meant the end of stamp duty. We always keep the position under review, but stamp duty is chargeable on trade in the shares of UK registered companies regardless of where those shares are traded, unless the season ticket charge has been paid. Therefore, one cannot avoid stamp duty simply by moving trading from London to Frankfurt. My noble friend Lord Haskel referred to the ADR loophole. That is supposed to be dealt with by the season ticket provision, so I do not believe that the noble Lords, Lord Barnett and Lord Saatchi, have reason to believe that stamp duty will somehow become unviable as a result of the merger.
We come now to the more technical issue of the trading platforms. I am not sufficiently expert to know whether Xetra is better or worse than SETS. The noble Lords, Lord Lamont and Lord Northbrook, asked who would pay the costs of any compulsory transfer from SETS to Xetra. I am sure that the Stock Exchange must tackle that issue if it is to convince small brokers that the merger is in their interest.
I have already referred to the issue of trading in euros, which has been resolved by the clearer position that the Stock Exchange has taken.
The noble Lord, Lord Lamont, asked whether there was a remit for competition authorities in Brussels. Strictly speaking and literally, the merger falls below both the asset and turnover thresholds for consideration by the Commission in competition terms. Therefore, there is no power for them to intervene. As regards whether the UK or German authorities will feel it necessary to intervene, that is another matter and it is one for them to determine.
Perhaps the central question for most outsiders—noble Lords were notably impartial in their comments today—is: what does this mean for the financial community in London? Are we selling our birthright for a mess of pottage by keeping the bluechip market and allowing the growth market to be located in Frankfurt? At the moment, of course, blue-chip shares form by far the bulk of the market. The FTSE 100 stocks and the top 40 stocks on the Deutsche Börse form approximately three-quarters of the combined market or capitalisation of the two exchanges. The Euro top 300 index of blue-chip companies represents a similar share of total European stock market capitalisation. Blue-chip shares also represent the great bulk of trading in equities. The share of the market of technology stocks is about 40 per cent, although it is difficult to find definitions which are precise in this area.
The noble Viscount, Lord Chandos, referred to the success over the years of the Neu Markt in growth stocks, against which must be set the losses that have been suffered recently with the decline both in Techmark and in the NASDAQ industries. Clearly, that has a knock-on effect on initial public offerings. However, even if the Frankfurt growth market is likely to see the bulk of IPOs, even though it is true that their
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growth has been greater in recent years, it is not axiomatic that all that business will move to Frankfurt rather than continuing in London.
The debate this afternoon has been conducted notably with an absence of ideology and in a genuine spirit of inquiry and of genuine intention to contribute to the well-being of our financial markets and of our economy. The Government are grateful for that. I believe that the cautious welcome extended to the merger by noble Lords will be welcomed by those who are taking part in the negotiation. It is well known that the Government do not take a formal position on a merger between two private organisations. However, I am sure that both the Stock Exchange and the Deutsche Börse will be grateful for the views that have been expressed this afternoon.
5.51 p.m.
Lord Lamont: My Lords, I do not intend to detain the House for long. However, I should like to thank noble Lords who have spoken in this debate, which I believe has been helpful.
I believe that I should accept the rebuke of the noble Lord, Lord Barnett, who said that there was a remarkable resemblance between an article that appeared in the Financial Times and the speech that I made in this debate. I had been feeling rather guilty about that and I had thought of apologising for it at the beginning of the debate. However, the truth is that I have become so used to bad behaviour on the part of the Government on matters such as this that my own standards have slipped and I have adopted those of the spin meisters who govern us these days.
I join with everyone who has congratulated the noble Lord, Lord Layard, on his remarkable maiden speech, which we all enjoyed. Unlike almost everyone who has spoken in this debate, I have not been a pupil of the noble Lord and have not heard arty lectures by him. However, almost as good, I have read a number of his works and, indeed, (dare I tell him) one of the measures in one of my Budgets was based closely on an idea about which he had written. I very much enjoyed what he said about Canada, although I believe that the logic of the argument about comparing the geography of different Canadian states to the neighbouring American states and comparing distances eventually would be limited by the theory of optimal currency areas. However, perhaps we could debate that further on another occasion. We look forward very much to hearing the noble Lord speak again in future.
I thank the Minister for his detailed replies, which am sure will be studied carefully, certainly by me and, I am sure, by others. I was very interested in the speech made by the noble Lord, Lord Desai, and in his scepticism about mergers in general and not only about this merger. On the whole, he believed that this merger might bring some benefits. It always surprises me that generally people are not more sceptical about mergers. Indeed, I believe that a great weakness is that we do not, post hoc, go back and examine mergers to find out what happened. That is a matter on which I have always intended to question the noble Lord, Lord Borrie, but have never had the opportunity to do so.

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A number of speeches, such as those of my noble friends Lord Northbrook, Lord Blackwell and Lord Chandos, were based on their own detailed knowledge of the City, and we are much indebted to them. I particularly enjoyed what my noble friend Lord Chandos said with regard to the conservatism of the City of London and of the financial services industry in the past and about his memories of bankers who did not want to reveal their true reserves. Of course, he might have added that it was a Conservative government who introduced Big Bang. I believe that my noble friends Lady Thatcher and Lord Parkinson deserve enormous thanks for their far-sighted decision in taking on the very conservatism that my noble friend Lord Chandos rightly criticised.
My noble friend Lord Blackwell said that there had been a great and surprising outbreak of unanimity in this debate, and the noble Lord, Lord McIntosh, referred to the absence of ideology—which made me feel profoundly uncomfortable. None the less, I was delighted to find myself in agreement with much that was said by the noble Lords, Lord Lea, Lord Haskel and Lord Newby. My very good friend, the noble Lord, Lord Barnett, as always made an extremist speech at the centre of extreme moderation. As ever, he could not resist lashing out about xenophobia and Euro-scepticism, although for once I was exempted from that. If he is looking for xenophobia and Euro-scepticism, perhaps he should read the joint letter of Giscard D'Estaing and Helmut Schmidt, published a few days ago. What it said about Turkey and the United States vis-à-vis Europe is almost unrepeatable and would deeply shock your Lordships.
The noble Lord, Lord Barnett, and, I believe, the noble Lord, Lord Newby, tried to suggest that some principle was being betrayed by the fact that a number of noble Lords on this side of the House favoured the abolition of stamp duty on shares in order that it should be brought in line with Germany, were we not supporting harmonisation. We believe in harmonisation by the market. We believe that it is good that taxes should converge in response to competitive pressures. However, we are against political decisions taken at the centre to bring about an unnecessary bureaucratic harmonisation.
I should like to reply to one point made by the noble Lord, Lord Barnett. He said that he was rather puzzled by the wording of the Motion. We are saying that everyone is agreed that it is a matter for the markets to decide whether shares are quoted in euros. Of course it is, and we all agree about that. However, it seemed to have escaped the noble Lord's notice that at the beginning it appeared very definitely that it was being proposed that all shares would be quoted in euros. As a number of newspapers pointed out, that was stated quite explicitly and it caused much anxiety. However, the London Stock Exchange and Mr Seifert have withdrawn very clearly from that position.
I also very much enjoyed the description by my noble friend Lord Saatchi of a conversation on the 167th floor of an American corporation. I believed that he was going to say that it was Saatchi & Saatchi,
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perhaps waiting to take over a clearing bank! When I travelled back on the train from Brussels today, I heard a speech that was absolutely identical to the fictitious one that he thought was being invented. It came from Americans, who were complaining about the national susceptibilities in Europe of dividing up the single market. However, as my noble friend said, the issue of the single currency continues to produce a big divide in British politics. The debate will continue. But I am pleased that on this subject today we have achieved much consensus. Therefore, I beg leave to withdraw the Motion standing in my name.
Motion for Papers, by leave, withdrawn.

The Civil Service
5.58 p.m.
Lord Campbell of Croyrose to call attention to the continuing need for a professional Civil Service and the role of special advisers and information officers; and to move for Papers.
The noble Lord said: My Lords, my starting point is the British Civil Service. I then propose to consider the effects and possible future effects of temporary additions to its senior layers. I am glad that many well informed and experienced Peers are to speak. I regard it as a compliment that two Peers—the noble Lords, Lord Roper and Lord Powell of Bayswater—have decided to make their maiden speeches in this debate.
I would claim that the senior ranks of the British Civil Service over the past 100 years at least have been the best in the world. Governments of all colours have benefited from their loyal and dedicated work. The tradition of the service has been to be non-political as servants of the Crown.
I had some personal experience of this when I was a public servant for a dozen years. After spending the whole of the war in the Army, and then well over a year in hospital after being wounded and disabled, to everybody's surprise, including my own, I was successful in the Foreign Office exam. Still under hospital supervision and treatment, my first three years had to be in London and in the Foreign Office. During part of that time I worked personally for Mr Ernest Bevin, the Foreign Secretary in the Labour government of the day for whom I had great admiration.
In my next post at the United Nations in New York I also worked directly for other Labour Ministers, including Mr Kenneth Younger and Mr Hector McNeil, both Ministers of State. A few years later I was assigned to work for two years away from the Foreign Office to be private secretary to the Secretary to the Cabinet when Sir Winston Churchill was Prime Minister.
Noble Lords will not be surprised that I have retained a lively interest in the machinery of government; in the changes being made, changes that may have to be made and in the ability of the public service to work for governments of different complexions. I look forward to hearing the reply to

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this debate, most suitably from the noble and learned Lord, Lord Falconer of Thoroton, Minister of State at the Cabinet Office.
My Motion refers to the role of special advisers and information officers. It is now recognised that there are two kinds of special advisers—political and expert—the latter being recruited for their expertise in the subjects of a Minister's department or task. I make clear at the beginning that I am in favour of political and special advisers. My aim is not to try to abolish them. My concerns are whether they are needed in such large numbers; how their functions are defined and how they fit in with the operations of the regular Civil Service.
It has been recorded by my noble friend Lord Blake, the eminent historian, that the first political adviser in the United Kingdom was probably used by Disraeli. In their present form political or special advisers started in 1974 when Ministers in the incoming Labour government were allowed to appoint them within limits. There had been very few individual appointments before 1974. As I was a Cabinet Minister before 1974, I did not have one myself.
The numbers of special advisers have increased and strikingly so in the past three years. At the beginning of 1997 I understand that there were 38. The latest figure I have is 77, not including Scotland. I hope that the noble and learned Lord can confirm that figure or bring us up to date, and also say whether it is correct that no fewer than 30 of them work at No. 10, as reported. Individual Ministers under the ministerial code are supposed to appoint no more than two special advisers each. I ask the noble and learned Lord whether it is true that five current Ministers have exceeded that quota.
I turn now to information officers. Normally they have been part of the professional Civil Service. In my debate on 28th October 1997, I drew attention to the departure of eight heads of information divisions in government departments in the first four months of this Government. Some of their work was taken over by specially appointed replacements. I have seen a recent report that the press officers in the Cabinet Office have been increased in number from seven in 1997 to 16 now, thus more than doubled. As that is the noble and learned Lord's department, I ask him to comment. I also sympathise with him because I suspect that the additions were made because of the difficulties with the Millennium Dome. He was given an unenviable responsibility.
There is a particular provision in regulations allowing up to three special advisers to have executive powers over civil servants. Two of these places have been filled, the chief press officer, a fellow member of the Clan Campbell, and the chief of staff at No. 10, Mr. Jonathan Powell, who I believe is the brother of the noble Lord, Lord Powell, who is to make his maiden speech this evening.
That brings me to functions and how special advisers are expected to do their jobs besides the Civil Service. In reply to my debate two-and-a-half years ago, the noble Lord, Lord McIntosh, confirmed that
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special advisers are bound by the Civil Service code. He also stated that it was the Government's intention that, for the first time, the code should be made statutory. Can the Minister this evening bring us up to date on that?
What is the situation in Scotland and Wales? While at present there is no limit on special advisers in England, limits have been imposed for Scotland and Wales—12 and four respectively. In Scotland two of them had to leave in embarrassing circumstances, which is something that has also happened in England. I remind the House that the professional civil servants working for the Scottish Executive and the Scottish Parliament, consisting mostly of the former Scottish Office, are still part of the United Kingdom Home Civil Service, subject to the same terms of service and codes. The same is true for the arrangements for the Welsh Assembly.
The vital, important difference concerning the Civil Service code is that special advisers are not required to observe impartiality or objectivity as the Civil Service is. Indeed, that is an essential part of a civil servant's duties.
That leads to ambiguity. For example, when the media are being briefed by two people from a department, perhaps in separate telephone calls—one from the Civil Service information officer and the other from a special adviser—the messages may differ considerably, one being "on-message" from the point of view of Millbank Tower. The present Secretary of the Cabinet is on record as stating that there is a grey area between the promotion and defence of government policy and of the ruling party's policy. The aim of the special adviser may be very different from the objective of the information officer. That is illustrated by an episode that puzzled the British Medical Association. The same announcement about £20 million for a new system of booking hospital appointments was made four times within a year, giving the impression each time that the announcement was new and that the money was also new. The fourth announcement made last September, in a health department press release, even brought in the Prime Minister, saying that he was that day announcing a £20 million revolutionary booking service.
There is nothing wrong with the repetition of announcements in order to keep the public fully informed, but it should be made clear that it is not new money and not a new announcement. I am sure that that view is shared by professional civil servants. However, a special adviser, acting as a spin-doctor, might have counted the four-fold announcement as a great success if it had not been rumbled. I do not suggest that the Civil Service is already politicised, but I warn of the danger that that could happen in certain areas.
Managing news is an art in which all governments dabble. They can decide when to make their own announcements, which is sensible. It is sensible for them to choose dates and to spread the issue of statements and releases. I understand that a

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programme that is now held centrally of dates of announcements in Whitehall is commonly known as the "grid". Manipulation of news is another matter; such as, for example, having sensational stories ready for issue quickly to blank out other news or opposition parties' activities. That is the trade of the spin doctors.
Last January the Committee on Standards in Public Life, chaired by the noble Lord, Lord Neill, reported on the role of special advisers. I understand that as yet the Government have made no comment or reply. I find myself in complete agreement with its main recommendations, particularly two of them for reasons that are clear from what I have just said: first, that there should be a limit on the total number of special advisers and that that should be laid down in legislation; and, secondly, that there should be a separate code of conduct for them, dealing especially with direct contacts with the media and relating to Civil Service information staffs' functions.
The Neill committee recommends that there should be a new Civil Service Act to legislate for those and other matters. I know that the Minister is always bound by parliamentary programmes, but I ask him whether the Government are preparing to introduce a Civil Service Bill and, if so, when?
In my view special advisers have a place in our system for two main reasons: first, Ministers need a political member of their staff to keep in touch with their political party and to carry out political work in developing policy that civil servants should not do; and, secondly, Ministers naturally want their policies and actions to be presented publicly in the best possible light. A special adviser can help in that. However, if this goes too far, a government may seem more concerned with giving favourable impressions than in imparting facts that may be unpalatable.
Another problem is accountability. The Civil Service is accountable to Ministers and Ministers to Parliament, a system that has been observed and well understood for decades. The House will know of occasions when Ministers have resigned but the faults have clearly been with officials. At present, special advisers are outside that system. Action on the Neill committee's report could rectify that omission. So we await the Government's reply to that report. Let us hope that, in that reply, there will be no sign or suspicion of any kind of spin. My Lords, I beg to move for Papers.
6.13 p.m.
Lord Roper: My Lords, I am most grateful to the noble Lord, Lord Campbell of Croy, for having selected this subject for debate this afternoon, thus giving me an opportunity to speak so soon after my arrival in your Lordships' House. At the outset perhaps I should confess that I speak in your Lordships' House at some comparative disadvantage on this subject, in that I have never been a professional civil servant, a special adviser, an information officer, nor, unlike the noble Lord, Lord Campbell of Croy, a
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Minister. I also confess that I have always had more than a slight regret that I never tried to become a professional British civil servant.
However, in the early 1990s, I spent a period directing a policy research institute for the Western European Union and, therefore, in a sense I was an international civil servant. One of the advantages of that period was that it gave me an opportunity to see the professionalism of the British Civil and Diplomatic Services and that of a number of their continental and transatlantic counterparts. For me, that was a most educative experience and certainly taught me the inestimable value to this country of our professional Civil Service.
I also remember how difficult I found it to explain to my continental colleagues the difference between a ministerial private office and a cabinet. The idea that a Principal Private Secretary could continue to serve with equal efficiency and loyalty a new Minister of a different political party after a change of government was almost inconceivable to them. Yet, I suggest, that it clearly demonstrates the ability of our professional civil servants to act with complete discretion on matters of the highest political sensitivity.
In this country, we do not always appreciate the value of the continuity and commitment that our system provides. It was only in comparing it with that of other countries that I truly understood the advantage that we have. Therefore, I completely agree with the views expressed by the noble Lord, Lord Neill of Bladen, and his colleagues, including my noble friend Lord Goodhart, in the sixth report from the Committee on Standards in Public Life when they say,
"that we take for granted what many other countries are still trying to establish".
In a moment, I shall return to what we can do to assist others in establishing more effective, more honest and more professional civil services.
Before doing so, I should like to say a word about special advisers of whom, over the years, I have known quite a number of various political flavours and some of whom I see in your Lordships' House, including of course, the noble Lord, Lord Lipsey. I do not see any necessary contradiction between the exemplary ethos provided by our Civil Service and the appointment of a limited number of special advisers. Therefore, I am happy to find myself in complete agreement with the present and past Secretaries of the Cabinet who recently, in their evidence to the Neill committee, argued that in terms of numbers there is no present threat to the Civil Service from a limited number of special advisers.
However, I feel that there can be qualitative problems if, for instance, special advisers are perceived as gatekeepers who appear to insulate Ministers from the advice of other officials in their department. Issues can also arise if appointments of special advisers to posts such as that of Chief Economic Adviser or indeed some of the senior information officers are made too frequently from outside the Civil Service. In reducing career prospects, it seems to me that that could reduce the morale of permanent civil servants and perhaps in the long term have an effect on recruitment.

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We should not be complacent, but I believe that the opportunities for scrutiny, both in this House and by the Select Committee on Public Administration in another place, as well as by the Committee on Standards in Public Life, chaired by the noble Lord, Lord Neill, provide a system of checks and balances that demonstrates that one does not need a written constitution, or perhaps even statutory provision, to maintain the all-important ethos of public service.
My other experience of the past decade has been in post-communist societies, particularly in south-eastern Europe. As this Motion refers to the professional Civil Service, I should like to say something about that aspect of civil service. In south-eastern Europe I have seen the central problem of developing a professional civil service that understands the very changed ethos of operating in a democratic society. It is easier to change the formal political structures, to create new democratic political parties, to organise and hold free elections in post-communist countries than it is to transform the public administration and to ensure that civil servants understand that they are now at the service of the citizen, rather than the reverse, as was the case under communism.
The task, therefore, of building effective professional public administrations with an ethos of public service is one of the main requirements not only for the 10 central and eastern European countries which are candidates for membership of the European Union, but also, I would suggest, for the other countries of the western Balkans now included in the Stability Pact. Without honest administration in those countries based on a professional civil service, popular support for democracy and an effective market economy can all too easily be eroded.
This country already does a certain amount to assist in the development in other countries of professional civil service structures. I am aware of the work that is done by the International Consultancy Group of the Civil Service College, the International Public Service Unit in the Cabinet Office, the Department for International Development and others; but, looking at the scale of the problem and the importance of developing healthy public services in countries, the success and stability of which are essential for the future of our continent, I believe that we should ask whether this is an area where we have a satisfactory overall strategy and whether we could not do more. Perhaps the noble and learned Lord the Minister in his reply to this debate could say whether, as we approach the sesquicentenary of the Northcote-Trevelyan report, which provided the basis for our own professional Civil Service, we could expand on what Britain is doing to help others to develop equally professional civil services.
An area in which the Officers of this House and of another place already provide considerable service in Europe, and further afield, is the provision of the procedural backbone to the parliamentary meetings of a number of European and international bodies. I therefore first became aware of the courteous rigour of the Officers of this House when serving on the
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assemblies of the Council of Europe and of the Western European Union when I was in another place some 20 years ago. I am most grateful for the continued assistance of the Officers of the House and for the welcome that I have received since my arrival from so many noble Lords, many of whom, irrespective of where they sit in this House, seem to be old friends.
6.22 p.m.
Lord Sawyer: My Lords, I too thank the noble Lord, Lord Campbell of Croy, for giving this House an opportunity to debate this issue this evening. I also pay tribute to the excellent maiden speech of the noble Lord, Lord Roper. I am sure that his experience in politics, in the academic world, and in public life, particularly in the European field, will be a great asset to this House. His speech this evening was interesting, well informed and challenging. I hope that in the weeks, months and years that go by we shall have the opportunity of hearing further from him on this and other subjects.
I should like to say something about special advisers, and I want to take a fairly wide interpretation of the issue and perhaps treat it in a rather unorthodox way. In essence, I believe that it is important and essential that the Prime Minister and the Cabinet should have the benefit of independent advice in two forms. First, they should have available to them special knowledge and experience from outside the Civil Service relating to the key tasks before them and the particular issue that they need to tackle. This should be wide ranging and should include the possibility of helping politicians not just to become effective cabinet members but also effective political leaders; secondly, that should provide a link between government and party, about which I shall have more to say later.
I hope that this debate will not be narrow or inward looking. It is not just about numbers or costs or narrowly defined rules, and we should not in a debate of this kind be trapped into addressing this issue in conventional or traditional ways. The role of special advisers relates essentially to the culture of government. It is about the kind of government that we really want. To appreciate the need for special advisers, we need to take a view of the big picture, we need to take a strategic view of the issue, and we need to think about how we can obtain from the Government the best for the people. In addition, we increasingly need to look outside the traditional confines of politics and civil servants and into the industrial and commercial revolution that is taking place in the wider world. We need to ask ourselves what we can learn from the wider world to help us to do our job more effectively here. Politicians of all parties moving into government from opposition need help and advice which will not always be available from civil servants. If that advice is of a political nature or dimension, it should not be available from civil servants.

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The big picture is how we can get the most effective government for the people out there who vote for parties and for governments. In the first place, of course, it is about delivering on manifestos and commitments. The Civil Service is essentially there to deliver on that task, but government is about more than delivering on manifestos and implementing policies; it should also be about culture. It should be about creating a culture in which people feel positive about elected political leaders of all parties. That does not mean that people will not make choices about differences—that is how it ought to be—but people should not feel negative about politics, politicians and political power.
The parties in this House and in another place which put forward politicians for election, and the voters who vote for those candidates, want something more from politicians than service delivery. They want more than policies on education, health, or whatever it may be. People want pride in the political process and in politicians; they want to trust the political process and politicians; they want openness and honesty; they want respect for both the people and the politicians; they want to be heard; they want their views to be taken into consideration. These matters are not about policy delivery. They are about the nature of government and the culture which governments create to govern people. What we need to achieve these things is leadership, in the widest possible sense.
I believe that this is the context in which need to look at the role of special advisers. It is to help men and women who often have little experience of leadership to face the challenge when they enter government, to give these politicians with enormous responsibility some support and advice which, for them, is outside the normal civil service environment. Sometimes it will be special, sometimes it will be political, but more often it has to be about leadership. If we think about it in these terms, we shall make progress. Any senior executive in the world outside politics would be surprised at a debate about whether a Cabinet Minister with enormous financial, political and personal responsibilities is over-serviced by having two special advisers. I believe that they would be surprised at that fairly narrow view. We therefore need to open things up. We need to look outside; we need to listen to what people say; and we need to look at what people do outside politics in order keep pace with the growing, changing world outside.
For the Prime Minister's Office, it is, of course, crucially about leadership. The new arrangements in the Prime Minister's Office—the Policy Unit, the Strategic Communications Unit and all the other new initiatives—are there to prepare and to extend his leadership capacity, and that is very important. It is about strategy and co-ordination; it is about making joined-up government work; and it is a phenomenally difficult and complex task for anyone to carry out. We have, of course, to be very careful. When we create new institutions in which we have new people close to power, the people in the old institutions which still exist outside, who are still necessary, sometimes feel
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left out. It is therefore important with new institutions that people in the Cabinet, and in the PLP in the case of my party—in the party machine—should not feel excluded. This is the essence of leadership, and that is why leadership is so important.
An innovative government looking to strengthen leadership at the top need to find ways of including people in the middle and at the bottom. So the role of the special adviser is partly about scrutiny and accountability to Parliament—I fully accept that that is necessary—but it is also about much more. It is about a culture; how we flatten the structures; how we bring government closer to people and how we bring people closer to the Government. That is essentially the new and developing role that I should like for special advisers.
I should like Government Ministers to have the opportunity to have special advisers who particularly take an interest in those leadership issues. They could be part time. They could be from another walk of life; they do not have to come from the Civil Service or political appointments. They could comprise a wide range of people. But that is a subject for an extended debate. In the context of being positive about the new ways of working with civil servants and special advisers—both having important roles to play—I hope that the Minister will give consideration to some of the points that I have made.
6.30 p.m.
Lord Powell of Bayswater: My Lords, as a former civil servant; as the grandson, the son, the brother and the father of either former or current civil servants, I obviously find this debate irresistible. I should start by declaring an interest, but whether it is a fraternal interest in a special adviser or a paternal interest in a civil servant I am not sure. Perhaps they cancel each other out.
I had my first knowledge of this House as a civil servant sitting in the Box during a debate on Rhodesia in 1979. The late and much-lamented Lord Soames was uncharacteristically flummoxed by an intervention. I scribbled out the answer and an aerodynamic and fleet-footed Whip carried it to him, whereupon he waved it in the air and said, "Manna from heaven, my Lords; manna from heaven!".
I do not aspire to offer much manna today, but I should like to make a few points on the Motion based on my rather atypical experience both as a civil servant and, more recently, as a merchant. Perhaps I may start by saying how grateful I am to the noble Lord, Lord Campbell of Croy, for tabling a Motion on which I dare to make a maiden speech, and on a day on which I am unusually in this country. I also congratulate the noble Lord, Lord Roper, on his maiden speech, while inwardly chiding him for setting a higher standard than I can possibly aspire to.
My first point is that I do not sense that politicisation of the Civil Service is a serious issue. Despite all the talk of "one of us", I can think of no case in the time as Prime Minister of the noble Baroness, Lady Thatcher, when a Civil Service

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appointment was affected by ideological leanings, and I am sure that the same is true today. There was a preference for men of action over purely cerebral types, and quite right too.
I am pretty sure that civil servants do not feel themselves at risk from politicisation. It is much more of a bogyman for politicians, and their concern seems miraculously to vary depending on whether they are in government or opposition. And if on rare occasions civil servants become, or even appear to become, politically tainted, there is an honourable way out. They may even find themselves on the Cross-Benches of the House of Lords.
So rather than tilting at windmills, it is better to focus on improving the performance and professionalism of the Civil Service. The present Cabinet Secretary is to be congratulated on some first-class work in that direction, in particular on adopting business planning methods and creating inter-departmental groups rather than pitting one department against another; and linking rewards with results—a long overdue change. Unfortunately, some management gobbledegook has crept in too; things like, "360 degree feedback". But I hope that we can get back to the tradition where civil servants speak and write good plain English.
Anything which breaks down the notion of the Civil Service as a priesthood, cloistered and aloof from the rest of the world, and brings it into the marketplace is very desirable. Our system does not encourage the extensive leavening of outside experience which comes with the in-and-out system in the United States. All the more reason therefore to second civil servants out to jobs in the private sector to gain experience. But they must go into real jobs if the experience is to be valuable. In my experience, one of the greatest differences between the Civil Service and the private sector is the degree of responsibility and accountability which relatively young people running a business experience compared with their Civil Service counterparts at the same stage of their careers. That is something which needs to be experienced by civil servants, and I am sure they would welcome it if given the chance.
Secondly, the Motion refers to the role of special advisers. Once again, I do not see any great threat to the professional Civil Service from them. Wise civil servants know how to work with special advisers and make the best use of them, and vice versa. But to my mind, too many of the special advisers are in the wrong places. The great majority, virtually all, are attached to Ministers' offices, where they tend to cabal, gossip to the press and intrigue on their Minister's behalf, creating unnecessary conflicts. I would much prefer to see their undoubted expertise, which they bring to government and Whitehall, spread more widely through the government machine. I believe that there is scope to appoint more outside experts, whether political or not, to what are traditionally Civil Service positions, in particular where new policy initiatives need to be worked up. That would make the most of their specialised knowledge and their commitment to
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change in key policy areas. It is also in the spirit of breaking down the barriers between the Civil Service and the world outside and letting in some fresh air.
To say that that would infect and politicise the whole Civil Service is simply crying wolf. It happens in other systems, notably the United States, without the sky falling in or the end of democracy as we know it. We need to avoid being overly sanctimonious on these issues.
In the case of information officers, the market will surely determine whether or not they are overly politicised. Journalists expect good hard news delivered straight. If they feel they are receiving excessive spin or political slant, they will discount both the story and the source; it is a self-correcting mechanism. There is indeed the problem of repetition to which the noble Lord, Lord Campbell of Croy, referred. It brings to mind the case of Lord Whitelaw, who was once repeating the same page of his speech and was challenged on it. He said, "Of course I am repeating it. It is the most important part of my speech".
I add one word about the role of 10 Downing Street, where I worked for an unusually long time. It is a remarkable institution whatever government are in power. What makes it effective is its small size and intimacy. Not only is No. 10 smaller than any other head of government office even now among major countries; it is—or certainly was—the only one small enough to get an instant decision by sticking one's head round the Prime Minister's door. That is a huge advantage envied by other governments for the speed of decision-taking.
While a No. 10 which provides a strong and effective lead in Whitehall is in my experience desirable and welcomed by the Civil Service, it would be a great mistake to allow it to become too big and spill out into a full-scale Prime Minister's department, with hierarchies and a tortuous chain of command. I hope that that temptation will continue to be resisted.
Lastly, I am immensely and more than conventionally grateful for the help and courtesy which I have received from Members of the House, its Officers and staff. It is one of the qualities which makes membership of this House both an honour and an extraordinarily rewarding experience.
6.37 p.m.
Lord Patten: My Lords, we should all be grateful to my noble friend Lord Campbell of Croy for introducing this debate and allowing us to hear the noble Lord, Lord Roper, make an interesting speech. It was most thought-provoking, with his references to what might be done to promote good governance in south-east Europe and elsewhere, and we look forward to more of him in the coming months, as we do most assuredly of the noble Lord, Lord Powell of Bayswater. I congratulate him also on his remarkable maiden speech on behalf of the whole House. He said that he came from a kind of hereditary caste of civil servants, administrators and writers of speeches. It is a remarkable double act to have the noble Lord on the

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Cross-Benches while his brother labours as a most distinguished chief of staff to the Prime Minister in No. 10. Indeed, those interested in genetic engineering may well seek a sample from one or other, or both, to see whether there is a secret in the Powell genes.
Among the secrets which will long be kept, alas, are the thoughts of the noble Lord, Lord Powell of Bayswater, on his long and distinguished tenure in No. 10 Downing Street as Private Secretary to the Prime Minister between 1983 and 1990. I suspect that we may hear not very much of that. That is probably in the firm traditions of the British Civil Service. However, if the noble Lord seeks to have an edition of memoirs of those years privately printed and circulated, he will find me among the many willing subscribers.
He can also have the satisfaction of knowing that he has probably had a much greater influence on public affairs in this country, in Europe and elsewhere than many a Minister. That is an enviable position for any civil servant.
I have always greatly admired the British Civil Service. There is not much that can be said about it except that there is no such thing as a bad or incompetent civil servant; there is only a bad or incompetent Minister. One of the few sensible remarks ever written by a sociologist was by Max Weber and it was so sensible, I wrote it down. On civil servants, he said:
"The ideal official conducts his office in a spirit of formalistic impersonality, without hatred or passion, and hence without affection or enthusiasm".
There is indeed a great lack of affection or enthusiasm among many of the civil servants with whom I have been privileged to work in the past. But I have never felt for one moment any taste or taint of partiality in the advice that I was given over the years. That must make it all the more galling for some of our distinguished civil servants that some among the special advisers who inhabit Whitehall in growing numbers—and I am not against special advisers, and this is not the beginning of a tirade or rant against special advisers—have begun, so gossip within the Whitehall village tells one, to order around civil servants. That is entirely wrong.
There is a proper place for special advisers. My noble friend Lord Campbell of Croy spelt out the need that a Minister or Secretary of State may have for someone to help him with speeches and with his links to the political party to which he belongs. He needs someone to explain to civil servants that going to make a political speech is more important than opening a bypass on a Friday afternoon. One needs that service to deal with all those delicate matters.
However, I echo something which the noble Lord, Lord Powell of Bayswater, said. There is a need to have more special advisers but not the political special adviser. Each Secretary of State or Minister should be limited to one political special adviser to look after his back. I should then happily see a growth of special advisers who were brought in to do the serious
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strategic thinking policy jobs, because sometimes, in the pell-mell life both of government and the Civil Service, it is difficult for civil servants to find time to pause and to reflect in order to do that. So I should not at all mind seeing more special advisers in government.
A trade-off of that may be getting rid of the superfluity of junior Ministers. That would be a sensible way of saving public expenditure so that money is spent more usefully.
I say to the noble and learned Lord who is to reply to the debate that it is critically important that, in the present grey area that we have concerning special advisers and the lack of definition of their role, we urgently need two things. We need to have a proper code of conduct for special advisers. If there is a grey area, we need to define where the problem is and where the potential nuisance may be. In the case of special advisers, it is not possible to rely on the Civil Service Code of Conduct, excellent though that is, because special advisers are partly political animals. We urgently need a review of their position and role in relation to the Civil Service and the general public. Many of them come from the real world and will return to the real world—and that is very good—learned in the ways of Whitehall and Westminster.
Secondly, because of their particular position—they may be on sabbatical from some bank in the City, from a trade union, a public relations or political lobbying company—there should be a register of interests which is publicly available to those of us in this House and another place and also to the general public. That should contain the declared interests of special advisers who are not professional civil servants. They are necessarily birds of passage, moving from one part of the world into government and out again.
I hope that the noble and learned Lord will find some time in his winding-up remarks to respond to the request for a code of conduct for special advisers and, secondly, for a register of interests of special advisers.
I end by dealing with information officers. There has been a lot of talk about the politicisation of the information officer service. That is not necessarily true. But to a large extent we have government by spin doctors. Spin doctors have had an unfortunate effect, particularly on some of our news broadcast services. I see the noble Lord, Lord Birt, in his place on the Cross-Benches. As a former distinguished Director General of the BBC, he might like to tell the House his views on the high standards which obtain to the following situation. In the morning, thanks to some spin doctor from the Government, we are told on the news service that "a Minister or a Secretary of State will later on today say that…". Later on in the same broadcast an opposition Conservative spin doctor says "Later on, the opposition spokesman on this subject will say that…". We never hear whether it has been said. There is little analysis by what used to be one of the great news gathering and news reporting organisations in the known universe. We look forward to hearing any views which the noble Lord, Lord Birt, may have on that.

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I believe that the best people to speak for government are Ministers. The noble Lord, Lord Sawyer, said that he thinks that it is good to have a lot of information officers in No. 10 because they enhance the leadership capacity of the Prime Minister. One can imagine the late Lord Attlee, one of the great Prime Ministers of the 20th century, taking his pipe out of his mouth and making a pithy comment about the need to have his leadership capacity enhanced by spin doctors gathering in larger and larger numbers.
There is a warning for the Government here: live by the spin doctor; die by the spin doctor. Wait and see.
6.47 p.m.
Lord Warner: My Lords, I too am grateful to the noble Lord, Lord Campbell of Croy, for giving us the opportunity today to discuss this particular issue. I pay tribute to the two maiden speeches, especially the speech by the noble Lord, Lord Powell. I recognised some of those sentiments from my own experience as a civil servant.
I speak in this debate from the double position of having been a senior civil servant for about 20 years and having worked as a special adviser. I can certainly say that as a senior civil servant, I have crafted some crackingly good speeches for Ministers of all persuasions, often on subjects about which I profoundly disagreed with them. So I know only too well the capacity of the Civil Service to carry out that function in a dispassionate and objective way.
I have also worked as a special adviser in the present government. In that capacity, I have observed no unwillingness on the part of Government Ministers to listen to the views of civil servants or to cast to one side the views and advice of the Permanent Civil Service. Indeed, there may have been occasions when Ministers in the Home Office might have wished they had listened more to the advice of the special advisers than to the Permanent Civil Service on some of the particular episodes which have arisen in the past two to three years.
In my experience of the British Civil Service, there is a strong attachment to continuity. I wish to explore that particular issue for a few moments. That attachment to continuity is a strong feature of the working ethos of much of the Civil Service. I certainly have subscribed to that notion of continuity in my time as a civil servant. It may be that in my formative years, I was over-exposed to long pep talks on that subject by various Permanent Secretaries. But it is certainly an important part of public policy-making because continuity of policy serves as a benchmark against which to measure change.
One of its strengths is that it gives a starting point from which the Civil Service can advise Ministers on change. But for that system to work, I suggest that it requires two things: it requires confidence on the part of the Civil Service to put forward the downside of particular policy proposals; it also requires tolerance on the part of Ministers to listen to the downside arguments of particular policies to which they have become emotionally extremely attached.
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One of the problems that arises from time to time, and one which leads to accusations of politicisation, is that the Civil Service can sometimes lose confidence in its ability to expose the downside. I noted some aspects of that in the 1980s, which were certainly contributory factors to my leaving the Civil Service. I have also noted, from time to time, individual Ministers of both major political parties displaying a certain intolerance and impatience about listening to the downside arguments. Those are the critical factors in making the machinery work effectively.
However, the reverse side of the continuity coin is that we need agents of change. My noble friend Lord Sawyer exposed many of those considerations in his speech. Policies outlive their relevance. In my own experience, the political cadres are rather quicker to spot this than the bureaucratic cadres. That is why there is a continuing need for a substantial leavening of outsiders in the machinery of government. It seems to me to be wholly irrelevant whether you call such people special advisers, consultants, task forces, advisory committees, review bodies, or whatever. We do the public interest no great service by pressurising politicians to rely on the permanent Civil Service as their major, if only, source of advice on complicated policy issues in a modern society.
The noble Lord, Lord Campbell, seemed to cite with a sense of shock the fact that the number of special advisers had doubled under this Government. One could actually interpret those figures as meaning that previous governments have shown a dereliction in their duties in not using special advisers enough and in not opening themselves up to alternative viewpoints in the way that they developed public policy.
We must accept that the Civil Service machinery has inertia built into it. I have certainly been part of that machinery, but I shall not confess publicly to some particular episodes on this; indeed, my lips are sealed on the issue. But the philosophy of continuity, the strong emphasis on departmentalism, the lack of direct operational management experience among many senior civil servants and the gender and ethnic imbalance in senior posts, all raise considerable doubts in my mind about how well equipped the senior Civil Service is for modern government today.
Perhaps I may give noble Lords a quotation. It is one that I have given before in the House, but it bears repeating. It comes from John Major's autobiography, and reveals how unsupported a Prime Minister can occasionally feel when trying to take forward his particular policy areas. This is Mr Major's account of the 19 departmental responses to a minute that he sent them about action on the "Citizen's Charter":
"The responses from most departments were slow in coming and weak in genuine content. Some failed to address the key issues service quality, real or surrogate competition, local delegation of power and improved accountability, and appeared to believe that institutional change within Whitehall would see me off. Wilfully or carelessly the point was being missed".

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That is a Prime Minister five years before the 1997 election. Some of those concerns seem to me to have been echoed very recently by Sir Richard Wilson and his Permanent Secretary colleagues in their proposals for reforming the culture of the Civil Service.
I see no reason why this Government should be apologetic about using more special advisers and outsiders to bring about change. From my own experience in the Home Office, I believe that that can often be for the good, although, as I have already mentioned, this has caused problems on one or two occasions. We must recognise that this Government were elected on a manifesto of change. I believe that they are entitled to bring in those with such expert outside advice, as well as those with a political background, to engineer that change.
It is also worth bearing in mind that this Government inherited a senior Civil Service in which posts had been cut by 20 to 25 per cent in the two years before the 1997 election through senior management reviews in that period. I suggest to your Lordships that that represented a considerable reduction in the policy capability available to the new Government. In these circumstances, they have a duty to enhance that capability by bringing in some outsiders.
6.54 p.m.
Lord Chadlington: My Lords, I am also most grateful to my noble friend Lord Campbell of Croy for initiating this important debate. I should like to join others in congratulating the noble Lords, Lord Roper and Lord Powell of Bayswater, on their excellent maiden speeches. As someone who spent his entire working life in the world of public relations and presentation, perhaps I may declare my professional interest in the way that government present themselves and their policies to the electorate.
As other speakers have said, the Civil Service is really the backbone of government. It provides the transition of seamless democratic government from one administration to another. Its impartiality is sacrosanct. I quote from the Civil Service code:
"The constitutional and practical role of the Civil Service is, with integrity, impartiality and objectivity, to assist the duly constituted Government of the United Kingdom, the Scottish Executive or the National Assembly for Wales … whatever their political complexion".
Equally, I am convinced that no modern, progressive government can underestimate the importance of policy presentation and the role played by special advisers and information officers in that process; it is indispensable.
The issues then, as I see them, are, first, the interrelationship and clarity between the Civil Service and the special adviser network; secondly, how both are managed and funded; and, thirdly, what codes of conduct apply, both during and after employment in government.
Politicians, in common with all other responsible professionals in our society, need to have the benefit of best practice advice in the presentation of their
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decisions. This is an era of mass communication. The Internet, global 24-hour news and a media, adversarial in its approach, with an insatiable appetite for comment, simply demand this.
However, the more professional these presentational PR skills become, the more difficult it is for the public—the voters—actually to get at the truth and really to believe that they know what is going on. Fact, fiction and spin all meld together into an indiscernible fog. This, in turn, makes the media even more adversarial and probing—a vicious circle.
The result, of course, contributes to the prevalent very deep mistrust of politicians and a disinterest in politics. The Performance and Innovation Unit publication, The Future and how to think about it, alleges that almost three quarters of young people now believe that voting will have no impact on their lives and they are disinterested in national politics.
As my noble friend Lord Campbell of Croy pointed out, at the start of 1997 there were 38 special advisers across government. That number has now more than doubled under the present administration, and I understand that it has more than trebled in Downing Street. Previously, special advisers in 10 Downing Street were restricted, on the whole, to the Policy Unit. They now hold an unparalleled number and range of senior advisory roles, including the Chief Press Secretary, the Chief of Staff and the Chief Economic Adviser to the Treasury.
The ministerial code states that each Cabinet Minister may appoint up to two special advisers—"political" or "expert". But as the Neill committee points out in Reinforcing Standards:
"At a recent count five Cabinet Ministers employed more than two special advisers".
Therefore, perhaps I may join my noble friend Lord Campbell of Croy and ask: who are these five Cabinet Ministers; and what role do these special advisers play?
Of course, other countries do have similar systems to those which appear to be evolving in this country. It may be that such a system is right for this country, but I am concerned that we appear to be moving from one system to another by the back door, without any public debate. Is there not a danger of special advisers in large numbers usurping career civil servants and the important impartial, politically neutral role that they have to play?
If the Civil Service is even perceived to be losing its influence, will that not also make it a less attractive career prospect for our very best young graduates? In the same report I mentioned a moment ago, one survey,
"found only 1 per cent [of graduates] interested in a career in the civil service".
A dumbing down of the Civil Service can only be detrimental to our Government and to our country.
With accusations that special advisers are doing political work while technically being civil servants, the Civil Service has reason to be concerned that perceptions of its impartiality are being jeopardised. To find proof of this look no further than 10 Downing

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Street where two special advisers, the Prime Minister's Chief Press Secretary and his Chief of Staff, have executive powers over civil servants. The Independent newspaper described the Chief Press Secretary in a recent article as,
"an unsatisfactory hybrid, half civil servant, half special adviser".
Currently all special advisers are, of course, funded by the taxpayer and their cost has more than doubled since the election, to about £4 million.
I have, on several occasions in your Lordships' House, lamented the fact that Ministers, after a testing day, could no longer let off steam to close political allies without the nagging fear that, usually at a most inappropriate time in the future, these explicitly expressed concerns would appear in print or on television. Now, of course, we must add the Internet to that—a medium which has no editor and no accountability. The Internet is increasingly the source of stories which find their way into the traditional media. It is the vindication for the use of gossip and insubstantial rumours.
A special adviser, often plucked from media obscurity, can one day be writing for a newspaper, be employed by the BBC or a PR company, and the next be at the heart of government. It is a two-way street. Advisers may be drawn from the media and PR but they go back there too. There is limited vetting and limited loyalty. I join others in asking the Minister to address whether there is not a case now for an agreed code of conduct for special advisers. Of course we should remember that every special adviser is not a vengeful hack looking for a story to spin or a back to knife. It is, however, the free movement between the heart of government and particularly the media which raises issues not only of actuality but of perception.
And so I look to this Government, who have done more than any other to show how to manage perceptions—rightly and professionally in my view—to ensure that the Civil Service's impartial role is strengthened, clearly differentiated from political advice, the costs of which should not only be managed but properly allocated, and that a code exists to ensure those who move from the commercial world to government behave in a manner which reaches the standards we have every right to expect from those who lead and develop our country's future.
7.2 p.m.
Baroness Warwick of Undercliffe: My Lords, I join others in thanking the noble Lord, Lord Campbell of Croy, for introducing this debate and providing us with an opportunity to speak on what I certainly believe to be an important subject. I very much enjoyed the embarrassment of riches in the two maiden speeches of the noble Lords, Lord Roper and Lord Powell. I was particularly struck by the reference to the need for democratisation in eastern Europe as that is something close to my heart.
I wanted to speak in this debate because the Nolan committee, on which I served, dealt with some aspects of the role of civil servants in its first report in 1995. I remained on the committee when the noble Lord, Lord
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Neill, became its chairman. In 1999 we reviewed progress on our recommendations in the first report. We looked specifically at the role of special advisers.
We had, in both cases, the benefit of a large number of comments not only from parliamentarians Put also from commentators, academics and members of the public. A large number of concerns were aired, some of which have surfaced in the debate this evening. I wish to address just two of them in the light of the evidence which the Nolan/Neill committee received; namely, the possible politicisation of the Civil Service, linked to the role of special advisers, and whether the role of special advisers is being abused.
Twenty-five years ago, in the 1970s, I was a trade union official representing staff in a range of government departments. Therefore I was able to get to know the machinery of government pretty intimately and to appreciate the role of civil servants in it. It gave me an abiding respect and admiration for the professionalism and integrity of almost all the civil servants I got to know.
My contact over the years with the Civil Service, in various jobs and voluntary posts, has remained close. I still retain that same respect and admiration. Then, and now, I believe that the country had, and still has, some of the brightest minds and the clearest thinkers in its Civil Service. Some of the contributions that we have heard tonight from former civil servants have demonstrated that.
I agree with one of our witnesses in the first Nolan inquiry who said,
"it is a priceless gift that we have an impartial, non-corrupt civil service".
That is not to say, of course, that things cannot go wrong. That first inquiry took place at the same time as the investigation by Sir Richard Scott into the export of defence equipment, in which civil servants along with Ministers were implicated. However, in general we received no evidence that in the Civil Service standards of political impartiality, or the ideals of public service, were under threat.
Since my time in the 1970s, the Civil Service has been transformed. The demands on it have changed dramatically. Management skill—this was not something that was much talked about by senior policy civil servants in my day—is now an essential feature of the professional civil servant, as is the ability to manage budgets.
There has been a real shift in culture. Civil servants now regard themselves as providing a service. Back then, I remember all the heat and opposition that were generated when civil servants were asked to give their names to members of the public who telephoned them. My noble friend Lord Warner echoed some of those concerns about service and accountability.
Back in the 1970s there were 750,000 people in the Civil Service. There are now about 450,000. To manage that kind of downsizing, as anyone in business will know, requires good leadership and good management. As government has opened up, civil servants have had to face demands for greater accountability for the work they do. I do not think that

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there is any doubt that they are a professional body of people. However, they are not just professional managers. They are expected to give impartial advice. We in this country have the notion of a permanent Civil Service able to transfer its loyalty and its expertise from one elected government to the next. Despite some ritual huffing and puffing when governments change, all governments have accepted that the Civil Service has done this admirably.
But there is also the issue that Ministers have to wear many hats. They are not just policy makers; they are constituency MPs; they are Members of a House of Parliament; and they are members of their own political parties. They have to organise their lives to fulfil their responsibilities in all those roles. Civil servants cannot advise on all of them.
The role of special advisers, providing both a political dimension and expert advice, certainly makes that easier. At the same time, as the Ministerial Code states, it reinforces,
"the political impartiality of the Permanent Civil Service by distinguishing the source of political advice and support".
However, I was much struck by a comment of the economist, J K Galbraith, who said,
"Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable".
I suspect that that does not sound hugely appealing to politicians who largely want to be seen as knights fighting for the right because in those circumstances the "right way" becomes distinctly indistinct! Therefore I do not think that it is at all surprising that Ministers look both to the professional Civil Service and to special advisers to provide them with guidance on how to navigate the currents between the Scylla of disaster and the Charybdis of the unpalatable.
I return to the Neill committee. Almost all the witnesses we heard were quite clear that special advisers were a valuable component of the machinery of government. Indeed, the union representing senior staff, which one would expect to voice concerns if there were concerns to be voiced, supported the system. The First Division Association stated that special advisers,
"performing their job effectively, and reflecting the views of their Minister, can assist greatly in the smooth working of a department in their liaison with civil servants".
The main concern expressed to us, which has been referred to by one or two noble Lords today, was about the exponential growth in the number of special advisers. The noble Lord, Lord Roper, raised the point about gatekeepers; that it was not only a question of numbers but of the privileged access that a specialist adviser has to his or her Minister. There is clearly no ideal number. I do not think that anyone feels they can indicate the number they think best; different governments will have different needs.
But the need to remain vigilant about the impact on the Civil Service is crucial. Its role and impartiality are too precious a part of our unwritten constitution to allow it to be tainted by default. On the other hand, it is important for all concerned, including the media, to understand the role played by the political adviser as
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well as the role played by the civil servant. I join others in believing that a separate code of conduct for special advisers would be a good idea. That is only one of several recommendations made by the Neill committee. Like other noble Lords, I hope that when the Minister responds to the debate he will come forward with a timetable for the consideration of the overall recommendations of the Neill committee.
7.11 p.m.
Lord Birt: My Lords, I shall swim against the current a little and focus on the requirements for a professional Civil Service and not on the issue of special advisers. I hope that the noble Lord, Lord Patten, will forgive me if I do not yet spring out of the trap and share with your Lordships the true confessions of a retired director- general on the issues that infuriate him so much.
The British Civil Service is one of Britain's most successful institutions. From a long involvement with it from the outside, I learnt to appreciate the talent of its people. The Civil Service is still attracting some of the best and most able people in the country. I learnt to admire their shrewd dissection of policy issues, their steeliness—an oft not mentioned quality—and their dedication to public service and to high standards of probity—all qualities abundantly exemplified by the noble Lord, Lord Powell of Bayswater, whose characteristically witty and wise maiden speech we all enjoyed.
In recent years I admired, but was not surprised by, the way in which the noble Lord, Lord Butler of Brockwell, managed a seamless transition from one administration to another. Civil Service traditions run strong and deep— serving well any party in government is an unassailable conviction of everyone whom I know in the British Civil Service. That conviction gives us the continuity that the noble Lord, Lord Roper, rightly valued in his carefully argued maiden speech.
Over the past 15 years or so I noted with approval the path of reform and modernisation, which continues under the considered leadership of Sir Richard Wilson. Sir Richard has identified the challenges for today's Civil Service. I read with interest the strategy for further reform that he presented to the Prime Minister in December last year.
Perhaps I may underline some of the challenges that Sir Richard identifies. First, we have started the journey but we have a very long way to travel before the public sector matches the best standards of customer service achieved in the private sector. Secondly, the Civil Service has started to use new technology to communicate with itself and the citizen, but, in my view, it was slow to appreciate the opportunity and it is behind where it should be.
Thirdly, I am sceptical that the generalist tradition of the Civil Service is any longer right for a world of growing specialism and expertise. Unless the British Civil Service has highly professional functions—in finance, in technology, in human resources—with a state-of-the-art understanding of the latest techniques

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and thinking, it will fall behind best private sector practice. I have no doubt the Civil Service can grow its own in all of these expert disciplines, but it should not be afraid to recruit specialists in every function at every level from outside the Civil Service.
Fourthly, from my own experience, the greatest leap the Civil Service needs to make is to acquire the strategic and analytical skills developed by business schools over past decades and embraced by successful private sector companies. Helping civil servants at every level to acquire those skills is the challenge for the new centre for management and policy studies that Sir Richard has set-up.
In a world marked by globalisation, by technological revolution and by the so-called wicked, profound, complex problems, governments have to be able to acquire and to use knowledge and insight to look and plan ahead. I am not persuaded that the centre of government or individual departments yet have the capability to do that.
The overall challenge for the British Civil Service—a great institution of the 19th and 20th centuries—is to grow and to develop a new professionalism for the 21st century.
7.16 p.m.
The Earl of Longford: My Lords, I worked for three years as a bottle washer for the great Lord Beveridge when he was drawing up his famous report and afterwards. I used to hold his coat while he made many speeches to audiences. He always began in this way:
"I rise to greet you and after that, with your permission, I will remain seated".
Today I am afraid that I have to go a little further and not rise to greet your Lordships. I ask your permission to remain seated, for reasons which I hope are temporary.
I never cease to marvel at the mental and moral adjustments made by the great civil servants—referred to so ably by previous speakers—who have made invaluable contributions to the country. We are told in the Gospels that we must not serve two masters, but civil servants have to serve at least two masters. They have to carry out the orders of the Government and of Ministers, and they have to follow their own consciences. So they are following two masters. It is no good questioning them too closely about this; one will never get an answer. It is like asking lawyers, "I-low do you defend a man when you know he is guilty?"; one will never get an answer.
Perhaps I may offer a few reflections based on varied if slightly out-of-date experience. I served in four Ministries. I joined the Attlee government of 1945–51; I was Secretary for War; Minister for the British zone of Germany; Minister for Civil Aviation; and First Lord of the Admiralty. I was never quite in the Cabinet—that came a bit later—but I served in all those government departments.
I had never heard of any special advisers in those days, but when Sir Winston Churchill arrived, of course, his special advisers were popped into the Cabinet. That is rather a different approach. My dear
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old friend, Professor Lindemann, the Lord Cherwell—one of Sir Winston's closest friends—became a Cabinet Minister. That was one way of dealing with it.
However, leaving that aside, in the years when I was in those offices and later when I was Leader of the House and in the Cabinet, it never occurred to me that civil servants voted and actually had political instincts at all. They were just there to carry out policy. Only the other day I discovered that a lady who was a dear, close secretary of mine in the Cabinet when I was Leader of the House was in fact voting Conservative at the same time, It never struck me at the time, but of course they have to live a schizophrenic life; that is what we expect of them. On the whole, it works as well as, or perhaps even better than, anything else would.
Following my time as a Minister in the Foreign Office, I met Dr Adenhauer, at that time the Chancellor of the Federal German Republic. He begged me to go back to the Prime Minister and the Foreign Secretary (Clem Attlee and Ernest Bevin) and urge them to join the Franco-German iron and steel pact from the beginning. That would have brought us into Europe straight away. I was laughed to scorn and shown a document from a high Treasury official saying that if we tied ourselves to Europe we were tying ourselves to a corpse. That was the Treasury line, which I do not think was very different from the Foreign Office line in 1950.
By the time I was Leader of the House here in 1964 I was being urged by the Foreign Office to go further, further and further towards Europe—further than the government line. The people in the Foreign Office were thinking hard: they were very clever people and they were gradually going to have a definite influence. Who can say what the influence amounted to?
Again, turning to the Home Office and penal affairs, with which I was much concerned how much influence has the Home Office exerted? It is impossible to say. There have been various ups and down in penal policy for many years, with a kind of progressive tendency towards reducing the number of prisoners. Then when Mr Michael Howard became Home Secretary the prison population went up in four years by 50 per cent. Maybe the Civil Service influenced that, I do not know and I do not think that anybody knows.
All that can be said is that over those years the Civil Service promoted a lot of criminological research, and certainly they helped in the movement which led to the greatest improvement in our time in the life of this country: the abolition of capital punishment. I think the Civil Service must have played its part in promoting thought and discussion on this matter.
So today, have I got anything to recommend at all? As to special advisers, I have never had much to do with them. The only time I was at all close to the then Prime Minister, Harold Wilson, when I was with hire on one occasion in the Cabinet Office. At a critical moment he suddenly said: "Send for Gerald and Marcia". He meant Gerald Kaufmann and Marcia Williams. They were called in. I do not know whether they would be called special advisers, or what they would be called, but when it came to a crisis they were the people that Harold Wilson sent for.

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We see all these special advisers, of one sort or another, and we have had all the figures quoted today. There has been a tremendous expansion. Of course I am biased very much in favour of the noble Lord, Lord Campbell of Croy. That is for two reasons. I am now honoured to think that he and I are linked in a family sense. Also, he is a supreme example of how a person can face physical handicap—in his case heroically received, while others of us have received it in a far from heroic fashion. We look up to him as a "senior prefect" and therefore I am inclined to go along with everything that he says.
I must add a further thought. What we have benefited from in recent years have been the inspectors who play a particular part in the penal realm, in which I have operated for a long time. We owe an enormous debt to Stephen Tumim and the present David Ramsbotham. These two are great men. They are officially appointed but they are independent. Their job is to criticise, and I hope that, whatever arrangement we make in future, we preserve the essence of our Civil Service, and that we shall preserve more and more the arrangements to make it possible to have a critical spirit.
7.24 p.m.
The Earl of Northesk: My Lords, I join other noble Lords in thanking my noble friend Lord Campbell of Croy for giving us the opportunity to debate this matter today. I also take this opportunity to join other speakers in congratulating the noble Lords, Lord Roper and Lord Powell, on their stimulating and witty contributions tonight.
It will come as no surprise to the noble and learned Lord the Minister that I want to concentrate on the role of special advisers. I wholeheartedly accept that they can and do contribute to the effectiveness and efficiency of government. As has been made plain by many of your Lordships tonight, they have their uses. However, that is not the point at issue. We have to wrestle with the fact that concern about their role, their remit and their numbers has mushroomed during the life of the current administration. In many respects the situation is rather like a ball of string. In the hope of unravelling its complexity, we can tug on what may seem to be separate strands but then, far from unravelling, the knots pull ever tighter.
The Government have argued that these anxieties owe more to perception than to substance and, as such, they are unfounded. But here is the rub. Justified or not, the perception does exist that special advisers or, more correctly, the way in which their political incarnation is operating under, and being used by, this Government is beyond the pale. The substance of concern is neatly encapsulated in the definition: a government special adviser is a study in power without accountability.
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What this necessarily implies is that the rules regulating their conduct need to be both certain and robust. In effect, it is a constitutional issue. Unfortunately, we need look no further than the Neill committee's comprehensive analysis of the issue in Chapter 6 of its sixth report to detect some of the weaknesses and inconsistencies in the current regime. I, therefore, like other noble Lords, would ask the noble and learned Lord the Minister whether and when the committee's recommendations R18 to R25 inclusive will be implemented. In particular, pending the appearance of the proposed Civil Service Act, will the Government afford the opportunity to both Houses of Parliament to debate both,
"a limit on the number of special advisers that can be appointed",
as advocated in R20 and, to echo my noble friends Lord Patten and Lord Chadlington, to debate also a draft free-standing code of conduct for special advisers, as called for in R25?
Moving on, the suggestion has been made—the noble Lord, Lord Sawyer, repeated it tonight in his remarks on leadership—that the use of special advisers, particularly those in No. 10, can be justified because it makes for a much stronger and more effective centre. However, I find it difficult to reconcile the concept of a strong centre, suffused with an innate tendency to centralise, with the stated intention to devolve power away from the centre. The two concepts are chalk and cheese.
Of course, excellent advocate that he is, the noble and learned Lord has a pre-prepared defence here. In replying to a Question for Written Answer, he has argued that:
"Strengthening the centre of government to co-ordinate and oversee the delivery of policy is quite different from the Government's programme of devolution and local government reform".—[Official Report. 31/1/00: WA 12.]
This is an intriguing insight into the way in which the Government themselves perceive the effectiveness and role of their special advisers. It is the phrase,
"co-ordinate and oversee the delivery of policy",
that is so telling. This is echoed in a recent article from the Evening Standard:
"Another mandarin, a Blairite sympathizer, sums up: 'On a PR level having a strong centre is working and co-ordination in principle is obviously a good thing. But on a practical level, although there is a lot more machinery at the centre, at the end of the day it provides more of a forum for discussion than for making decisions and getting things to happen. So in that sense, nothing much has changed—.
In effect, not only the perception, but also the experience—even from those within the machine—is that this "strong centre" is singularly failing to deliver in any meaningful way. As Sir Peter Kemp puts it:
"Mr Blair may be pulling on the levers, but are the delivery cables joined up or just waving in the wind? What matters in the end is the actual delivery of improvement on the ground, not just the elegant thinking and machine-building".
All this underscores how urgent the problem actually is. It is all the more ironic, therefore, that the Cabinet Office has recently launched the most intensive investigation yet into why people are so disengaged from the political and electoral processes.

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But is not the reason already well known? In very great part, Parliament has ceased to matter. The perception— that word again—is that decisions are now made behind closed doors by unaccountable and unelected special advisers. In this, there is a,
"geography of politics in which proximity to power is everything. The title special adviser under New Labour has given the holder—whether in Downing Street, the Department of Health or the Welsh Office—unparalleled access to ministers".
In other words—rather ironically I noted that the noble Lords, Lord Powell and Lord Roper, both made this point—they perform a "gatekeeper" role. They are the grit in the oyster of the traditional lines of communication within Whitehall and Westminster. What flows logically from this is that the reins of control are shifting remorselessly away from the electorate. People sense that the tentacles of an already over-mighty executive are being fashioned in a way that is designed to bypass both their anxieties and their mandate.
Peter Riddell's article in The Times of last Monday is grist to that mill. As he so rightly points out:
"The real question is whether the Commons is able, and being allowed, to hold the Government to account and scrutinise its activities".
Inevitably, as special advisers lay their hands ever more decisively upon the levers of power and control within Whitehall and Westminster, so the capacity of all Members of Parliament to hold the executive to account is diminished. Little wonder that, as a reaction to Ministers' response to the Liaison Committee of another place, Mr Riddell commented:
"The Government has not only rejected all the most important recommendations but its response is also evasive and mendacious. The style is almost a parody of Sir Humphrey Appleby trying to look positive, but being almost wholly negative in substance".
We can only speculate on the extent to which political advisers were involved in the drafting of that response.
The words used in the Labour Party's general election manifesto bear repetition:
"There is unquestionably a national crisis of confidence in our political system".
It has not gone away; and it is inextricably linked to the way in which the current administration, however inadvertently, is changing the architecture of the executive to the detriment of transparency and accountability. Lest anyone doubt this, I offer noble Lords an extract culled from an article by Benjamin Wegg-Prosser in the Guardian in January of this year. I make no apology for quoting it at some length:
"There is no greater fear for a senior civil servant than a cabinet minister's special adviser stepping on his toes or bypassing officials. However, much of the great progress that this government has made since the election would not have happened without the energy and drive of the special advisers involved. Political appointees were instrumental in many significant decisions: granting the Bank of England independence to set interest rates; implementing devolution in Scotland and Wales; creating the Social Exclusion Unit; and, within Whitehall, in implementing the communications revolution which has dramatically improved the way government departments present their achievements to the public".
Gosh! And I thought all of that was the responsibility of those who have been elected to office.
7.34 p.m.
Lord Lipsey: My Lords, the excellent initiative of the noble Lord, Lord Campbell of Croy, in tabling this debate has been rewarded by excellent contributions, but in particular characterised by two very fine maiden speeches from the noble Lord, Lord Roper, and the noble Lord, Lord Powell of Bayswater.
I wish to speak as a member of that most powerful of unions, the union of ex-special advisers. I have taken the precaution of having two other members of my union sitting on either side of me. However, this House enjoys the presence of many more special advisers. Three distinguished heads of the No. 10 Policy Unit sit on the Benches opposite: the noble Baroness, Lady Hogg, and the noble Lords, Lord Griffiths of Fforestfach and Lord Blackwell. We have on this side my noble friend Lord Donoughue. Special advisers even sit on the Liberal Democrat Benches: the noble Lord, Lord Oakeshott of Seagrove Bay" who is not in his place, and the noble Lord, Lord McNally. There are none sitting on the Cross Benches; it would be a little odd if any were to do so.
Leaving myself out of that list, I do not believe that any noble Lord would doubt that those noble Lords bring a great deal to the proceedings of your Lordships' House. These are people with a great weight of experience. It is puzzling that in our newspapers we read about a completely different breed: wicked spin doctors who use their arts to undermine the great tradition of the impartial British Civil Service.
What is the answer to that puzzle? Perhaps it could be that the new lot are much worse than the previous lot. I know that many more younger people are included in the new group and that the quality may vary, as it always does. Nevertheless, I do not doubt that many of them will one day sit in this Chamber. However, I believe that the No. 10 Policy Unit, under the leadership of David Miliband, is as strong as any that I have seen in my time working in and around Whitehall.
Perhaps it could be that the job itself has changed and that these people wield vastly more power Before the debate I was reminded of Harold Wilson's classic description of special advisers when he first introduced them in the Labour government of 1974. Nothing has changed since then and the substance of the job is the same now as it was then. In essence, "We brief and they spin".
However, one change cannot be denied; namely, that the number of special advisers has risen. Thirty-eight were in place when the last government left power, while at the last count there are 72 today. I do not know, but that number may possibly be rising further. Perhaps I may make two reflections on that development. First, that is not a large number of people for our Government, given that we have some 3,000 senior civil servants. The figure represents around one special adviser for every 5,000 regular civil servants. The notion that these people are in complete control simply is not plausible. Secondly, this was a new Government who came into office with a huge

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agenda to deliver. It was not surprising that they needed more special advisers than the previous administration, which, in the immortal words of the noble Lord, Lord Lamont of Lerwick—who, I am afraid, is no longer in his place—was,
"in office but no longer in power".
I do not believe that we have encountered a new phenomenon here, even though it suits certain people to stir up that suspicion.
I shall take my argument a little further. I think that it was the invention in 1974 of the special adviser that has made it possible for the British tradition of the impartial Civil Service to survive and flourish. In 1976 I left the Department of the Environment because my Minister, Tony Crosland, had been made Foreign Secretary. The telephone rang in my new, grand office. It was the late Sir Ian Bancroft, who will be known to many in this House. He was a distinguished civil servant and Permanent Secretary at the Department of the Environment. Sir Ian said, "David, I have a problem and I need your help. The new Minister has arrived and he does not want to have a special adviser. Can you speak to him because you know that this department cannot function without one? Who will write the speeches for Conference? Who will do all the jobs that only special advisers can do?"
I popped back to the Department of the Environment to see the noble Lord, Lord Shore of Stepney—he was Peter Shore at the time—and put my argument to him. He did not seem to be very interested and asked whether I had anyone in mind. I said that, because Barbara Castle had just lost her job, someone very good had become free. As a result, the noble Lord, Lord Shore, appointed a promising young man named Jack Straw. The department welcomed him, as it welcomed me. To this day, nearly a quarter of a century after I left, my best friends include many of the people with whom I worked so closely there.
The relationship between the established Civil Service and political advisers is a complicated one but it can be made to work. As in any case where power is at stake, there will obviously be tensions. People will bump into each other from time to time and there will be problems. Almost universally, the most effective political advisers are those who work with civil servants, each understanding and respecting their different roles, skills and jobs and finding a way of working together.
I do not like to introduce even a moment's dissent into the debate, but I am slightly sceptical about the idea of codifying these matters. I note that Sir Richard Wilson, when he appeared before the Neill committee, said that he had transcripts of Alastair Campbell's press briefings, and that Alastair had said that if there was anything he did not like he would pop in and tell him to knock it off—I paraphrase of course! It is a fascinating scene to imagine, as Alastair is a good deal bigger than Sir Richard. I am sure that he used a poetic phrase. I do not think that hard rules are the answer. What makes the arrangement work is the relationship between the people involved and their desire invariably to work together in the national interest.
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The invention of special advisers is not an example of the corruption of the British constitution; it is an example of its huge strength in building on institutions that work and evolving them so that they work in new circumstances. Occasionally, it suits members of the party opposite to make political capital out of the growth in the number of special advisers under this Government. I understand that. But when they come back to office, if ever that dire day dawns, they too will want their special advisers to bring in their programme; and I shall be very surprised if they are any less numerous. I hope and trust that, when they do so, they will have my support and that of the House.
7.42 p.m.
Baroness Sharp of Guildford: My Lords, I thank the noble Lord, Lord Campbell of Croy, for initiating this important debate. I congratulate my noble friend Lord Roper and the noble Lord, Lord Powell, on their stimulating and interesting maiden speeches. We have been privileged to hear excellent speeches and I thank both noble Lords.
I must declare an interest—a minority interest it appears—for having been, for a short while at the beginning of my career, a full-time permanent civil servant rather than a special adviser. Also, throughout my life I have been married to a permanent civil servant. I come to the debate with an interest in the main question that is posed regarding the professional Civil Service. It led me to look up some information on the Northcote-Trevelyan reforms, which were vital reforms that took place in the middle of the 19th century. They comprised three important factors. The first was selection by open, competitive examination rather than by pulling strings, influence, father's influence and so forth. The second was promotion by merit. The third was paying our civil servants a salary high enough for them not to be open to bribes. Those were the three important elements in the Northcote-Trevelyan reforms.
What I find interesting is the degree to which the reforms were controversial at the time. I have in front of me a speech that was made by Gladstone in the other place, in which he tried desperately to persuade people that it was a good idea to introduce promotion by merit and competitive examinations. He said:
"Promotion by merit is not believed in but is looked upon with distrust, and regarded as a cover for jobbery … The consequence of this is that, although there are many excellent incomparable men in the service, yet a low tone pervades the public service: the quantity of duty performed is small; bad and middling men are overpaid, and therefore the good men are under-paid".
He went on to say,
"you must throw open the civil service to all the world, you must obtain for it the best men as far as you can ascertain who are the best men by an examination and by the most rigid scrutiny, and then, whatever other evils you may incur, you give it to be understood that the men who come into the civil service do not receive their appointments by favour, and have not any other right to obtain or hold their places except the right which depends upon efficiency".
It was quite strong stuff. He did eventually persuade the Civil Service to do it; it took 15 years.

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I am pleased to say that one of my predecessors on these Benches, John Stuart Mill, also wrote of the reforms:
"The proposal to select candidates for the Civil Service of Government by a competitive examination appears to me to be one of those great public improvements the adoption of which would form an era in history. The effects which it is calculated to produce in raising the character both of the public administration and of the people can scarcely be over-estimated".
He was prescient in his comment. Indeed, the reforms have lasted for 150 years.
The importance of the reforms was brought home to me, as it was to my noble friend Lord Roper, in the course of my work in the European Union relating to issues of cohesion and the structural funds. My job was to try to advise governments on what might best promote innovation and policies leading to innovation. One of the issues that arises there is the capability of the administrations to carry through reforms and to administer the structural funds coherently and well. Many look with admiration on our the Civil Service. As my noble friend Lord Roper said, we possibly take it for granted, but it is a great privilege to have a Civil Service of this nature.
I said that the Northcote-Trevelyan reforms have stood the test of the past 150 years. That is not completely true. There has been a distinct change over the course of the past 20 years. In some senses, by the end of the 1970s, when the role of special adviser was introduced, many people were questioning whether the administrative civil servants who dominated the Civil Service at the time and the ways of Whitehall were appropriate to the increasing powers that had been gained by the Civil Service through the welfare state. Indeed, the increasing centralisation of Whitehall was being called into question. Many of the executive roles in health and social services which had traditionally been for local government were taken into the centre, leading to large executive agencies. The problems of handling increasingly complex problems caused a loss of faith in the Civil Service. It led, first under the noble Baroness, Lady Thatcher and subsequently under John Major—and even now under the present Government—to increasing concern as to whether we were getting value for money as regards the whole issue of accountability. There is now a clearly perceived need for checks and balances on professional probity and a much more integrated and interlocking process.
As the noble Baroness, Lady Warwick, made clear, there is also a need for public servants to see themselves as servants of the public rather than as above the public. Fire walls between professional advice and political decisions might be desirable but cannot always be maintained, as was well illustrated in the BSE affair. As a result, at present the Civil Service is in a bit of a mess and does not quite know where it is going. In many senses the reforms of Sir Richard Wilson and the White Papers on modernising government which preceded them were an attempt to pull the Civil Service out of that difficulty and to look to the future.
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I believe that four issues emerge from that. First, there is a need for a much more fluid civil service structure, with interchange with the outside world. Secondly, there is a need to take into account evidence-based data and their use in policy-making. That has led, for example, to the establishment of bodies such as the Performance Improvement Unit in No. 10. Thirdly, there should be much wider public consultation and awareness of the role of the Civil Service in public relations. Finally, there should be emphasis on joined-up thinking both within and between arms of government.
I make three comments on the scenario as it now presents itself. First, as to the need for a more fluid civil service, during the 1970s I was privileged to spend four years in the United States. At that time I came into contact with both permanent civil servants and political appointees. My perception at the time, which has not changed since, was that the bringing in of political appointees at the top levels of the civil service provided a catalyst for much new thinking. There was nothing wrong with it, except that it was clear from conversations with full-time civil servants that they were cut off from the top levels of the service. That process removed from them the ultimate positions of power and authority to which they could aspire, and that was a detriment. But that leads me to believe that some movement in and out has benefits and provides a catalyst for new ideas. It is important, nevertheless, that the Civil Service leads to permanent secretary posts for those who look to it as a full-time career.
Secondly, I turn to the role of specialist advisers and information officers, on which much of this debate has centred. Ministers have for some time had specialist advisers, but it has always been understood—we return to the distinction in Northcote-Trevelyan—that the permanent civil servants are the professionals. Before that, those civil servants were courtiers. To an extent, today specialist advisers are courtiers and perform much more closely the role of a cabinet than a private office. Here there is a distinction between a cabinet and a private office. Nevertheless, as the noble Lord, Lord Lipsey, made clear, specialist advisers help the system to function more smoothly. But it is of vital importance—perhaps we come back to "Sir Humphrey"—that at the end of the day the permanent civil servants should be able to give the best possible advice plainly and fearlessly. As the noble Lord, Lord Powell, said, it is a matter of being able to say to the permanent secretary that he is wrong, and why.
Finally, I refer briefly to the true professional civil servants: scientists, medics, lawyers and economists. Over the past few years there have been many changes in Whitehall. With the development of modern technologies it is sad that very few scientists and engineers have been attracted into the Civil Service. I should like to draw to your Lordships' attention a

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report entitled Review of S&T Activity Across Government published last year by the Council for Science and Technology. The council said that it was,
"not convinced that any department was really staffed, organised or sufficiently aware to make the best possible use of science and technology in delivering their short and medium term objectives … a key source of recruitment to departments, particularly at middle management levels, has largely dried up as a result of the privatisation of, or arm's length relationship with, research establishments which were previously staffed by civil servants".
One matter of which we should be aware is that the old public sector research establishments provided a route whereby scientists and technologists within the Civil Service could come into the mainstream. That has dried up. In this modern age it is extremely important that that happens. I end by again congratulating our two maiden speakers and emphasising the importance of this issue.
7.55 p.m.
Baroness Miller of Hendon: My Lords, not only your Lordships but all members of the public should be grateful to my noble friend Lord Campbell of Croy for having introduced this most important debate and allowing us to hear so many interesting contributions from all sides of the House, in particular the two excellent maiden speeches. Interestingly, the noble Lord, Lord Roper, said that he did not speak as either a civil servant or special adviser. However, the noble Lord, Lord Powell, pointed out that he came from a family of virtually hereditary civil servants. He himself had worked for many years in the Thatcher government and now his brother is chief-of-staff to the present Prime Minister.
Soon after the Government came to power I became concerned about the status of two advisers employed by the Prime Minister, especially as they were to be invested with powers not normally given to advisers. I tabled a Question for Written Answer to obtain details of their salaries. The noble Lord, Lord McIntosh of Haringey, was unable to reply on the ground that their terms of employment had not yet been fixed. I repeated the Question some time later, but it took over four months before I received the information. The wait was disturbing because the law requires a written memorandum of terms to be issued to an employee within two months of the commencement of his employment. I could not imagine that the two excellent, highly qualified gentlemen in question had started work without a contract and, therefore, unaware of what they would be likely to be paid.
Since I accept unreservedly that the noble Lord, Lord McIntosh of Haringey, was merely passing on the information that he had been given, or reporting that he had not been given any information, it appeared that the Government had sought to avoid disclosure of those figures to Parliament. Eventually, the figures were made public. Mr Alastair Campbell and Mr Jonathan Powell currently each receive £93,562 per annum.
My noble friend Lord Campbell of Croy and other noble Lords have referred to the number of special advisers which has risen from 38 under the previous
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government to 72 in 1998–99. According to a recent Written Answer given by the right honourable Dr Mowlam in the other place, the cost has risen to £4.2 million, apart from the cost of their staff and offices, details of which I have been unable to discover. It has been reported, however, that the bill for foreign trips for special advisers was £500,000 last year.
Perhaps I may refer to another phenomenon to which I have referred in the past. There exists within Downing Street a mysterious organisation called the Strategic Communications Unit. Despite requests, I have never been able to discover whether its functions are to do with the strategy of communication or communication about strategy. What I do know, following a reply by the noble Lord, Lord McIntosh of Haringey, on 18th June 1998, is that the cost was then expected to be in the region of £500,000 a year. Doubtless the cost will have increased since. Perhaps when he replies the Minister can tell the House the current cost. If not, perhaps he will be able to bring me up to date by writing to me. I understand from a letter from the Minister of State, Cabinet Office, the noble and learned Lord who is to respond to the debate, that the costs were looked at as recently as February this year. In the original reply I was told that the cost was to be met from across Whitehall within existing budgets, but it does not really matter how many government departments share the cost. The question is: on what is the money being spent? It is clear that that particular unit is the centre of government spin—a veritable gyroscope—for which, I believe, the taxpayer is paying.
The fact that Ministers have special advisers is not a new phenomenon. They date back at least to the days of Gladstone and Disraeli. According to Lord Blake's biography, when Disraeli brought his private secretary, Montague Corry, into Downing Street, he was described by one protesting Cabinet Minister as the "in fact Prime Minister". That is a foretaste of the protests which have been made about the status and considerable power and influence of Alastair Campbell more than 100 years later. Lloyd George appointed temporary ministerial advisers. In 1974 Harold Wilson authorised the appointment of up to 30, including a new No. 10 Policy Unit. He defined them as advisers to Ministers in the development of government policy and its effective presentation. With the complexity of modern Government, the intrusiveness of modern communications and the demand for instant answers by the media, the existence of special political advisers is undoubtedly a necessity, not only here, but in most democratic governments.
However, in the United Kingdom we have another almost unique asset: a wholly independent nonpolitical Civil Service which has attracted over many years the finest of graduates from our best universities. I do not think that it is too great an exaggeration to describe them as the Rolls-Royce of our system. But they should not be abused, as I believe has clearly been the case as regards the Dome. Will the Minister reply to the question asked by my noble friend Lord Mackay of Ardbrecknish today? It is a simple question. Did Michael Connor, the accounting officer for the

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Millennium Commissioners, request a formal letter of direction from the Minister, Chris Smith, before agreeing to the latest £29 million; and did Chris Smith order his Permanent Secretary, Robin Young, to write such a letter?
The existence of special advisers with the duties described by Harold Wilson as,
"advisers to Ministers on policy and presentation",
is. I believe, a necessary safeguard against the independence of senior civil servants being compromised. However, the fact is that the advisers themselves are usurping and undermining the functions of the Civil Service.
In another place, the Prime Minister boasted that his official spokesman—a job normally performed by a civil servant—does an effective job in attacking the Conservatives. The strategic communications unit and a research and intelligence unit with a staff of 11 between them report to Mr Campbell. We all recall the speed with which the Government, as soon as they came to power, dispensed with the services of 16 out of the 18 long-standing, established departmental press officers, replacing them, one assumes, with others perhaps more sympathetic to the Government and thereby undermining the neutral Government Information Service.
The Ministerial Code, published by this Government, limited the number of special advisers to two per Minister. In some de0partments, according to the Neill committee, it seems that this number is being breached. Several noble Lords asked the Minister for information on that. The Government must ensure that the boundaries between the work of special advisers and civil servants is clearly defined and, as recommended by Neill, advisers' contracts should require them to comply with a code of conduct.
My noble friend Lord Northesk quoted the description by the Independent on Sunday of a special adviser as,
"a study in power without accountability".
I believe that that was derived from Oscar Wilde who over 100 years ago said,
"an eminence grize shares one attribute of a prostitute. Both have power but no responsibility".
With their power and influence, it is essential that those special advisers should be directly answerable to Parliament, not merely through their Minister. The activities of special advisers—they are set out in the model contract which designates them as temporary civil servants—must be properly enforced. For example, Mr Bill Bush is employed under the model contract. Yet he is in charge of the so-called research and intelligence unit at. No. 10 whose brief is to run the rebuttal database dedicated to defending the Government against criticism. This is the super-databank called Knowledge Network that Dr Mowlam assured another place on 8th March would be put on the net so that there will no question of work being done that honourable gentlemen will not see.
That database is funded by the taxpayer. However, it transpires, contrary to the assurances of Dr Mowlam, that its contents will not be available to all
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Members of the Government, much less to Labour or Opposition MPs. The contents of the databank can be exported easily to the Labour Party's Millbank database which is similar and compatible.
I do not have time to continue this catalogue. In seeking to sideline Parliament, the Government are trying to set up a presidential system with a power base which will give the Prime Minister unprecedented power over Whitehall. We hope that in his reply the Minister will not deny the undeniable but will assure us that the normal neutrality of the Civil Service of which this country is justifiably proud—it is a model for all other democracies—will be cherished and never put at risk.
8.5 p.m.
Lord Falconer of Thoroton: My Lords, I thank the noble Lord, Lord Campbell of Croy, for initiating the debate. It has been extremely interesting. With one or two exceptions, there has been a wide measure of agreement about interesting issues.
I join noble Lords in offering my most sincere congratulations to the noble Lord, Lord Roper, on his extremely interesting maiden speech. He struck a chord when he referred to the need to try to help southeastern Europe in the setting up of their administrative systems in the light of their history which has not encouraged a system serving the citizen rather than bureaucracy. My geography may be wrong, but the British Government have engaged in significant numbers of projects, in particular in the Balkans, to try to help in that situation. In Albania, for example, we are providing assistance for the establishment of a civil service. In Montenegro, we have for several years provided support to public administration reform. I shall write to the noble Lord setting out the details.
I also congratulate the noble Lord, Lord Powell of Bayswater, on his maiden speech. As he began his speech it was impossible to see any notes and I assumed that the noble Lord was about to deliver his maiden speech without one note. It indicated a degree of sang-froid. However—disappointingly, I thought—the noble Lord then produced a wodge of note:; which somewhat spoilt the early effect! His speech was incredibly interesting. He spoke with particular authority having been in Downing Street, as he said, for an unusually long time in a somewhat unusual situation. His speech should therefore be given particular attention.
The theme of the debate focused almost exclusively on the relationship between special advisers and the Civil Service. The Government are totally committee to maintaining a non-political permanent Civil Service. In answer to the question of the noble Lord, Lord Campbell of Croy, we have given a commitment in principle to legislation for the Civil Service. We have a heavy forward legislative programme and will take forward that legislation as and when a suitable opportunity arises. I am not in a position to give a more detailed answer.
The noble Lord, Lord Campbell of Croy, has been in the Foreign Office and was private secretary to the then Cabinet Secretary. He therefore has particular

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knowledge of how the Civil Service works. He thought that the British Civil Service was the best in the world. The noble Baroness, Lady Miller of Hendon, echoed that belief, describing it as the "Rolls-Royce" of civil services. I have not worked with any other civil service. However, my experience has been of an excellent, well-motivated, independent, impartial Civil Service, genuinely dedicated to serving the public interest. I agree with all noble Lords who said that if we lose such a jewel, we lose something of huge importance to the quality of administration in this country.
The Civil Service, above all, recognises that to retain that standard it is necessary constantly to see whether change and improvement can take place. Many noble Lords referred to the reforms introduced by Sir Richard Wilson and to his determination to ensure that the Civil Service deals with today's challenges. That is to be applauded and is an indication of the quality of the Civil Service.
I turn to the issue of special advisers. I hope that my remark will not be regarded as disrespectful, but even the noble Earl, Lord Northesk, and the noble Baroness, Lady Miller of Hendon, accepted that special advisers were a good thing. Characteristically and with her usual flair, the noble Baroness then heaved off on to something else. However, the noble Earl and other noble Lords asked several questions about special advisers.
First, they accepted that special advisers were a good thing in principle and helped the good running of government, but they were worried about particular aspects. They were concerned about the number of special advisers and referred to the fact that there are 79 in this Government. They feared that as a result there was politicisation of the Government. Let us consider the comments of people in the front line and involved in the process. In evidence to the Neill committee, Sir Richard Wilson said:
"I do not think the Senior Civil Service of 3,500 people is in danger of being swamped by 70 Special Advisers. That is not what is happening and I do not see it as creeping politicisation".
The noble Lord, Lord Powell of Bayswater, said that politicians like to refer to "politicisation", but the Civil Service does not find it particularly problematic.
Peter Riddell, commenting in The Times on the Neill report, stated:
"Talk of the wholesale politicisation of Whitehall is much exaggerated. There is a strong case for special or political advisers and for the current total".
A leader in the Independent stated:
"The number of political appointments remains tiny in relation to the size of the policy-making arm of the Civil Service".
Therefore, the independent judgment is that there are not too many special advisers. The Civil Service says that there is not politicisation. A large number of today's speakers have indicated that they do not believe the number of special advisers is too great. With respect to those who have raised the issue, I suggest that there is no evidence to support their case. Those who would be expected to know do not believe that politicisation is a problem.
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The second concern raised today is that special advisers should be accountable. The question was asked: what about a code of conduct for them? The point was mentioned in particular by the noble Earl, Lord Northesk, and the noble Lord, Lord Chadlington. It is important to make three points in relation to it. Of course, we shall consider the recommendation, but the present position is that the Government were responsible for introducing for the first time the model contract for special advisers. It sets out in a schedule the duties and responsibilities of special advisers. No previous government had done that. It indicated clearly their responsibilities. There is therefore transparency about the terms on which they are employed.
Secondly, special advisers are subject to the Civil Service Code which applies to them save in relation to objectivity and impartiality.
Thirdly, they are subject to the same rules on conflict of interest as would be any civil servant. If they take a job subsequent to leaving the service, it is for the Civil Service to determine whether they act in accordance with the conflict of interest rules.
Therefore, there are a number of safeguards: a clear code and clear contractual responsibilities. Yes, we shall consider seriously the Neill recommendation, but it is wrong and ill informed to suggest that there is not proper accountability.
It was then suggested that special advisers are not accountable. They are civil servants; civil servants are accountable through their Minister; so are special advisers. No reason was given as to why special advisers should have different arrangements from those which apply to civil servants. Is it seriously being suggested that the Principal Private Secretaries to Cabinet Ministers, because they have access to them should be directly accountable to Parliament? With respect, the suggestion is absurd. A special adviser is just as accountable to his Minister as is any member of the Civil Service.
Whether it be on the basis of numbers; whether it be on the basis of a sufficient clarity of their rules; whether it be in relation to accountability; if one looks at the evidence one sees that there is no basis for the attacks which have been made during today's debate. Indeed, many of the speakers accepted that that was the position.
I turn to other issues raised. I refer first to the position in relation to Scotland and Wales. Separate arrangements apply to the appointment of a limited number of special advisers in Scotland and in Wales. Ministers in the devolved administrations account for those appointments and their costs. In order to allow for those appointments, an amendment had to be made to the Civil Service Order in Council. Under the terms of the devolution legislation, the appointment of special advisers, as with all other appointments to the Civil Service, is a reserved matter. The Prime Minister, as Minister for the Civil Service, would be expected to approve appointments of special advisers in Scotland and in Wales. The amendment to the Order in Council was designed to reflect the spirit of devolution.

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Provided that the new administrations stay within the upper limit on numbers and appointments are made in line with the terms and conditions set out in the model contract, the Prime Minister would not expect to become involved in the appointments process.
Questions were asked about which Cabinet Ministers have more than two special advisers. The Secretary of State for Education and Employment has three full-time and two part-time advisers. One is an expert adviser, Professor Michael Barber; the other additional member is to help the Secretary of State with his paperwork because of his disability. The Deputy Prime Minister has additional advisers because of the vast range of his department's responsibilities and his specific responsibilities as Deputy Prime Minister. The Secretary of State for Scotland has an additional adviser part-time and unpaid. The Chancellor of the Exchequer has additional advisers: three expert members of the Council of Economic Advisers. The Minister for the Cabinet Office has appointed two special advisers as the UK anti-drugs co-ordinator and his deputy. Those seem perfectly sensible reasons why there are additional special advisers in relation to those five Cabinet Ministers.
Perhaps I may pick up a remark made by the noble Lord, Lord Lipsey, who identified the Members in this House who have previously been special advisers or heads of policy units. I agree with him that they are people of considerable standing who make a real contribution to this House and have made a real contribution in their jobs as special advisers. Looking across the range of special advisers who are presently serving this Government, one sees an equally impressive bunch of people. There are people such as Michael Barber, Keith Halliwell, Gary Hart, Andrew Adonis, Jonathan Powell and Alastair Campbell; people who have had considerable success in their previous careers and are bringing that to the benefit of the Government.
I turn to the GICS and the knowledge network. The noble Baroness, Lady Miller, made a number of complaints about the knowledge network. It involves the storing of basic facts and figures on a network that would be accessible throughout departments. It is like an IT filing cabinet. If in a large organisation there were not the means to access such information from a number of points throughout, it would be behind the times. It is a means whereby all departments can access the same information and it is a measure that any institution should properly introduce.
I move on to the question of press officers and information officers. Questions were raised in particular by the noble Lord, Lord Campbell of Croy, about the number of press officers and information officers who had resigned or left in the course of the government changes. It is not unusual to see moves of officials who work for Ministers after ministerial changes. Therefore, after a complete change of administration it is not surprising to see a number of moves.
Since May 1997, all vacancies at head of information level have been filled either by existing civil servants or through fair and open competitions, each supervised by
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a Civil Service commissioner. Between January 1979 and 31st December 1981, l 3 changes affected 12 of the 18 posts. Therefore, on a previous occasion where there was a change of government, there was a substantial number of changes of post. Again, I do not believe that it would be right to say that that is something either unusual or wrong.
I deal with the question of the position of the two special advisers at No. 10 who have executive powers. It has been suggested that the decision to amend the Civil Service Order in Council and to provide No. 10 with two special advisers with executive powers is another step towards the politicisation of civil servants. Again, I quote what Sir Richard Wilson said to that suggestion:
"I do not see that as in any way politicising the Civil Service. I see it as being a very minor and rather technical development or recognition of what happens in No. 10".
Again, there is nothing at all to back up that allegation.
It has also been suggested that briefing of the media by special advisers is something new under this Government. Successive administrations have used special advisers in this way. Under the terms of their contract, special advisers can brief the media on matters of government policy. Their contracts clearly state that they are appointed to advise Ministers on the development of government policy and its effective presentation. In evidence to the Neill committee, Mike Granatt said:
"Special Advisers in departments have always in my experience to a greater or lesser degree spoken to the media on their Minister's behalf. Some Special Advisers do not like doing it and have not done it. But I have worked for Ministers in two departments under the last Government where the Special Adviser had a specific role in talking to the media".
Those are the words of the current head of the Government Information and Communication Service, who was describing in public the position under the previous government. Therefore, I do not believe that there has been a change or that there is anything unusual about this.
Of course, it is easy to make the sort of allegation that the noble Baroness, Lady Miller of Hendon, made, supported by the noble Earl, Lord Northesk. However, when one examines the detail, one sees very little in that allegation. One sees that the people at the coal face of the administration do not agree with that view. By that, I do not mean the politicians; I mean the civil servants.
Finally, perhaps I may deal with the point that the noble Baroness raised with regard to the Millennium Dome. She referred to matters that affected advice given in relation to the Millennium Commission. I am not privy to advice given to that commission; nor should I be. The Millennium Commission is an independent body. Advice given to it would not be given to a body such as the New Millennium Experience Company, which funds it. Therefore, I am, not in a position to answer the question that she has asked in relation to that matter; nor should I be.
I am greatly obliged to all noble Lords who have contributed to this very interesting debate. Again, I express my gratitude to the noble Lord, Lord Campbell of Croy, for initiating it.
8.23 p.m.
Lord Campbell of Croy: My Lords, in the short time available before the debate must come to an end, I should like to thank all speakers who have taken part and have made it, in my opinion, a debate of very high quality. There were two outstanding maiden speeches by the noble Lords, Lord Roper and Lord Powell. The contributions that followed have come from a wide range of experience: the Civil Service, business, public relations, former special advisers and also membership of the Committee on Standards in Public Life. I am extremely grateful that speakers with those backgrounds have taken part in the debate.
I should like to thank especially the noble and learned Lord, Lord Falconer, for his reply and for dealing in the time available with most of the questions raised. He confirmed that the present number of special advisers is 79. Different figures have been given. I suggested 78, so that was not too bad. However, that type of information all helps. It is not so much the present number that is important as the fact that the number has doubled in the past three years. I believe that most of us are concerned about the rate of increase and whether there will be a further increase, perhaps doubling in the next three years. That is an issue that many of us will be watching.
In his reply, the Minister spoke also about accountability. I was particularly interested in that issue because I had pointed out that the professional Civil Service is responsible to Ministers and that Ministers are responsible to Parliament. My interpretation of what he said is that special advisers are also responsible to their Ministers. However, I do not believe that it is clear whether Ministers must answer to Parliament about the conduct of their special advisers in the way that they do for the Civil Service. That will all come out when the Government respond to the Neill committee's recommendations because the committee queried that subject.
At the end of his response, the noble and learned Lord also mentioned the question of problems that arise from special advisers who brief the press. I do not believe that any of the speakers were criticising that. They were pointing out that confusion arises when a Civil Service official briefs the media at the same as a special adviser from the same department. That can be muddling for the media because the two do not necessarily send the same message. Again, that will all come out when the Neill committee's report is considered by the Government because the committee raised that particular point.
I am extremely grateful to the Minister and to others who have taken part in the debate. I now beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

Suspension of Hospital Medical Practitioners Bill [H.L.]
8.27 p.m.
Baroness Knight of Collingtree: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Baroness Knight of Collingtree.)
On Question, Motion agreed to.
House in Committee accordingly.
[THE DEPUTY CHAIRMAN OF COMMITTEES (Lord Dean of Harptree) in the Chair.]
Clauses 1 to 3 agreed to.
Clause 4 [Sections 1 and 3: procedure etc.]:
Baroness Knight of Collingtreemoved Amendment No. 1:
Page 3, line 3, leave out ("applications under section 1 and").
The noble Baroness said: With permission, in moving Amendment No. 1, I shall speak also to Amendment No. 2 because, as the Committee will see, Amendment No. 1 removes words which Amendment No. 2 replaces. Therefore, the two are clearly strongly linked.
I tabled these amendments in order to meet the points made by the Select Committee on Delegated Powers and Deregulation. The Committee will find its comments set out in its 8th Report of this Session, HL Paper 43. These two amendments deal with the only suggestion made by the Select Committee for a change in my Bill. I would perhaps describe them as "tidying up" and "listening to" voices from outside which were anxious that the Bill was so tidied. I beg to move.
Earl Howe: Although, as my noble friend has explained, these are largely technical amendments and therefore are worthy of support, I wonder whether I may be allowed to comment more generally on the subject matter of Clause 4 in the light of our debates at Second Reading. My impression from the Minister's speech at that stage was that, while he recognised the significance of some of the issues highlighted by my noble friend, he did not believe that a Bill such as this was the appropriate way in which to address them, and that the consultation process currently in train was likely to point the way towards other mechanisms which would deal satisfactorily with suspensions as well as with the more general issue of doctors whose clinical performance fell under criticism.
In particular, the noble Lord referred to the need to put in place robust monitoring procedures to ensure that doctors are not suspended unnecessarily, nor for an inordinate length of time. I accept that the CMO's proposals hold out the hope of a fairer and better process for some doctors whose standards of clinical performance are subject to criticism. But, as the Minister acknowledged, there will be cases when suspension is seen by hospital management as the only appropriate option available.

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I worry that Department of Health guidance may prove insufficiently effective to ensure the proper protection of doctors under human rights legislation, and more particularly to ensure that the systems in place in all hospitals are mutually consistent and consistently fair. I am, for example, concerned that a doctor would have a cast-iron right to independent representation and to a fair appeals process. Is the Minister confident that those aims are achievable without going down the legislative route? In other words, how will it be possible for the Secretary of State to bind hospitals into following set procedures that will deliver the equitable outcomes that we all want to see? If such fairness and uniformity cannot be achieved, the consequence is almost bound to be that doctors will resort to litigation. That would be a highly undesirable phenomenon.
8.30 p.m.
Lord Clement-Jones: I do not intend to go into great detail in relation to the subject matter of the amendment. I simply have a couple of questions. Naturally, as we on these Benches explained at Second Reading, we support the Bill and the rights provided under it. Clearly, in the light of the recommendations of the Committee on Delegated Powers and Deregulation, these two amendments are sensible, as the right of appeal to a tribunal is of the essence of the Bill.
Can the Minister say whether, since 13th April, he has considered the issues contained in the Bill in any greater detail? As I said at Second Reading, there are issues in the Bill that are not contained in the Governments proposals in Supporting Doctors, Protecting Patients. There are key safeguards: the requirement for consultation, particularly with "appropriate practising clinicians"; the duty to consider alternatives to suspension and whether that is needed to protect the interests of patients, staff and the practitioner; the requirement to give reasons for decisions and to convey those to the National Health Service Executive and any private hospital—a key requirement; the requirement to review; and the right of appeal to a tribunal, the very essence of the amendment that we are debating.
I do not believe that we can simply treat the consultation as frozen in aspic and await the results of that consultation. I hope that the Minister's mind has been influenced to a degree by the contents of the Bill and by the points made at Second Reading.
The Parliamentary Under-Secretary of State, Department of Health (Lord Hunt of Kings Heath): A technical amendment has brought us to the core of our debate at Second Reading. The noble Baroness knows that while the Government are not convinced that her Bill is the right approach, none the less, we recognise the conviction with which she brings the matter to our attention. There is no doubt that the issue of poorly performing doctors is one that merits considerable attention by the Department of Health and individual employing NHS trusts.
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I have reflected on the debate that we had at Second Reading, but to the noble Earl, Lord Howe, and the noble Lord, Lord Clement-Jones, I say that I remain of the view that disciplinary issues such as these should not be a matter for legislation. I say to the noble Earl that I believe that it is possible to ensure that MIS trusts deal with suspensions and general disciplinary matters in an appropriate manner with which I believe your Lordships would be satisfied. It is possible to ensure that that happens through a performance management approach, which is the jargon used in the NHS to describe the way in which the Department of Health can assure, through Ministers and its accountability to Parliament, that the NHS is managed well at the local level.
We put considerable faith in the Chief Medical Officer's paper, Supporting Doctors, Protecting Patients, as that outlines the process of how doctors with problems can be helped. In the future we expect there to be an assessment and support service that will enable employers to deal with problems quickly and ensure that doctors with problems are helped. We believe that, as the majority of doctors who have problems relating to performance will be referred to the assessment and support service, there will be less of a need for suspensions. In future, suspending a doctor would be an exception rather than the rule.
However, the new system would retain the power of suspension of hospital doctors, but that would need to be considered only if a doctor refused referral to the assessment and support service. The employer can take action under internal disciplinary procedures in the case of alleged personal misconduct or failure to fulfil contractual responsibilities to protect patients where there is imminent danger to them or where the new service reports that the referred doctor's problem is serious and intractable.
The current status is that the consultation process is now closed. We are considering the comments that we have received and we shall announce our decisions in due course. However, I remain convinced that the process recommended by the CMO, subject to any changes as a result of consultation, is the route down which we should go. I fully accept that where disciplinary procedures have to be used, including the suspension of doctors, that needs to be an effective and fair system. I can certainly assure noble Lords that we shall have an effective performance management system in place to ensure that that occurs.
As far as the amendment is concerned, the noble Baroness is to be congratulated on bringing the matter to the attention of the House because it clears up the technicality raised by the Select Committee.
Baroness Knight of Collingtree: I am grateful to the Minister for some of his words, but perhaps I can comment on what he has said. First, this Bill is not—I repeat "not"—about poorly performing doctors. Out of 201 cases that I have monitored, only 25 were found guilty. The Bill is not brought forward in order t o deal with poorly performing doctors. Secondly, the BMA, which has studied this subject almost as long as I have,

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is fully in agreement that this Bill is the only way in which to help the injustice that has been taking place because the report does not cover the matter.
On Question, amendment agreed to.
Baroness Knight of Collingtreemoved Amendment No. 2:
Page 3, line 7, at end insert—
("( ) Regulations made under subsection (2) shall be contained in a statutory instrument which shall be laid before Parliament and subject to annulment in pursuance of a resolution of either House.").
On Question, amendment agreed to.
Clause 4, as amended, agreed to.
Remaining clauses agreed to.
House resumed: Bill reported with amendments.

Scotland Act 1998 (Modification of Functions) Order 2000
8.40 p.m.
Baroness Ramsay of Cartvale: rose to move, That the draft order laid before the House on 8th May be approved [18th Report from the Joint Committee].
The noble Baroness said: My Lords, with the leave of the House, I should like to speak to this order and also the following order together. The subjects for consideration are the draft Scotland Act 1998 (Transfer of Functions to the Scottish Ministers etc.) Order 2000 and the draft Scotland Act 1998 (Modification of Functions) Order 2000.
Before going into the details of the orders, it may be helpful to put them into context and give a brief explanation of their purpose. The Scotland Act recognised that in some cases it would be appropriate for the Scottish Ministers to be able to exercise executive powers in areas where primary legislation continues to be a matter for the UK Parliament. This is commonly known as executive devolution. Section 63 of the Scotland Act allows functions in reserved areas to be transferred to the Scottish Ministers, or for the Scottish Ministers to be given a role by introducing requirements for them to be consulted or for their agreement to be obtained to the exercise of functions by UK Ministers.
Noble Lords may recall a previous order, considered in June 1999, called the Scotland Act 1998 (Transfer of Functions to the Scottish Ministers etc.) Order 1999—the first executive devolution order. That order ran to 30 pages, transferring a wide range of functions to the Scottish Ministers. The first order now before us adds a number of additional functions to those already executively devolved, where it has been agreed between the UK Government and the Scottish Executive that this is appropriate.
I turn to the content of the Scotland Act (Transfer of Functions to the Scottish Ministers etc.) Order. The National Board for Nursing, Midwifery and Health
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Visiting for Scotland (NBS) is an executive, non-departmental public body. Its function is to maintain and develop standards of professional education in nursing, midwifery and health visiting, through the approval of institutions and courses and through research and development programmes.
The board is part of the UK regulatory framework for the nursing professions, and the regulation of nurses and midwives is a reserved matter under the Scotland Act. Currently, professional self-regulation of nurses is carried out by five bodies: the UK Central Council for Nursing, Midwifery and Health Visiting (UKCC) and the four national boards, one each for England, Scotland, Wales and Northern Ireland. The national board for Scotland is, therefore, an integral part of the UK regulatory system, responsible for ensuring that entrants to the profession in Scotland and the courses of preparation that they undertake meet the UK Central Council for Nursing, Midwifery and Health Visiting standards.
However, it brings a distinctive Scottish perspective to this role, promoting developments in nurse education which are in tune with the Scottish higher education system and which meet the needs of the NHS in Scotland. For these reasons, it has always been funded by and accountable to the Health Department in Scotland.
Because of this, the UK Government and the Scottish executive agree that responsibility for the board should rest with the Scottish Ministers. The order therefore transfers to the Scottish Ministers all the ministerial functions under the Nurses, Midwives and Health Visitors Act 1997 as they relate to the national board for Scotland.
In addition, article 8 of the order provides for new arrangements for the auditing of the accounts for the national board for Scotland by the Auditor General for Scotland, to be consistent with the arrangements for public sector audit set out in the Public Finance and Accountability (Scotland) Act 2000.
The order also includes entries relating to the Disability Rights Commission. This body was set up earlier this year under the Disability Rights Commission Act 1999 and replaced the National Disability Council.
The separate order under Section 106 of the Scotland Act creates a new requirement that one of the commissioners should have "special knowledge of Scotland". The first order before us keys into this requirement and provides that this appointment is to be made with the agreement of the Scottish Ministers. Similar requirements were already in place for the National Disability Council.
Article 2 of the first order deals with the Tax Credits Act 1999. Section 15(3) of this Act allows the Secretary of State to accredit organisations which may approve childcare providers for the purposes of eligibility for the childcare element of the working families' tax credit and the disabled persons' tax credit. Such organisations must meet certain criteria. This article will provide that when an organisation is accredited

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for the purpose of applying a scheme for childcare providers in Scotland, the function will be treated as exercisable in or as regards Scotland.
In addition, the function of making regulations under Section 15 of that Act will now be exercisable by the Secretary of State only with the agreement of the Scottish Ministers. Section 15 provides for these regulations to put in place a scheme which would establish a new category of person whose charges for providing childcare would be taken into account when assessing eligibility for the childcare element of the working families' tax credit and the disabled persons' tax credit. In practice, this scheme will ensure that the childcare provider must be approved by an accredited organisation. This scheme also authorises making grants and loans to these organisations and ensures that the fees that they charge are reasonable.
The subject matter of Part VI of the Road Traffic Regulation Act 1984 deals with speed limits and is largely reserved, although some functions have already been executively devolved. This order further devolves certain functions in relation to temporary speed limits. This will mean that the Scottish Ministers will be able to make an order to impose a maximum speed limit, for periods of up to 18 months, on specified roads.
Article 4 relates to the Welfare Reform and Pensions Act 1999. This Act contains provisions relating to employment zones and allows for schemes to be set up in designated areas where special benefit rules can apply. Participants in the schemes are helped back to work by allowing them to anticipate funding for up to six months' worth of spending on training and jobsearch. To this they can add money equivalent to the payments that they would normally receive from the jobseeker's allowance.
Under the Act, the Secretary of State can also provide a wider range of support for activities within the employment zones which help people to get and keep work. This policy of "helping people to help themselves" extends to unemployed people who are seeking to become self-employed.
As a result of this order, the Scottish Ministers will be able to make payments to persons providing suitable facilities for claimants of the jobseeker's allowance to be trained for long-term employment. The Scottish Ministers, concurrently with UK Ministers, will now be able to fund any such eligible activity within an employment zone in Scotland.
Article 6 amends the first executive devolution order. The entry in the original order in respect of rule 4(1) of the Merchant Shipping (Formal Investigations) Rules 1985 was intended to transfer a function from the Secretary of State to the Scottish Ministers. However, other legislation in 1990 had already removed the ministerial function and conferred it on the Lord President of the Court of Session. Unfortunately, this was not identified during the preparation of the order. The entry in the original order is therefore redundant and is being removed.
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The other articles in the order are purely technical, either to amend certain terms and references in various enactments or to make transitional and saving provision with the transfer of functions.
On that basis, I hope that your Lordships will feel able to support these two orders. I beg to move.
Moved, That the draft order laid before the House on 8th May be approved [18th Report from, the Joint Committee].—(Baroness Ramsay of Cartvale.)
The Earl of Mar and Kellie: My Lords, we on these Benches welcome these orders. The process of transferring powers to the Scottish Ministers is clearly ongoing. There are several variations of transfer. Some will be outright, some will be shared with the UK Ministers and some will be merely transfers of responsibility for the administration of a function, whatever it is. The Scotland Act 1998 (Modification of Functions) Order is concerned with the appointment of the next and subsequent disability rights commissioners. I am satisfied that the initial appointment was made after consultation with Scottish Ministers, and that this order confirms that such a process will happen again. I am enjoying the expression,
"appears to the Secretary of Stale to have special knowledge of Scotland".
That is all very quaint, and worrying. It smacks of the, "fly low over Africa, I'm writing a book about it" type of knowledge. I would have preferred wording about the commissioner's domicile being in Scotland.
That said, this is a measure of limited extent which ensures that Scottish Ministers can recommend a Scot to the Secretary of State for appointment. It also confirms that there will be Scottish representation on the Disability Rights Commission. Though it will not set the heather on fire, it is an order which is very much in line with the spirit of devolution and with the continuing reform of the Union.
Going on to the transfer order, as the Minister explained, that is somewhat more meaty than the previous one. I note that, unlike the previous one, it has to be approved by both the UK and the Scottish Parliaments and therefore it is a Type A order. Not only does it have greater content, but it also has several different varieties of transfer within it. First, there is a UK function which is exercisable in Scotland by the Secretary of State subject to a requirement for the agreement of Scottish Ministers. The accreditation of childcare agencies for tax credit purposes is appropriately transferred.
Secondly, functions are transferred from the Secretary of State to Scottish Ministers—an outright transfer. The actual functions relate to the temporary speed limit setting and also to those elements of the Nurses, Midwives and Health Visitors Act which deal with the National Board for Scotland
Thirdly, there are functions which are to be shared by Scottish and UK Ministers. Here we have the Employment Zones, which are clearly part of the Welfare Reform and Pensions Act. The Job-club Plus

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scheme is very welcome and I note that there are similar measures to devolve it to the National Assembly for Wales.
Fourthly, we have a function to be exercised with the agreement of Scottish Ministers. That looks to me to be the same measure as in the previous order. It involves the appointment of the disability rights commissioner. Is that a case of prolixity on the statute book? Fifthly, we have a modification of the principal order. I am content with the removal of this merchant shipping function on the grounds that it has already been transferred to the Lord President of the Court of Session.
Overall, this order continues a welcome process of devolving power to the Scottish Parliament. It is essential that devolution be generous and that it becomes obvious, as a result, that substantial autonomy within the British Union can be achieved. This Parliament should, wisely, take a back seat while the Scottish Parliament finds its feet. The first primary legislation is now reaching the statute book. Not to do so would play into the hands of those who would either dismantle the British Union or try to revert to the 1707 settlement.
The Earl of Courtown: My Lords, first, I thank the Minister for explaining these orders in such detail.
I wish to raise only one specific point, though I shall be interested to hear her replies to the noble Earl, Lord Mar and Kellie. My point concerns the Scotland Act 1998 (Transfer of Functions to the Scottish Ministers etc.) Order. That involves tax credits.
Can the Minister tell me whether tax credits will now be handled in a different way from those in England and Wales? If so, what will be the effect? Also, is it possible that the transfers will impinge on the rights of Parliament to revise taxes or tax credits? I look forward to hearing the noble Baroness's reply.
Baroness Ramsay of Cartvale: My Lords, I thank both noble Lords who spoke and who, I believe, welcomed the orders. I agree with many of the remarks made by the noble Earl, Lord Mar and Kellie, relating to devolution and its development. He is right that these orders are made up of many different strands of different kinds of devolution. We have always said that in an exercise on the scale of devolution there will be elements which have been overlooked; issues will continue to arise which need to be dealt with, either to do with new circumstances or in the light of experience. Indeed, the noble Earl is quite right: these orders include elements of all of those.
The noble Earl, Lord Mar and Kellie, asked specifically whether the orders duplicate as to the point he raised. We feel that the answer is definitely no. In accordance with Section 106 the order creates a requirement for a commissioner with special knowledge. The order relating to Section 63 requires Scottish Ministers' agreement to the Secretary of State's selection. So there is a distinction.
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The noble Earl, Lord Courtown, asked specifically whether these provisions in relation to the tax credits Act mean that in some way taxation matters are being devolved. He asked whether this would impinge on the Westminster Parliament's rights. The answer is no. There are two elements in the order relating to the working families' and the disabled persons' tax credits under this Act. One is to be found in Article 3 of the order, which, taken with the schedule, confers the powers under Section 15(3) of the Act on Scottish Ministers. That means that they will accredit those organisations who can approve childcare providers, whose charges will be taken into account in calculating the childcare element of the working families' and disabled persons' tax credits. The function of assessing providers of childcare is clearly best carried out by those with expertise in the devolved areas of social work or education.
The other element covered by the order is the making of the regulations under Section 15 of the Tax Credits Act to set up the scheme for designating organisations whose charges can be taken into account in assessing those tax credits and related matters. This regulating power is to remain with the generic Secretary of State. But, as a result of this order, the agreement of Scottish Ministers will be needed.
I hope that noble Lords find those responses acceptable and feel able to support the orders.
On Question, Motion agreed to.

Scotland Act 1998 (Transfer of Functions to the Scottish Ministers etc.) Order 2000
8.57 p.m.
Baroness Ramsay of Cartvalerose to move, That the draft order laid before the House on 8th May be approved [18th Report from the Joint Committee].
The noble Baroness said: My Lords, I have already spoken to this order. I beg to move.
On Question, Motion agreed to.

Development Commission (Dissolution) Order 2000
8.58 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty)rose to move, That the draft order laid before the House on 12th April be approved [17th Report from the Joint Committee].
The noble Lord said: My Lords, I beg to move the first of the two Motions standing in my name on the Order Paper.

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The purpose of this order is to wind up the final business of the Residual Rural Development Commission to transfer some property to the Secretary of State and to apply the Superannuation Act 1972 to certain employees or former employees of the Development Commission and the rural community councils.
These steps flow from the creation of the Countryside Agency and the establishment of regional development agencies on 1st April 1999. On that date the Rural Development Commission functions were transferred to various bodies and since then the Rural Development Commission has carried on in a compact form to complete a range of residual administrative and personnel-related tasks.
It has taken a little longer than was anticipated to finish the work involved. Over the past year or so the remaining commission staff have been working hard to ensure that the interests of former staff and client groups have been respected and to reduce the RDA's liabilities to a minimum so that its successors have few additional responsibilities or liabilities. To ensure that nothing whatsoever is overlooked, this order also provides that any remaining liabilities are transferred to the Countryside Agency, with just a single property lease to be transferred to the Secretary of State. That is a former commission office in Taunton. The office space in Salisbury occupied by the Residual Commission is rented from the Countryside Agency and the rental agreement will cease when the commission is dissolved.
The order also applies the provisions of the Superannuation Act 1972 to certain members of the Development Commission (Staff) Superannuation Scherne1984. As was the case for serving staff who transferred in April 1999, all pensioners, deferred pensioners and residual commission staff currently in the development commission scheme will be offered broadly comparable pension provision and preserved pension rights through membership of the Principal Civil Service Pension Scheme, a scheme with identical provisions to that operated by the RDC.
The small residue of commission staff, headed by a chief executive and accounting officer, elected to stay on for this process in the knowledge that, during or at the end of the process, they would either retire or be made redundant. The staff numbers have further diminished over the past months to reflect the progress in completing particular tasks.
Finally, I should like to pay tribute to the Rural Development Commission for its work spanning most of the last century. I put on record our tribute to the staff for that period. In its last operating year it played an important part in helping the Government to develop guidance on rural policy issues to RDAs. I commend the order to the House.
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Moved, That the draft order laid before the House on 12th April be approved [17th Report from the Joint Committee].—(Lord Whitty.)
On Question, Motion agreed to.

Greater London Authority (Miscellaneous Amendments) Order 2000
9.2 p.m.
Lord Whittyrose to move, That the draft order laid before the House on 19th April be approved [18th Report from the Joint Committee].
The noble Lord said: My Lords, the purpose of this order is to make minor technical amendments to the Greater London Authority Act 1999 and to simplify provisions of the Representation of the People Act 1983 which are amended by the GLA Act.
It might be helpful for your Lordships if I briefly describe the effect of the provisions. Paragraph 2 of the schedule amends Section 29 of the Act, which is an interpretation section, so as to remove the definitions of "first preference vote", "second preference vote" and "the London figure". The defined expressions are no longer used in any provision outside Schedule 2 and are therefore superfluous.
Paragraphs 3 and 5 of the schedule make amendments to Sections 35 and 73 of the Act. They are introduced so as to make it clear that in each case the provisions concerned are subject to both Sections 38 and 380, both of which sections also provide for the delegation of functions of the GLA.
Paragraph 4 makes a small change to Section 45 of the Act. Section 45 provides that the mayor will make a report to the Assembly before each of the 10 monthly meetings the Assembly must hold each year. The amendment to Section 45(8) clarifies the extent of the mayor's right to refuse to disclose advice that he has received from functional bodies, members of functional bodies or officials of functional bodies.
Paragraph 6 amends a minor typographical error. Sections 88 and 89 set out the rules for calculating the basic amounts of council tax for the GLA. The GLA is responsible for police services in only part of the GLA area, the inner and outer boroughs, but not in the City of London which has its own police force. Section 90(1) identifies the expenses of the Metropolitan Police Authority as the only expense borne by the GLA, which does not relate to the whole of Greater London. Section 89(2) of the Act cross-refers incorrectly to Section 90(2); this should be Section 90(1).
Paragraph 7 of the schedule makes a small change to Section 269 of the Greater London Authority Act. Section 269 itself amends the Highways Act 1980 so that local highway authorities in London may construct traffic-calming schemes which do not

865
conform to current government regulations and without the need for specific authorisation by the Secretary of State. This fulfilled the commitment in our White Paper.
Paragraph 8 amends Section 337 concerning the publication of the spatial development strategy. Section 337(6) allows the Secretary of State to issue directions to the mayor not to publish the spatial development strategy until inconsistencies with national policy or planning guidance are removed. The Act currently refers to "relevant planning guidance". The amendment alters this to "relevant regional planning guidance", an expression defined in Section 337(10), thus providing clarification as to when the Secretary of State may issue such a direction.
Paragraphs 9, 10 and 11 amend minor typographical errors in Section 367, and Schedules 4 and 32.
Paragraph 12 makes three amendments to the Representation of the People Act 1983. The amendments all arise out of provisions contained in Schedule 3 to the Greater London Authority Act 1999. The purpose of Schedule 3 is to amend the Representation of the People Acts so that elections under the GLA Act can be dealt with as local government elections.
The first two amendments under paragraph 12 are to Section 76 of the Representation of the People Act 1983 which imposes limits on the election expenses of candidates and their agents. The purpose of these amendments is to remove an infelicity in the drafting by making it clearer that, in GLA elections, the limits on expenses which must not be exceeded are those set out in orders made under Section 76—rather than those specified in the section itself as in the case of other elections.
The third amendment under paragraph 12 is to repeal an unnecessary amendment to the Representation of the People Act 1983. Schedule 3 to the GLA Act inserted Section 189A into that Act. The section provided that references to an election under the Local Government Act include a reference to a GLA election. This insertion was in fact unnecessary because another amendment contained in Schedule 3 to the GLA Act had already provided for the same thing, by inserting Section 203(1A)(a) into the Representation of the People Act 1983. The draft order accordingly repeals the surplus provision. Again, the purpose of the amendment is to remove a small infelicity in the drafting. The law remains unchanged. I beg to move.
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Moved, That the draft order laid before the House on 19th April be approved [18th Report from the Joint Committee].—(Lord Whitty.)
The Earl of Mar and Kellie: My Lords, in the unfortunate absence of my noble friend Lady Hamwee, it falls to me to respond to this order. Clearly, I am off my usual patch at this moment but I am interested, or perhaps even fascinated, by devolution.
The order sets out to tidy up some loose ends and in the explanatory note claims that it makes a few minor drafting amendments. On examination, we believe that there are two issues which are substantive and worthy of comment.
First, paragraph 7(4) requires the Secretary of State to be notified of certain traffic-calming works and for the GLA to have regard to any comments made by the Secretary of State. That seems to us to be a substantive change and, what is more, to be a breach of devolution.
It then goes on to impose on the GLA the need to comply with the Secretary of State's new regulations on publicity and consultation. The GLA really should be able to handle that itself. It must be treated as a grown-up organisation.
Secondly, in paragraph 8, we query the concept of regional planning guidance. Surely the relevant planning guidance is generated nationally. I should have thought that any regional variation was exactly what the GLA exists to create. Having said that, we wish the order well.
Lord Whitty: My Lords, I welcome the noble Earl, Lord Mar and Kellie, to this Greater London debate in the absence of his noble friend Lady Hamwee. He is someone whose knowledge of devolution in other parts of the United Kingdom is clearly being brought to bear on this matter.
On the first of the noble Earl's points, I should remind him that I took part in both the exchanges across the Dispatch Box and in correspondence with the noble Baroness, Lady Hamwee, about a related matter on traffic calming; namely, humps. The provision in the Bill in relation to consultation with the Secretary of State, which allows the GLA to have nonstandard humps, was clarified as a result of that correspondence and the intervention of the noble Baroness. This order simply extends the same provision to other forms of traffic calming and, therefore, is consistent with the assurances that we have given in the House. It is just that the matter was not absolutely comprehensive when we dealt with it.

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As regards the noble Earl's second point on regional planning guidance, I believe that he has somewhat misinterpreted the position. As with other local authorities, the planning guidance with which these local authorities are asked to conform in this context is the regional planning guidance. It is, therefore, being made explicit here by way of this amendment, rather than referring in general terms to planning guidance.
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Therefore, it conforms with our approach on planning more generally in England. I am not entirely sure of the situation in Scotland but I suspect that it is not that different. I commend the order to the House.
On Question, Motion agreed to.
House adjourned at nine minutes past nine o'clock.