Lords Sitting of 21 November 2001

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

Animal Health Bill
Baroness Seccombeasked Her Majesty's Government:
Whether the contents of the Animal Health Bill were agreed prior to the Statement by the Lord Whitty on 22nd October that tests for BSE had been made on the brains of cows and not of sheep [Official Report, 22/10/01; cols. 826–30.]
The parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty): My Lords, yes, they were. The Bill was prepared over the summer and had been drafted prior to my Statement of 22nd October. As I said then, the Bill provides enabling powers for the compulsory genotyping of sheep so as to accelerate the development of a national flock resistant to scrapie. It also contains powers to deal with the slaughter and orderly disposal of sheep in the event that BSE were found to be present in the national flock, and provisions relating to the control of foot and mouth disease.
Baroness Seccombe: My Lords, I thank the Minister for that reply. Can he assure the House that the Government have full confidence in the ability of the three special inquiry teams to produce meaningful reports? If he can, what is the hurry? Why must the Bill be rushed through in advance of their findings? If not, is he afraid that the reports will not endorse the Bill's main provisions?
Lord Whitty: No, my Lords, the Bill's provisions are broadly in two parts. The provisions relating to TSE and BSE arise from the Phillips inquiry report, which recommended that we have a contingency plan in case BSE were found in sheep. The contingency plan was produced at the end of September, and the Bill would provide the means by which the plan could be carried out.
On foot and mouth disease, the present need for the Bill is not to pre-empt the inquiries, which may well lead to other measures, but in case the disease reappears and to overcome some inhibitions in dealing with the disease under existing controls. Should the inquiries require further measures, we will deal with the matter then.
Baroness Byford: My Lords, further to my noble friend's Question, the Bill, which has been debated in another place, deals with only part of the problem with
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animal health in this country. Does the Minister agree that the failure to include regulations providing for constant rigorous inspection of imported meat renders the whole Bill worthless? The Bill should deal with both sides of the problem. I beg your Lordships' pardon; I remind the House of my family farming interests.
What has happened to the short audit report that the Minister promised us on 22nd October, which he said would be with us in "a week or so"? It is now a month later and we do not have the report.
Lord Whitty: My Lords, on the second question, the audit has been drafted. It is now being checked with the Institute for Animal Health, which should have the opportunity to comment on it before it is published in final form. That is now happening, so the report will be available shortly—I accept that it has taken somewhat longer than I had hoped for at the time of the debate. Both audits will be available shortly.
I apologise to the noble Baroness, but what was her first question?
Baroness Byford: My Lords, let me help the Minister. My first question concerned the importation of other meat that is not covered by the Bill.
Lord Whitty: Indeed, my Lords. The issue of import checks is important, and we are currently considering it interdepartmentally. However, it is important to stress that import checks will never be 100 per cent effective, so the prime concern for disease control must be to control its spread. As I have said before, disease occasionally enters even Australia, which has draconian import checks and controls. The point is that it is rapidly stamped out; that is the main control.
At present, our view is that any changes in import control regulations could be made by secondary legislation, and so would not need to be included in the Bill.
Baroness Masham of Ilton: My Lords, will the Minister give us an assurance that rare breeds of sheep will be protected? Does he agree that there is a problem with the scrapie situation and immunity in some rare breeds of sheep?
Lord Whitty: My Lords, clearly such issues will have to be discussed with the sheep industry in general and pedigree farmers in particular. It appears that every breed, including most of the pedigree breeds, contains scrapie-resistant strains, but that must be established. It may be that progress in that regard may be slower in some pedigree breeds than in the general flock. All such issues must be addressed in developing the scrapie plan in co-operation with farmers.
Baroness Miller of Chilthorne Domer: My Lords, does the Minister expect the two inquiries, dealing with lessons to be learnt from the foot and mouth outbreak and the transmission and prevention of the disease, to report before the Bill completes its passage through this House? If so, will the Government

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consider amending the Bill at that stage, if that appears necessary as a result of the inquiries? If not, surely the case for a public inquiry is strengthened.
Lord Whitty: My Lords, I do not expect the inquiries to complete their work by then. Both inquiries will take about six months, so their reports will not be available until the middle of next year. I suspect that, were we to go for a full, quasi-judicial public inquiry, it would take much longer. The foot and mouth-related measures in the Bill relate to any further outbreak that might occur early next year. As I have said, if the inquiries require further measures, we will take them.
Earl Ferrers: My Lords, can the noble Lord explain how scientists, who are, after all, supposed to be knowledgeable about these matters, can be engaged on work not knowing whether it is the brains of cows or sheep upon which they are working? Is that not a monumental bog?
Lord Whitty: My Lords, I can say, without necessarily endorsing the noble Earl's vocabulary, that clearly a serious error was made at some point. The purpose of the two audits, to which I and the noble Baroness, Lady Byford, referred, is to find out how that mistake was made.
Baroness Gibson of Market Rasen: My Lords, can my noble friend tell the House how much money has been spent on research on BSE and related diseases up to now?
Lord Whitty: My Lords, the research in this area by all publicly funded bodies probably totals about £100 million. About £17 million of this year's expenditure is funded by DEFRA, £3 million is funded by the FSA and further money is spent by the research council and other public bodies. A couple of weeks ago my noble friend Lord Hunt referred to 140 projects involved in this area, many of which, inevitably, are long term. The failure of the particular research project to which reference has been made has to be seen in that wider context.

The Monarchy
2.44 p.m.
Lord Dormand of Easingtonasked Her Majesty's Government:
Whether they will call a referendum on the abolition of the monarchy.
The Lord Chancellor (Lord Irvine of Lairg): No, my Lords.
Lord Dormand of Easington: My Lords, I thank my noble and learned friend for that unambiguous Answer. However, has he taken into consideration that opinion polls in recent years have consistently
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shown decreasing support for an hereditary monarchy? Does he accept that most people now believe that an elected head of state is more relevant to the 21st century?
Noble Lords: Oh!
Lord Dormand of Easington: My Lords, I am glad of all the support that I am receiving. In view of those and other factors is it not necessary in a democracy such as ours to ascertain the views of the electorate on such a fundamental issue?
The Lord Chancellor: My Lords, the Government believe that the national interest and desire is for the country to remain a constitutional monarchy in its present form. The Sovereign personifies national cohesion, Commonwealth unity and political stability. We believe that support for the monarchy in the United Kingdom is rock solid. In surveys over the past 30 years it has been consistently above 70 per cent, while support for a republic has varied between a mere 15 and 20 per cent. The noble Lord mentioned opinion polls. The Queen's approval rating in opinion polls is a very substantial distance beyond that to which politicians and other groups might reasonably aspire.
Lord Strathclyde: My Lords, the noble and learned Lord's totally unambiguous Answer is widely welcomed throughout the House and by this party in particular. But what does the noble and learned Lord think the general public will make of a senior Back-Bencher and former chairman of the parliamentary Labour Party asking a Question such as this?
The Lord Chancellor: My Lords, the noble Lord is well entitled to ask the Question which he has asked, and the Government's position has been clearly stated by me.
Lord Corbett of Castle Vale: My Lords, as my noble and learned friend is considering the issue of a referendum, will he use whatever influence he may feel he has with the Government to try to persuade them to hold a referendum on the siting of the national football stadium so that football fans and other citizens can be given the opportunity to back the superb bid by Birmingham and Solihull, made on the back of their international airport, their railway station and their motorway network, to place the home of the national sport at the heart of the nation?
Noble Lords: Hear, hear!
The Lord Chancellor: My Lords, I have ruled out a referendum on the subject matter of the Question, but I have noted the support for the noble Lord's observations on the different subject which he addressed.
Lord St John of Fawsley: My Lords, would it not be singularly inappropriate, and, indeed, curmudgeonly, to hold a referendum at the same time as we celebrate

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the Queen's Golden Jubilee? Would it not be more appropriate for the Government to organise a national vote of thanks to Her Majesty for the way in which over 50 years she has discharged her duties with skill, dedication and diplomacy?
The Lord Chancellor: My Lords, I am sure that the noble Lord speaks for almost everyone in the House. His question gives me the opportunity to say that the timing of the Question is not of the best on the eve of Her Majesty's Golden Jubilee, marking 50 years of dedicated service by the Queen to the nation and the Commonwealth.
Lord Paul: My Lords, the monarchy is such a tremendous asset to this country. Why do we want to confuse the public by a referendum?
The Lord Chancellor: My Lords, my belief is that the public have no interest in a referendum on this subject.
Lord Smith of Clifton: My Lords, will the noble and learned Lord use his professional knowledge to instruct the House whether the presidential style assumed by Mr Tony Blair is lese-majesty?
The Lord Chancellor: My Lords, we have a strong Prime Minister; we do not have a president.
Lord Hughes of Woodside: My Lords, does not the Question of my noble friend Lord Dormand illustrate the vigorous independence of Back-Benchers in your Lordships' House which the Leader of the Opposition claims to espouse?
The Lord Chancellor: My Lords, Members of this House are independent as well as some being affiliated to parties.
Lord Clarke of Hampstead: My Lords, does my noble and learned friend agree that, in conducting its duties and commitments to the voluntary and charitable sector, the Royal Family provides an invaluable service to the nation and to the people who sometimes get left out of the statutory services net?
The Lord Chancellor: My Lords, I can agree with that question wholeheartedly. The Prince of Wales, the Duke of Edinburgh and the Princess Royal are well known as supporters of voluntary causes. I mention, for example, the Save the Children Fund, of which the Princess Royal has been president since 1970, the Duke of Edinburgh's Award scheme, the World Wildlife Fund, Macmillan Cancer Relief and the Outward Bound Trust. Last, and certainly not least, I mention the Prince's Trust, through which the Prince of Wales has made a difference to the lives of tens of thousands of young people, including many of the most disadvantaged.
Lord Stoddart of Swindon: My Lords, is the noble and learned Lord the Lord Chancellor aware that I agree entirely with what he said about the monarchy
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but that I deplore, and believe it to have been entirely reprehensible, that my noble friend should have been shouted down in the manner that he was in asking a perfectly pertinent and legitimate question?
The Lord Chancellor: My Lords, I have already said that the noble Lord was well entitled to ask the Question that he did.

Human Cloning
2.51 p.m.
Lord Alton of Liverpoolasked Her Majesty's Government:
Whether they intend to lay primary legislation before Parliament to prohibit human cloning. and, if so, when.
The parliamentary Under-Secretary of State, Department of Health (Lord Hunt of Kings Heath): My Lords, my right honourable friend the Secretary of State for Health announced on Friday last our intention to introduce legislation this week 10 ban human reproductive cloning.
Lord Alton of Liverpool: My Lords, I thank the Minister for that reply. However, does he recall the justification that he gave to the House on 22nd January last for the use of unamendable orders rather than primary legislation? On that occasion he said that no new fundamental issues arose and that the use of cell nuclear replacement was lawful.
In the light of those assurances and of the High Court ruling of last week, will he confirm that the Bill which is to be rushed through all its stages in your Lordships' House next week will not outlaw cell nuclear replacement? Will he say whether he is able to issue a compatibility statement under Articles 2 and 14 of the European convention in the light of that failure to deal with cell nuclear replacement? Will he also say how public confidence in our parliamentary processes will be enhanced when the public see a Bill that has been designed to prohibit the use of amendments. if that is at all possible, and when that Bill is to be rushed through all its stages in this House on one day next week and in another place on one day next week') Will that not further confuse public opinion on an issue which should command much graver interest and which should be dealt with in a much more sober and reflective manner?
Lord Hunt of Kings Heath: No, my Lords. I do not share the view of the noble Lord, although I recognise his deeply felt views on this question. I believe that, in the light of the judgment of last week, the Government had no option but to bring forward urgent legislation to outlaw human reproductive cloning. The noble Lord is right that that does not cover the question of therapeutic cloning. I believe that that issue is of a different order. We consider that it is right to aw a it the outcome of the appeal and the end of the legal process.

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Of course, if at the end of that process therapeutic cloning were not to be regulated, we would seek to bring forward proposals to ensure that it was so regulated.
Baroness Cox: My Lords, will the Minister say why the Government have been so unresponsive to very widespread public concern on this matter, as reflected, for example, in today's editorial in the Daily Telegraph? Will he say why legislation of such momentous ethical and human significance has been rushed through and why statutory regulation that is deemed unamendable is about to be rushed through? Why is the Parliament of the United Kingdom not being given the same opportunity as the United States Congress to look at all the available relevant research and evidence before passing momentous legislation?
Lord Hunt of Kings Heath: My Lords, I do not agree with the noble Baroness. The fact is that the regulations passed at the beginning of this year received a thorough airing in your Lordships' House as well as three full debates in the other place. In addition to that, as a result of the debate on those regulations in January, your Lordships agreed to the establishment of a Select Committee chaired by the right reverend Prelate the Bishop of Oxford. Surely it is right to await the outcome of that Select Committee's deliberations but, in the meantime, move as quickly as we can to outlaw human reproductive cloning, which I believe no Member of this House can possibly support.
Lord Patel: My Lords, does the Minister agree that the potential benefits for future healthcare of research following therapeutic cloning are enormous? Does he also agree that in a well regulated environment, research of this nature can be controlled?
Lord Hunt of Kings Heath: My Lords, I do agree. That is why we have supported developments in therapeutic cloning. I agree with the noble Lord that it is important that appropriate regulation exists. That is why we are appealing against the judgment delivered last week. As I said earlier in my response to the noble Lord, Lord Alton, if, at the end of the day, the Government lose the case, when parliamentary time allows we shall seek to bring back to Parliament proposals for the regulation of therapeutic cloning.
Baroness Carnegy of Lour: My Lords, quite apart from the issue on which there is a difference of opinion, I agree with the noble Lord that we had a very full discussion earlier in the year. However, was it not somewhat careless of the Government to have drafted the regulations in such a way that they suddenly had to be amended in this manner?
Lord Hunt of Kings Heath: My Lords, the issue of whether the 1990 Act covered cell nuclear replacement was discussed fully in our debate on the regulations. We relied on the advice that we received from counsel
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and, of course, that has turned out not to be correct in terms of the judgment that we received last week. However, in his conclusions, the judge said that the argument put forward by the department was a powerful one, and we are appealing on that basis.
Lord Walton of Detchant: My Lords, in relation to the original Question tabled by my noble friend Lord Alton, does it not depend, as the late C.E.M. Joad used to say in the "Brains Trust", on what one means by the word "cloning"? I am sure that every Member of this House would abhor any mechanism by which it was possible to create identical human beings by reproductive cloning. I trust that the legislation which is coming forward will outlaw that particular process. At the same time, perhaps I may urge the Minister and all those involved to ensure that the whole issue of therapeutic cloning for the production of stem cells by nuclear transplantation is not outlawed by the legislation, pending the outcome of the appeal and the report of the Select Committee chaired by the right reverend Prelate the Bishop of Oxford.
Lord Hunt of Kings Heath: Yes, my Lords; I could not describe the position better. We shall of course have to await the outcome of the appeal and shall pay very careful attention to the report of your Lordships' Select Committee.
Baroness Sharp of Guildford: My Lords, we had a good and full debate on this matter in January. However, the Minister promised during that debate to bring forward legislation on human reproductive cloning in response to the recommendations of the Donaldson report. Is it not unfortunate that the Government did not use the opportunity to bring forward such legislation in June, and has that not laid them open to having to bring forward this emergency legislation now?
Lord Hunt of Kings Heath: My Lords, I do not agree. I believe that, in any event, there was a very good case for awaiting the outcome of the House's Select Committee on this matter. It was in the election manifesto of the Labour Party that we would bring forward legislation. We are doing so. However, the promises made in a manifesto last for the lifetime of a Parliament. At present there is very great demand on the legislative timetable.
Lord Elton: My Lords, can the Minister confirm that all the most significant breakthroughs in stem cell technology in recent months have resulted from work on adult and not embryonic cells? Is not the answer to the problem to restrict ourselves to the use of adult cells so as to avoid altogether this difficult ethical question?
Lord Hunt of Kings Heath: My Lords, I do not accept that. The noble Lord may be right in relation to the potential of adult stem cells. The Chief Medical Officer's expert working group acknowledges that.

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I refer the noble Lord to the comment made by the president of the Royal Society, Sir Robert May, in January of this year when he said:
"Parliament should not be mislead into believing that adult cells at present offer anything like the same prospects as embryonic stem cells for treating serious degenerative diseases".
I also refer him to Professor Richard Hynes, president of the American Society for Cell Biology, who is carrying out research into adult stem cells. He said:
"We are dismayed that our research … is being used as a justification to hinder or prohibit research using embryonic stem cells".
I believe that the broad body of scientific opinion would say that we should develop research in a number of ways and that the outcome of that is likely to be more successful.

Executive Agencies
3 p.m.
Lord Smith of Cliftonasked Her Majesty's Government:
What are the specific terms of reference of the review of public bodies announced on 16th November and to be headed by Ms Pam Alexander; and when it will be expected to report.
The Lord Privy Seal (Lord Williams of Mostyn): My Lords, the Question is based on a misapprehension. Ms Alexander is not leading a review of public bodies. She is leading a review of policy on executive agencies. The terms of reference of that review were announced to Parliament on 7th March 2001, and are lengthy. I am sure your Lordships will excuse me from reading them out as they are already to be found in Hansard for March of this year. In respect of the last part of the Question, the review is expected to report to Ministers around the turn of the year.
Lord Smith of Clifton: My Lords, I thank the Minister for that response. Perhaps I may be forgiven for not being fully aware of the distinction between non-executive bodies, quangos, task forces and the whole range of denizens that dwell in the demi-monde. Does the Minister agree that there is a case for looking at the vast plethora of unconstitutional mutations? I was concerned that the lady who is to chair the review has had experience of English Heritage. I hope that that is not a portent that some of these denizens will become part of the English constitutional heritage.
Lord Williams of Mostyn: My Lords, there is nothing mutative and there is nothing unconstitutional about the use of task forces, ad hoc advisory groups or reviews. They are sensible tools when properly used for the efficient conduct of public business.
Lord Roberts of Conwy: My Lords, can the noble and learned Lord confirm that in the lengthy terms of reference for this inquiry the word "accountability" occurs? Can he confirm that all the executive agencies
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to which he has referred can be called to appear before the Public Accounts Committee in the other place to account for their cost to public funds?
Lord Williams of Mostyn: My Lords, the last sentence of the terms of reference is:
"how best to secure transparency and thoroughness in reporting on agency matters including performance to the public"
The penultimate sentence is:
"how to ensure that agencies have in place appropriate corporate governance including the roles of ministerial advisory boards and independent advisors".
The thrust of the review is, I hope, to produce the consequence that the noble Lord, Lord Roberts of Conwy, wants; namely, openness and accountability.
Lord Avebury: My Lords, what is the difference between an executive agency and a task force?
Lord Williams of Mostyn: My Lords, it will not amaze noble Lords that an executive agency is an agency that carries out executive functions. Similarly, it will not surprise your Lordships that a task force is a force set up to carry out a particular to for example, the extremely effective, universally applauded Human Rights Task Force set up by the then Home Secretary in the Home Office to put into effect the Human Rights Act over a period of about 18 months.
Baroness Blatch: My Lords, can the noble and learned Lord tell the House in what way the noble Lord, Lord Haskins, is responsible and accountable to this House for the work that he carries out in the name of the British taxpayer?
Lord Williams of Mostyn: My Lords, it seems to me that there is no disentitlement to any noble Lord put down a question or to seek a short debate. My recent experience this afternoon demonstrates that it is possible to ask even unpopular questions in your Lordships' House.
Lord Saatchi: My Lords, does the noble and learned Lord agree that the 30,000 people who work in quangos are owed a duty of care by the Government who employ them so that they can be rescued from the mockery and mistrust that the word "quango" now evokes? What plans do the Government have to deal with that?
Lord Williams of Mostyn: My Lords, the noble Lord, Lord Saatchi, with his vast experience in the advertising industry, will know that it is reality and not apparent perception that matters.

Human Reproductive Cloning Bill [H.L.]
3.6 p.m.
Lord Hunt of Kings Heath: My Lords, I beg to introduce a Bill to prohibit the placing in a woman of

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a human embryo that has been created otherwise than by fertilisation. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time.—(Lord Hunt of Kings Heath.)
On Question, Bill read a first time, and to be printed.
Lord Carter: My Lords, following the First Reading of the Human Reproductive Cloning Bill, it may be convenient for the House if I say a few words about the procedure that the usual channels propose for dealing with this urgent piece of legislation. As always, I am extremely grateful to the noble Lords, Lord Cope of Berkeley and Lord Roper, for their co-operation in agreeing the proposed timetable.
The Bill will be printed overnight and will be available in the Printed Paper Office at 9 a.m. tomorrow morning. The Public Bill Office has agreed, exceptionally, to take amendments before Second Reading. Therefore, your Lordships will be able to table amendments from 10 a.m. tomorrow onwards, although I understand that the Bill has been drawn narrowly and amendments will have to be relevant to the Bill as drafted.
We will take Second Reading of the Bill as first business on Monday. The speakers' list has been put up in the Government Whips' Office and any noble Lord who would like to speak in the Second Reading debate may put his or her name down immediately. The deadline for adding names to the speakers' list is 12 noon on Monday.
When we have finished the Second Reading debate, business on the Bill will be adjourned, and the House will deal with the next business on the Order Paper, which will be the completion of the Committee stage of the European Communities (Amendment) Bill. As soon as that is finished, we shall return to the Human Reproductive Cloning Bill and all the remaining stages will then be taken.
In order to allow the House to take the Second Reading and the remaining stages all in one day it will be necessary to suspend Standing Order 46 which prohibits the taking of more than one stage of a Bill in a single day. My noble and learned friend the Leader of the House will table a Motion to that effect, which will be taken at the start of business tomorrow.
Lord Roper: My Lords, on these Benches we find that these proposals make a great deal of sense. We are awaiting the report of the Select Committee chaired by the right reverend Prelate the Bishop of Oxford, that will give the House an opportunity to discuss wider issues of stem cell research, including the so-called topic of therapeutic cloning. Therefore, we trust that the Bill is drawn in such a way as to avoid substantive amendments.
Lord Cope of Berkeley: My Lords, as the Captain of the Gentlemen-at-Arms said, we have agreed to this procedure in this absolutely exceptional case. The Bill, as he indicated, is exceptionally narrow and it will
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avoid the single, most appalling potential consequence of the mess that the Government have got themselves into on this occasion. Of course, the other wider consequences remain to be considered at a more leisurely and proper pace.
Baroness Blatch: My Lords, on behalf of those noble Lords who are very concerned about this issue perhaps I can register our view. This is a government-induced self-inflicted injury and a constitutional outrage. Will the Chief Whip confirm to the House that what is being outlawed is not the cloning of embryos but the implantation of embryos and that the cloning of embryos will continue unregulated and unlicensed? Is it right that there will be no limitation on the length of time for which an embryo may remain alive and there will be no basis on which consent can be given for the particular scientific practice? As I so profoundly disagree with the Liberal Democrat Front Bench, will it be possible to consider amendments that would put cloning on ice until the Select Committee has reported and until the House has had an opportunity to debate this matter fully?
Lord Alton of Liverpool: My Lords, in supporting the remarks of the noble Baroness, Lady Blatch, perhaps I may ask the Government Chief Whip two questions. The first concerns our standing in terms of international jurisprudence. Is the noble Lord aware that the European Parliament on Wednesday last—the day before the High Court judgment—passed a resolution by a majority vote outlawing any European funding for either therapeutic, experimental or reproductive cloning? Secondly, can he say what bearing that will have on the orders?
Further, will the noble Lord confirm and ensure that in the debate on Monday it is mentioned that every one of our European partners has taken a contrary view from us on this issue, as has the American administration? Will he also return to the question that I put to the Minister about the compatibility statement which will appear on the face of the Bill under the duties laid upon us in the Human Rights Act? Can the noble Lord also say whether officials have this time— unlike in January last when they clearly failed to give proper advice to the Minister—looked at whether there is a clash with Articles 2 and 14 of the Convention on Human Rights—Article 14 being read with Article 2 for the purposes of the Bill?
Lord Carter: My Lords, I am extremely grateful to the noble Lords, Lord Roper and Lord Cope, for their comments and support. The noble Baroness, Lady Blatch, referred to constitutional outrage. The Government and everyone involved in this issue thought that human cloning was banned. The judge took a different view. In the light of his judgment—only in the light of that judgment—the Government have brought forward emergency legislation to deal with the loophole, the existence of which has arisen only in the last few days. It deals only with that matter.

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If the noble Lords carefully read Hansard they will see that my noble friend Lord Hunt gave a very full Answer to the starred Question asked by the noble Lord, Lord Alton, dealing with the matter of human reproductive cloning.
The noble Lord, Lord Alton, asked me about the international jurisprudence of the European Parliament and the European Convention on Human Rights. As I understand the matter, my noble friend was advised and was able to sign the Bill as being compliant with the Human Rights Act.

City of London (Ward Elections) Bill
3.12 p.m.
The Chairman of Committees (Lord Tordoff): My Lords, I beg to move the first Motion standing in my name on the Order Paper.
Moved, That this House do agree with the orders made by the Commons set out in their message of 15th November.—( The Chairman of Committees.)
On Question, Motion agreed to.

Business of the House: Debates this Day
Lord Williams of Mostyn: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the debate on the Motion in the name of the Lord Levene of Portsoken set down for today shall be limited to three hours and that in the name of the Lord Walton of Detchant to two-and-a-half hours. —(Lord Williams of Mostyn.)
On Question, Motion agreed to.

Human Rights: Joint Committee
The Chairman of Committees: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Perhaps I should explain this matter a little more. The object of the Motion is to reduce the quorum for the Joint Committee of both Houses from three to two from each House.
A noble Lord: Why?
The Chairman of Committees: My Lords, thank you. Someone asks why. I shall attempt to give an answer. Let me say first that the quorum will apply only to those meetings where evidence is taken and where a transcript will be published. The problem is that the present quorum amounts to 50 per cent of the committee. That is a high quorum. There have been problems. If there are three Members of one House there and only one from the other the sitting has to be suspended. At the moment, we have the problem that one of the Members from this House has been ill and another has been sitting on the Stem Cell Research Committee. The committee times clash. Therefore, it
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was thought sensible—a similar Motion has already been moved in the Commons—that the quorum should be reduced to two on this occasion for this particular committee. I beg to move.
Moved, That the quorum of the Select Committee appointed to join with the Committee of the Commons as the Joint Committee on Human Rights be two for the purposes of taking evidence.—(The Chairman of Committees.)
On Question, Motion agreed to.

Financial Services
3.14 p.m.
Lord Levene of Portsoken Lord Levene of Portsoken rose to call attention to the place of the financial services industry in the economy of the United Kingdom; and to move for Papers.
The noble Lord said: My Lords, I am grateful for the opportunity to propose this Motion. I should like to declare an interest. I am chairman of IFSL, the old British Invisibles, and vice-chairman of Deutsche Bank in London.
The financial services industry is about managing risk. It is wider in scope than many imagine. The industry now includes not only traditional products such as lending, deposit taking and credit cards, but also investment banking, insurance, securities dealing, fund management, derivatives, maritime services and foreign exchange.
Financial services operate globally and money, in its raw form, is a commodity. We should be very encouraged that the United Kingdom is such an attractive base for the industry. Nearly 500 foreign banks operate from, and provide wealth for, the United Kingdom. The industry is concentrated in London but there are other sizeable centres in Edinburgh—now the sixth largest fund management centre in Europe—Leeds, Manchester, Glasgow, Bristol and Birmingham. The financial services industry, when one includes the legal and accountancy professions, produces 8 per cent of GDP. The industry provides employment for almost 2 million people, which is four times larger than the number of civil servants. In Scotland, the industry employs almost 10 per cent of the workforce. In the most narrow definition of balance of payments, the financial services industry contributed a record £13 billion last year, which helped to offset the shortfall in physical goods of £30 billion. The insurance sector pays out £200 million of benefits every day.
Financial services acts as a driver for other industries, particularly property and telecommunications. In Scotland, financial services account for 25 per cent of the entire Scottish property market, while the bulk of the Canary Wharf development is predominantly filled by financial services firms. The competitiveness and size of the industry provide the ideal breeding ground for IT innovation. For example, LIFFE—the futures

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exchange—now provides the world's most advanced electronic trading system and is accessible in 25 different countries, far more than any other system.
The financial services industry makes an enormous contribution to the Exchequer. The banking and insurance sector pays over one-third of the entire corporation tax take, amounting to £7 billion as well as £1.25 billion in irrecoverable value added tax. That is the equivalent of three pence off the basic rate of income tax.
Financial services firms also contribute generously to local communities. In the past 12 months over £250 million has been donated directly by the industry to worthwhile local causes over a wide range of activities.
Most of the City's investment banks and securities houses are now in international ownership. This has increased, rather than diluted, the UK's strength. Businesses have consolidated in London, where there is critical mass and not in other European centres. Openness to foreign investment, coupled with favourable tax regimes, is the foundation of the attractiveness of the United Kingdom. "Wimbledonisation", as it is called, where we provide and host the best venue, even when most of the best players are neither British nor British owned, is undoubtedly good for us and good for the economy.
We are certainly enjoying the fruits of success. But we cannot afford to be complacent. One cause for growing concern is regulation. It is increasing, becoming over bureaucratic, tying up considerable amounts of time for little apparent benefit. It could well make us less competitive.
These concerns are not primarily aimed at the main UK regulator, the Financial Services Authority. It is true that there has been some disquiet at the work required for "N2", when the FSA takes over as the "super-regulator" at the end of this month. But if the result is the promised "light touch regulation", properly geared to risk, then it will have been worth the effort.
We welcome the FSA's new obligation to take into account the impact of what it does on the competitiveness of the UK's financial markets and its establishment of a "Practitioners Panel" to monitor that. The FSA should not, therefore, be a problem for the industry. Indeed, we believe that the current regulatory regime is part of the attractiveness of London. Last month, Euronext took over LIFFE, the futures exchange, and promptly announced that it is moving its entire derivatives trading to LIFFE in London, an implicit acceptance perhaps that, for financial firms, life is better in the UK. Certainly that is the view of LIFFE's membership, three-quarters of which are foreign companies and have been attracted to the UK by our international reputation.
However, our real concern is Europe—but not, I hasten to add, the euro. I want to issue a wake-up call. As powers have moved to the European Commission, potentially damaging directives are now issuing. Whatever the intention, there seems to be little
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consultation and the results are certainly not "light touch". Risk management is too often swapped for risk avoidance, which is neither desirable nor achievable.
Two current directives may serve as examples. The first is the market abuse directive, which is in danger of failing to learn the lessons from recent work on the new UK market abuse regime. It risks inadequately defining the offence. In some countries, criminal sanctions may apply for abusive behaviour where there has been no intent to abuse. Firms could find themselves at the mercy of several national regulators each applying different standards—perhaps for behaviour that is currently perfectly acceptable practice and approved by their regulator here in the UK.
The prospectus directive was originally well intentioned but is threatening to miss the opportunity to streamline the European capital markets. It could instead fragment the market, raise the cost of capital and burden companies, particularly smaller ones, with additional costs of up to £150,000 per year. It is small wonder that 56 senior executives issued their own wake-up call by highlighting these measures in a letter to the Financial Times last week.
We must impress upon the Government the need to keep a very watchful eye open for the potential implications of these directives and then to alert City interests. We can defend ourselves well. The withholding tax was a good example and government support here was outstanding. But we need to be aware of the issues at an early stage. If we are, we can prepare properly. Influencing the debate in Europe is not just a matter of protecting "Fortress UK" but understanding how the proposals will impact on other European markets and what other Europeans are trying to achieve.
Another key area of concern of the institutions is infrastructure, particularly transport. The dire state of public transport in London works against the capital's international position. But this is not just about sorting out the Tube. The London CrossRail link needs to go ahead and it must serve the whole of London's financial services community. The investment also needs to be approved for the light rail network linking Edinburgh city centre with the waterfront development there, its own Canary Wharf. Back in London, do we really have to wait four years for improvements to the Waterloo & City Line? The special bus lanes in Leeds, the trams in Manchester and, more recently, in Croydon, have worked well. We need to draw on these models to bring urgent infrastructure improvements.
Sadly, we are also beginning to have a problem with reputation. There have been many investigations and inquiries into various aspects of the financial services industry in recent years. The cumulative effect of these on London's image and reputation in the eyes of the outside world has been damaging. It is increasingly embarrassing on occasions to commend, as we rightly do, the high quality of our financial regulation procedures to our European friends only to have them

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retort, briefed as they are by our candid and often aggressive media on the apparent defects and scandals affecting our financial industry, that a market place so unhealthy that it needs constant investigation can scarcely be put forward as a model for others to follow. A more balanced approach by the media would undoubtedly pay considerable dividends.
Money laundering belongs in this context. We all take this very seriously. Yet only the other week the UK was under attack by a French parliamentarian saying that we are a "money launderers' paradise". Let me try to set the record straight.
Money laundering damages the reputation of the City. We therefore have a corporate interest in fighting it. But we know that there are problems; we are certainly not complacent; and we are working very hard at solutions. In the past year the dedicated staffing in the Economic Crime Unit, which leads the fight against money laundering, has increased threefold. A new computer system has been introduced, as have direct links to 37 police forces. This has led to a much higher notification of suspicious transactions, up by 50 per cent this year to 27,000. Since 11th September the daily rate of notifications has increased dramatically from 70 to 200.
Theoretically, if we imposed draconian regulations—such as insisting that all deposits are made through one point coupled with a half-hour interview each time, we could eradicate all money laundering. But if we fell for the total risk avoidance trap, then we would be out of business. The City is very serious about preventing money laundering. It is actively fighting back. But we must bear in mind that with a pool of 500 billion dollars being traded every day on the foreign exchange market alone, there are bound to be some leaks. We do not like them. The Industry is keen to plug them all.
As I outlined earlier, the industry makes a significant contribution to the Exchequer, both from corporate and personal tax where the rates are among the lowest in Europe. In times of economic difficulty it is tempting for government to raise taxes in the short term. But the Government must recognise that employees and their firms, in this industry above all others, are internationally very mobile. Raise the price of doing business and business will move. Tamper at your peril.
In a similar vein, I should like to mention the issue of stamp duty on share transactions. Its continued imposition is a glaring anomaly at odds with the Government's agenda on investment and competitiveness. Independent research commissioned by the Stock Exchange concludes that abolition would reduce the cost of capital of UK companies by 80 basis points from a current average of 12.5 per cent, boost share prices by an average of 10 per cent and investment by around £3 billion per year, and remove the anomaly that the tax discriminates in favour of non-UK companies.
Presentationally I know that this is difficult. The costs of abolition seem huge—almost £4.5 billion. However, research also shows that the net impact
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would be less because of corporation and income tax gains; and the residual lost revenue which would be completely offset by increased GDP growth. On balance, the advantages of abolition outweigh the disadvantages. In difficult times, abolition would boost UK equity markets and corporate morale.
The financial services industry is a vital contributor to UK plc, but it is more than that. It is one of the engine rooms of our economy and a tremendous success story for the United Kingdom. We are number one in the world as the international centre—a claim that we can make in few other areas. The industry provides well over £8 billion to the Exchequer. 8 per cent of the GDP and employs 8 per cent of the workforce. Financial services firms are the largest corporate benefactors to charities, social causes and the arts. It is a thriving, profitable industry. Therefore it is imperative that we remain vigilant and start t o take steps today on the points I have outlined—European regulation, reputation, transport, taxes and stamp duty—to ensure that the financial services industry retains its competitive advantage and can continue to provide enormous benefits to the UK economy. My Lords, I beg to move for Papers.
3.30 p.m.
Lord Mitchell: My Lords, I am grateful to the noble Lord, Lord Levene of Portsoken, for introducing this debate. To use a capital asset, one does not necessarily have to own it. That is the concept behind a highly successful sector in the financial services industry—a sector which is generally known as equipment leasing but which can also include hire purchase and other related products and services. I declare not only an interest but my livelihood. For most of my adult life I have run companies involved with the leasing of high technology products. My present company, of which I am the chairman, is one of the leaders in the field. We are also members of the Finance and Leasing Association which is the trade association for UK lessors. I should like to give your Lordships a feeling for the scale of the industry.
In the 12-month period to September this year the members of the FLA financed 25.2 per cent of all fixed capital in the UK, excluding property. That percentage translates into an actual amount of £23.3 billion. Of that total, 28 per cent was represented by cars. 12 per cent by commercial vehicles and 18 per cent by plant and machinery. The balance was invested in equipment such as information technology, medical technology and communications networks.
Last year, leasing financed two-thirds of all transport investment in the UK. In the future, with so much government money being invested in transportation, leasing is bound to increase rapidly. It truly is an unsung example of public/private partnership. Leasing owes its popularity to the fact that it enables users of capital equipment to defer the cash impact of an outright capital expenditure. In essence, users pay for their equipment over a period.
Why has leasing become so popular and why do so many organisations use it? The principal reason is that leasing enables organisations to conserve cash. In

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effect, it takes the pressure off the cash flow of business. A secondary reason is that leasing decisions can be made much more quickly than those for a bank loan and the finance advanced represents 100 per cent of the cost of the equipment. That enables customers to match asset expenditure to income generation. In my area, which is technology, it allows the customer to avoid investing his own cash in rapidly depreciating assets. At the big ticket end, finance for assets such as ships, aircraft and oil pipelines can be made for very long periods—even up to 20 years. By way of contrast, my company will rent a computer for one day. Most typically, leases will be written for a period of between three and five years.
If I have given the impression that equipment leasing is the preserve of the large corporates, let me add that in the year 2000, 53 per cent of business finance provided by the FLA went to small and medium-sized enterprises. During this Government's first term, they produced a degree of economic competence that was simply dazzling. Boom and bust have become relics of a bygone era. Yet the Opposition were meagre in their praise, claiming that we were the beneficiaries of decisions that they took when they were in government. Today the industrial world is in recession, with one notable exception—the UK. Today's headline in The Times, based on an OECD reports, says it all. It states:
"Britain forecast to buck world recession".
However good GDP growth may be, our Achilles' heel as a nation is, as it has always been, productivity. Output per worker lags behind our competitors. Capital equipment is part of what makes the workforce more productive, and so, too, are skills enhancement and good management. It is my firm belief that leasing is a financial tool that oils the wheels of productive growth.
With productivity being so high on the economic agenda, your Lordships might have expected that the Treasury would encourage the leasing industry. But I have to report that in general government recognition of what we do is less than helpful. I wish to give just one example of where the Treasury has tried to make life easier for the small business sector but has ended up making it harder.
In the past few years the Government have announced accelerated capital allowances for small businesses when they acquire capital equipment. In the case of IT equipment, such allowances are even further enhanced to 100 per cent. So far, so good. The problem is that many small businesses are barely profitable and cannot use the benefits of capital allowances. This is particularly true of start-up companies which are in most need of the benefits.
Traditionally, capital allowances have followed the owner of an asset rather than its user. That has meant that a lessor has been able to transfer his tax benefits to the lessee by way of lower costs. Or, even better, the lessor has been able to accept credits that otherwise might have been rejected. For a reason that I cannot fathom, these special SME incentives are precluded
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from being transferred from user to owner. The effect is that an SME pays more for a lease than would be the case if the allowances were transferable.
We learn this week that the DTI has reported that SMEs in the UK are failing to meet the Government's own targets for trading on-line. That is hardly surprising. Tax policy and the desire to improve productivity need to point in the same direction. Will my noble friend the Minister ask the Treasury yet again to review that anomaly, which is illogical and self-defeating?
The leasing industry helps to keep small business in business. My industry does a good job for this country and the economy. It would be nice if the Government could give us a little more encouragement.
3.36 p.m.
Lord Peyton of Yeovil: My Lords, I, too, thank the noble Lord, Lord Levene, not only for introducing the Motion but for his speech and the knowledge that it contained. I shall take only a few moments of your Lordships' time to draw attention to what I believe is an excessive activity on the part of the Financial Services Authority in curbing the nuisance and menace of money laundering and drug peddling. I have no doubt that those who engage in such activities have need to clean up large sums of money and that they ought to be hampered in their disgraceful conduct.
However, I wonder whether what is contemplated and what is actually happening will deter even the most easily deterred money launderer, or whether that will only be a nuisance to large numbers of people who will be irritated, annoyed and inconvenienced by an unnecessary probe into affairs that they have been accustomed to regard as private.
Today a host of bankers, stockbrokers and other financial institutions are being stirred to approach customers, many of whom they have known for years, with detailed questionnaires. I seriously wonder whether it is sensible or appropriate for an official body to press such institutions into requiring of their customers documentary evidence that they are who they claim to be. Is it justifiable to ask people to tell those whom they have no particular reason to trust what they owe, what they own and where they got it from?
How can the Government guarantee that such information, which in essence is confidential, will be kept confidential by those who receive it? Who will be responsible for assimilating and checking the masses of information that will come from many thousands of sources, and who will have access to it?
I believe that it is going too far not only to require that people should furnish those with whom they have dealt for many years with documentary evidence as to who they are but also to insist that they reveal the very private side of their affairs, without an assurance that the inconvenience that they suffer will make any contribution to hampering the business of money laundering.

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Governments traditionally tend to be as inquisitive about others' affairs as they are reticent about their own. I very much hope that before they allow their creatures to go too far with these inquisitorial processes, they will bear in mind what to them is the awkward truth that those who show they trust no one are unlikely to be trusted by anyone. I repeat my gratitude to the noble Lord, Lord Levene.
3.41 p.m.
Lord Taverne: My Lords, we are all immensely indebted to the noble Lord, Lord Levene, for raising this very important topic. I should like to speak about one of the most important issues to be faced by the City of London: the likely effect upon it of the development of the euro, in particular any decision on our part as to whether or not to join. The reasons why the City is preeminent are well known and have been rehearsed and I do not repeat them. I was very glad to hear from the noble Lord that there is no question of complacency. We sometimes have a tendency, not, as many say, to run ourselves down and underestimate our virtues, but towards a certain smugness and complacency to boast as if we are the best and somewhat to underestimate the challenges, particularly competitiveness, that we face.
The first question is: are there any signs that the City's pre-eminence is being eroded? In some areas there seems little doubt that the City has strengthened its position since the euro was introduced. Despite being outside the euro-zone, it has gained market share in the trading of euro-denominated bonds, but in some other areas it appears to be losing ground. In terms of listed companies, market capitalisation, value of share trading and the OTC derivatives market, Paris and, in some cases Frankfurt too, is growing faster.
This year for the first time the BIS triennial survey shows a small drop in our share of the foreign exchange market from 32.5 per cent in 1998 to 31 per cent in 2001. We are still well ahead, but at the same time there was a slight rise in Frankfurt shares. There is a warning sign there. Overall, the figures suggest that the City is doing well but that its lead is narrowing.
I turn to the major changes that the euro will bring about and how they are likely to affect the City. I mention only three of the most important. First, a huge European capital market is beginning to emerge. The equity cult is spreading fast. Corporate finance on the Continent is going through a sea change. There is less government debt on the market. The advent of the euro has led to increased competition, which in turn has produced a great leap in the number of cross-border mergers and takeovers. A gradual shift is taking place towards privately-funded pension schemes. That is true in Sweden where part of the state funds will now be invested in equities or securities; and the Germans have announced a major reform.
All this leads to a huge extra demand for corporate bonds and equities. That demand is growing at a spectacular rate. Are the fund managers and other financial services of the City more likely to be able to exploit these opportunities if we are inside or outside
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the euro-zone? Banks tend to go where the customers are; they are not likely to up sticks and abandon London overnight, but new movements may well be to the euro-zone. Further, recent research suggests that proximity to the market improves the information available to analysts and enhances profitability. A rational assessment leads to the conclusion that the prospects would be better inside than outside.
Secondly, it will be the euro-zone countries which will increasingly determine the nature of the regulation of the European capital market. That point was adverted to by the noble Lord, Lord Levene. who pointed to the dangers from a number of directives, for example those concerned with market abuse. The Financial Services Action Plan will be completed by 2005. As the noble Lord pointed out, it will affect the City profoundly. It will be decided by qualified majority voting. The fact is that the euro-zone countries will have the required qualified majority. It is noteworthy that the Lamfalussy report, which was concerned with the single market, was discussed separately in the euro group on the ground that its interests might be different from non- members of the euro-zone. It is also significant that when Sweden held the presidency of the European Union it was not allowed to chair the euro group because it was not a member of it. It appears to follow almost inevitably that outside the zone our voice is only too likely to be ignored or, at best, to count for much less than that of zone members, and that will not be good for the City.
Thirdly, the euro is likely to affect foreign direct investment. Changes in its pattern are likely to be gradual and may take time to show. So far foreign investment in this country has stood up well, but there are grounds for concern. First, one must remember that on the whole opinion expects us to join the euro-zone; if not, investment may begin to dry up. Secondly, the exchange rate uncertainties if we stay outside are bound to be a minus factor. Thirdly, we would be very rash to ignore the warnings issued by some of the biggest manufacturers which invest in Britain —for example, Siemens, ABB, Bosch and a number of Japanese companies—about the dangers of staying out. Finally, the most recent survey by Ernst & Young shows that our share of European inward investment has fallen from 28 per cent before the launch of the euro to 21 per cent today.
I do not argue that the City will collapse if we do not join the euro; it is strong enough to prosper even if we stay outside. But I fear that all the signs are that the City's relative position would decline. If, on the other hand, we join it is very possible that the City could become as important to Europe as New York is to the United States. Indeed, backed by the huge potential of the European capital market, it could even rival New York as the leading financial centre of the world.
3.49 p.m.
Lord Brooke of Sutton Mandeville: My Lords. the noble Lord, Lord Taverne, and I periodically join in explaining the British constitution to American students. It is thus a particular pleasure to follow him today, even if I do not do so into controversy.

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I owe a particular debt to the noble Lord, Lord Levene, for having initiated this particular debate which affords me the opportunity to make an uncontroversial speech. I hope that I shall not be thought to contravene that intention if I support what the noble Lord said about European regulation in his notable speech. Apart from his own present activities, the financial services industry owes much to the noble Lord not only for having been a most distinguished recent Lord Mayor of London but also for his efforts in an extracurricular capacity in straightening out at least some of the transportation links involving the City and Canary Wharf.
I thank both your Lordships' House and its staff for the warm welcome I have experienced, which has endorsed the pleasure my late parents both took in this place. I realise from the rubric afforded me upon arrival that I should not allude to my parents in terms of my specific relationships with them. In future I shall adhere to a self-imposed code. If needed, I shall call my father my late noble kinsman and my mother my late noble relative.
My qualifications for speaking in the debate are modest but personal. I served in another place as the third-longest-serving Member of Parliament for the City of London since 1283 and I served for another 10 days as chairman of the Building Societies Ombudsman Council. At the end of November, the individual industry ombudsmen will disappear under the Act and become the integrated Financial Ombudsman Service.
I have never myself worked in the City, nor indeed in the financial services industry except for a year's service as a non-executive director of a merchant bank and, indirectly, as an outside Name at Lloyd's, now in run off. When for four years I was a Minister at the Treasury I was, among my seven ministerial colleagues, the only one never to have worked in the City.
My relationship to the industry has been that attributed to Churchill in his wilderness years when, on being introduced at a party gathering as one of the pillars of our party, he replied, "Not so much a central pillar, more a flying buttress. I lend support, but from the outside". Because my links derive from personal roles, I may offend in the same way as the Liberal Peer in the first half of the last century, the publication of whose memoirs was held up for three weeks because the printers had run out of the capital "I".
Because time is as gold dust I shall not rehearse the City's remarkable trading statistics, as did the noble Lord, Lord Levene, save to remark in passing that gold dust is but one of the commodities in which the City provides Europe's dominant market. But I shall endorse what has been said about the industry's wider contribution. At a breakfast briefing in the City in past years, a distinguished economist said that the economy of London had grown for many years less fast than that of the rest of the country until in 1987 "big bang" heralded an explosion of growth in the City, which then fed across into much faster growth in London as well, exceeding the nation's growth. Because around
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20 per cent of the employed population of Greater London work in the parliamentary constituency of the Cities of London and Westminster, leaving under 80 per cent of London's employed population for the other 73 parliamentary constituencies, I can understand why that stimulating effect should be so. Indeed, it was an index of the City's centrality that the only joke generated by the Single European Act was the example of how non-tariff barriers created a less than level playing field, in that in the life insurance industry a British actuary could tell you how many people were going to die, whereas a Sicilian actuary could give you their names and addresses.
A number of noble Lords will have heard the radio announcement this morning about the citizens advice bureaux report on inappropriate financial instruments being sold to fellow citizens. I have myself extricated our closest neighbour in Wiltshire, a retired agricultural labourer who left school at 14, from a financial contract where he was still paying interest at more than 20 per cent to a household name financial institution on a loan he took out to buy a second-hand car some 30 years ago.
But my concern today, wearing my "Ombudsmanic" hat, is not so much with mis-selling or mis-buying, as it is with delivery. I recall sitting next to a foreign banker one year at a Stock Exchange lunch who said that what distinguished London from all other centres was that somewhere in London, there would always be someone who would do a deal on any risk, and that that was not so elsewhere. In an era when electronics will rob us of some of our markets, since there is nothing necessarily unique about our electronics, we shall rely increasingly on our comprehensive experience and individual ingenuity. It is important that some of our human skills go into the management of systems and the training of lower ranks in institutions because I know from experience that, over the years, an ombudsman sees many aberrations in institutions.
My only other footnote on the integration of the ombudsman service under the Financial Services Authority is that ombudsmen should remember, as from next month, that they are ombudsmen and that they should avoid becoming regulators as well.
Overall, however, one's conclusion is admiration for the industry as a British success story in the world league, as was pointed out by the noble Lord, Lord Levene. When I was at the Treasury, there was a saying that that which could not be measured did not exist. It was a saying put to the test some years ago by the Foreign Office when concerns were expressed by the embassy in Brussels as to whether Mr Ernest Bevin, who admittedly was a large man, would be able to pass through the door between the embassy's main spare bedroom and the main spare bathroom. A telegram was sent to London with the request, "Please verify diameter of Secretary of State". From the Foreign Office in London came a telegram in response, which perhaps proved that the officials were more literate than numerate: "Unable verify diameter but circumference is 60 inches". Unmeasurable is the

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respect we hold for the Cities of London and Edinburgh and, indeed, for the rest of the industry. We are lucky to have them.
3.56 p.m.
Lord Haskel: My Lords, it is my privilege to congratulate the noble Lord, Lord Brooke, on a wonderful maiden speech. In spite of his modesty, I think that all noble Lords are aware of his distinguished career in politics. He served his party at both extremes; he was a Whip and then, much later, he was the party chairman. He served the country as a Minister in many departments. He told the House about his time at the Treasury, but he also served in education, heritage, and at the Northern Ireland Office during a very tough time.
Perhaps what is not known is that the noble Lord was also a management consultant for 18 years before entering Parliament. That experience may be the source of the authority with which he speaks on business and other matters. I think I speak for the whole House when I say that I hope that we shall hear from him often.
I recently had the opportunity to attend a talk on schizophrenia. I learnt that schizophrenics have two personalities, one which is kind to people and helpful to society, the other which is a threat to people and a danger to society. What an apt description of the financial services industry here in Britain. On the one hand are flourishing businesses providing valuable and important services to our economy in insurance, banking, trading and financing—and in leasing, as described by my noble friend Lord Mitchell. At the same time, there are practices which are a danger in themselves and which damage the rest of our economy. I only have to mention Lloyd's, Equitable Life and the mis-selling of pensions.
The noble Lord, Lord Levene, told noble Lords about the good side of that split personality. I congratulate him on moving the Motion and on initiating the debate. I certainly agree with his comments about transport. However, for the sake of balance, I believe that I should look at the darker side of the industry's personality.
One symptom of schizophrenia is excess. The excessive fees that City lawyers and accountants, banks and hedge fund managers charge are legendary. They can charge those fees because they have created a kind of closed shop for their specialised services. That is particularly worrying in the field of pensions where high charges together with low levels of information have alienated many savers. Furthermore, underfunding has created many worries. The cost of such excess is passed on to the rest of the economy, reflected in the high price of finance and the high fees charged by our financial services companies to the rest of industry.
I wish that I could accuse the financial services sector of excess when financing new industry, new research, new products and market development. Sadly, I cannot do so. if the financial services industry was doing its job properly, there would be no need
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for the Government to use taxpayers' money to finance projects such as the loan guarantee scheme, the £54 million innovation fund and all the other national and regional schemes funded the Government to help companies to expand and to develop their products, new markets and new technologies. I do not mean helping lame ticks, poorly managed companies or declining businesses: the Government do not do that any more. But the Government are helping the entrepreneurial revolution by financing businesses to help them make progress.
The City's preference for dealing with big corporations has not helped the entrepreneurial revolution which is taking place in this country The venture capital sector has helped, but its preference has been for management buy-outs rather than king new ventures. If the financial services industry was doing its job properly, it would he doing this work not the Government.
British manufacturing industry should be well served by a flourishing financial services sector there should be no lack of investment in mechanical engineering, electrical engineering and chemical engineering. Unfortunately, the City seems- most interested in investing in the financial engineering sector in Britain; in engineering share values. We are witnessing that waste now as companies write down billions in assets this year which the financial services sector valued last year. There was an example of that only last week. Last year, Vodafone paid a £10 million bonus to its chief executive for buying a business, against which it had to write off £10 billion last week.
Perhaps this all came about because the financial services sector fell into a trap to which many of us succumb—fashion. The industry tries to follow fashion so as not to miss out on the next fashion hit. I can recall two property fashion booms, the fashion of overseas government bonds, the fashion of commodities, and, of course, the recent dot com fashion. While money was recklessly poured into these fashionable sectors, good businesses in less fashionable sectors were starved of finance.
I come from the textile industry. I know all about fashion and what a poor master it is. How much better it is to have some kind of vision. Sadly, the dedication to personal gain which seems to permeate the financial services industry is a pretty uninspiring vision. At least having a vision instead of following fashion ensures that market prices are more likely to be driven by normal corporate fundamentals.
The dangerous side of the City's character is dedicated to personal gain through the narrow emphasis on shareholder value. That narrow emphasis has let down the remainder of British industry. After all, what is shareholder value? When managers decide, it is usually about their broad overall business—its growth, employment and market prospects—and its fundamental value. But when the financial people define shareholder value, it usually means only the share price, and that is a fairly narrow term.

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Other noble Lords have spoken about regulation. The financial services sector tried to regulate itself, but, sadly, it did not work. The rules for insider trading were virtually impossible to enforce. That is why it has been necessary for the FSA to take on swingeing powers at the end of this month, powers that include unlimited fines for market abuse. I am rather sad about this. Instead of being a policeman, the regulator should be the City's conscience, a conscience which encourages good practice, sets high standards of professionalism and lets the customer call the shots. The City depends very much on its reputation, which is very difficult to build up. If it does not react as I have described, I am afraid that the City will decline in importance. The sector needs to cure its own evils.
4.5 p.m.
Baroness O'Cathain: My Lords, this is a welcome debate and the timing is very pertinent. I thank the noble Lord, Lord Levene of Portsoken, for introducing it at this time.
Of one thing I am certain—namely, that there is no disagreement in your Lordships' House that the financial services industry is a most important industry—some claim it to be the most important industry—in the economy of the United Kingdom.
The figures, of course, are impressive. We have heard already that the financial services sector accounts for an enormous percentage of GDP—apparently 6.1 per cent in 1998 for what I would call the "proper" financial services, including banking, securities dealing, insurance and fund management. If one then adds the legal services and accountancy one arrives at a figure of about 8 per cent. The UK financial services industry is a world leader in specific sub-sectors such as foreign exchange, insurance and derivatives, and London is the world's largest fund management centre.
World-wide growth in the provision of financial services is a feature of the global economy. Although this country is one of the biggest centres of financial services at this stage, it does not give anyone the right to be complacent, a point made by the noble Lord, Lord Levene of Portsoken. Even the success in attracting so many foreign-owned banks—more than 500—to the City and to Docklands cannot be viewed in a sanguine manner. It is the easiest thing in the world to change location by moving to other financial centres.
It always seemed to me that London—particularly the City of London—had the edge on other international centres because the motto "my word is my bond" of the Stock Exchange gave everyone a high comfort factor. It was rather good that the City of London motto Domine dirige nos—for the non-classic scholars among us, "Lord direct us"—gave a feeling of security. I am not about to say that those mottoes no longer hold good, but, again, complacency must not creep in.
We spent a long time in this House debating the Financial Services and Markets Bill, when many warnings were given concerning the operation of the
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FSA. We particularly drew attention to the inconsistency with current corporate governance whereby the posts of chairman and chief executive were not to be vested in two people but in one.
None of us underestimated the size of the task facing the FSA and pointed out the difficulties which could arise if the chairman and chief executive posts were combined. That was not to suggest for one moment that the individual chosen for the task was not of the highest calibre, but rather to express the concern that the job could be too much for one individual.
In addition, we spoke of the well-recognised benefits which derive from the splitting of the posts in other sectors of the economy, whereby the chairman can take the wider strategic view and the chief executive can concentrate on the day-to-day operation of the organisation.
Despite the concerns expressed from these Benches—in my case, they were expressed solely on the basis of personal experience—the Government disregarded our request. I believe that the two major problems which have beset the financial services industry since that time might have been avoided, or at least minimised, if our concerns had been addressed. I should like to ask the Minister whether there are any further thoughts on this issue and whether a timetable could be put on the splitting of the post.
The two issues which have caused a great deal of concern are, of course, Independent Insurance and Equitable Life. I have to declare an interest as a holder of Equitable Life bonds. Therefore I shall not make any comments which could be regarded as special pleading.
It seems to me that in both cases—and I can rely only on media comment plus information gleaned in the course of a few directorship responsibilities—there was a delay by the FSA in getting to grips with the fact that something nasty was happening. The pattern of what I call "neglect of fiduciary responsibility" has been repeated in the Railtrack situation—but not, of course, by the FSA in that case. This will bring disrepute on the whole of the financial services sector because doubts will be cast—and are, indeed, being cast—on its basic integrity.
Those who are close to it know that integrity is highly prized and guarded, but we also know that one rotten apple can spoil the barrel. The FSA was set up to ensure, insofar as is humanly possible, that both the individual customer buying shares, insurance policies, arranging loans or savings, and companies arranging insurance, long-term and short-term financing or other financial instruments, are convinced that "my word is my bond" still pertains.
It would be both wrong and unfair to suggest that our financial services industry is tainted, but it is part of the most competitive of competitive markets worldwide and control cannot be lessened. This is where the FSA comes in and I have no compunction in using the opportunity afforded by this debate to raise again the issue of splitting the job of the chairman and chief executive.

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I would now like to turn to the issue of confidence, or lack of it, engendered by the Railtrack débâcle. I fear that the Government have been extremely naïve in asserting that the way in which the Railtrack issue was handled would not have any effect on the Government's ability to raise finance from the private sector. This assertion has been made many times in the past few weeks, not least by the noble Lord, Lord Macdonald of Tradeston, in this House in answer to a question from me. Comments by bankers have shown strong disagreement with this assertion. Indeed the experience of people withdrawing from propositions to lend shows that that is correct. There must have been a serious amount of damage done to the trust built up over many years by successive governments.
Any knock to confidence takes a long time to overcome and in particular when the world's financial markets have been especially jittery. Too many of these jolts to the reputation of the financial services industry of the United Kingdom could have a lasting effect and damage the international competitive position of the industry. That cannot be allowed to occur.
In my own small way I have highlighted two separate issues; the management of the FSA and the importance of government maintaining trust with investors. I hope that we can have some comfort that these issues will be taken on board.
4.11 p.m.
Lord St John of Bletso: My Lords, I join in thanking my noble friend Lord Levene for introducing today's debate. My noble friend has a very distinguished background—notably his tenure as Lord Mayor of London—which qualifies him to espouse the many virtues of the financial services industry in this country. The debate comes at a particularly opportune time following the tragic events of 11th September and the consequential spate of redundancies in the City.
I should declare an interest as a consultant to Merrill Lynch and a number of other financial services companies. It would be simple to espouse the many qualities of London as one of the three major financial services centres in the world and to extol the contribution of the financial services industry to the UK economy, both directly and indirectly. However, in my limited time today, I should like to touch on just two issues. The first is the alarming impact of ongoing job losses in the industry. Indeed, my own company is in the process of shedding more than 10,000 jobs worldwide. Earlier this year it was being predicted that there would be around 20,000 job losses in the UK financial services sector. However, the events of 11th September have led many observers to suggest that the final tally could be much higher, possibly approaching the scale of the economic downturn in the 1990s when 60,000 jobs were lost. My noble friend Lord Levene has already mentioned the indirect financial benefits of those working in the City and the potential impact that could have on the property market and many other sectors.
The question is whether this spate of job losses is a temporary blip or a symptom of a problem altogether more fundamental and devastating. It is easy to be
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alarmist, but the reality is that in the past three years, with the IPO boom and the technology boom, almost all the financial services companies throughout the United Kingdom have tended to over-man themselves. Now that the markets have stabilised, many companies are substantially downsizing their staff levels and seeking to cut costs by out-sourcing many of their non-core business activities, such as IT. Over the past few years there has been huge consolidation among the major banks. My noble friend Lord Levene comes from Deutsche Bank. There has been a massive amount of consolidation in that bank alone. My prognosis is that the worst is over and that the job market is likely to stabilise next year.
The second issue that I want to raise briefly, which was also raised by my noble friend, is regulation. Among the many attractions for foreign capital and foreign banks coming into the United Kingdom has been the fact that the financial services sector in the United Kingdom is a self-regulatory regime. In this context I refer to the Yellow Book for the Stock Exchange, the Blue Book for the Takeover Panel and of course the banking ombudsman. I could continue.
While I share my noble friend's concern about the potential for over-regulation, I have one concern about the alternative investment market—otherwise known as AIM. That market has boomed in the past four years due in part to the fact that those who are seeking a listing on the alternative investment market go through a far less strenuous scrutiny. Over the past year there has been a dramatic collapse of many companies on the market and that has particularly affected many small investors. My concern is that while companies seeking a full listing are governed by the Financial Services Authority, the prospectuses of those seeking an AIM listing are the responsibility of their nominated advisers and not the FSA. In my opinion small investors in the alternative investment market are entitled to far greater protection and a company seeking an AIM listing should be more tightly regulated.
Finally, on a more positive note, it is important to recognise that London has recently played a pivotal role as a disaster recovery centre, with American banks looking to London for continuity of trading following the devastation suffered in New York on 11th September. We should not underestimate the value of the special relationship between the United States and the United Kingdom, particularly during the current global crisis.
It is obvious that the financial services sector occupies a highly significant place in the British economy. I believe and trust that it is equally evident that the industry's current difficulties will soon be overcome and that growth and prosperity will soon return.
4.18 p.m.
Lord Freeman: My Lords, I congratulate the noble Lord, Lord Levene, on, and agree with, what he said. On behalf of many others in your Lordships' House perhaps I may thank him for heading the recent appeal

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for those bereaved by the destruction of the World Trade Centre. Perhaps I may also couple the name of the noble Lord, Lord Forsyth, with those thanks. From these Back Benches perhaps I may say how much I welcome the maiden speech of my former ministerial colleague, the noble Lord, Lord Brooke. His erudition will enlighten our proceedings and his sense of humour will lighten them.
I wish briefly to concentrate on pensions partly because of the changes that are under way in their provision and their critical, even major importance, to the financial services industry. I declare an interest as the trustee of a number of pension funds as reported in the Register of Lords' Interests.
Within western Europe, the United Kingdom has an enviable record in the provision in the private sector, and indeed in the former nationalised industries, of self-funded pension schemes. Indeed, we have one of the most developed pensions industries in the world. I very much welcome the Myners report and the Government's acceptance of it in October. I believe that it will help to provide, through greater transparency, the proper provision of pension funds and advice.
Most pensions in this country, certainly numerically, are provided through company schemes on the basis of a proportion of final salary. Four decades of equity investment has allowed—until recently—the value of the funds to rise substantially, including, for example, the House of Commons parliamentary pension fund. The Conservative government introduced personal pensions to take account of the greater mobility of labour. People can take their pension fund with them to a new job. But those are money purchase schemes; there is no employer guarantee, and they are invested largely in equities.
Some dramatic changes have taken place recently. The first has been the fall in the equity market, which is cyclical but severe. There has been perhaps a 25 per cent reduction in the value of the assets of many major pension funds. At the same time, pensioners are living longer. Those two factors, the fall in the equity market and the longer life span of pensioners, are increasing the cost to employers of the guarantee of final salary pension schemes. So it is not surprising that we are moving from defined benefit (final salary schemes) to defined contribution (money purchase schemes)—because they are cheaper.
There is also significant movement from equity investments to debt instruments. It is estimated that 50 per cent of the FTSE 250, the Financial Times share index of the 250 largest companies, will be moving out of equity gradually, possibly into debt provision, for the assets of their pension funds; and some £100 billion may move out of the equity markets over the next five years.
These dramatic changes could cause a severe fall in the income of the financial services industry. But they also present a major challenge. Perhaps I may briefly describe the position and conclude with a question to
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the Minister. First, the rules relating to personal pensions—under which a person must buy an annuity, and by the age of 75—are causing an unnecessary cap on the amount of savings that many taxpayers are prepared to make through the personal pension provision route, which may be the only route available.
It is calculated that in order to provide through personal pensions, with current actuarial rates, a pension of £40,000 at the age of 65, a person needs to have saved £500,000 during his or her working life. I wonder how many people in their 40s or 50s have even begun to accumulate anything like that sum to provide a decent pension on retirement.
We need greater flexibility in the provision of personal pensions and the rules governing them. We need the flexibility not necessarily to buy an annuity, and the ability to pass part or all of those funds on to our dependants and family. That means that the tax regime may have to change. We may have to limit tax relief on contributions by individuals to, say, the basic rate rather than the marginal rate. We may have to contemplate taxation in the form of inheritance tax for that part of a pension fund that is passed on to the beneficiaries of an estate.
If the financial services industries grasp this challenge—one of the biggest challenges in the past decade—savings rates may rise, and people may feel more inclined to save for their retirement. Are the Government likely to begin consultations over the next few months or years on changes in the annuity rules for those who are saving through personal pensions?
We need greater disinterested advice to be given to younger people in their 30s and 40s, encouraging them at an early stage in their employment to save for retirement—and to save significantly. The relative failure thus far of the stakeholder pension fund initiative sounds a warning note as to how much people are prepared to save.
Finally, I suggest a motto that might be attached to many of the financial documents that are sent out, particularly to those in their 30s and 40s: "Failure to save properly will seriously damage your future financial health".
4.25 p.m.
Lord Fyfe of Fairfield: My Lords, I, too, am grateful to the noble Lord, Lord Levene, for initiating the debate. It provides us with a marvellous opportunity to discuss a feature of economic life which is of crucial importance. Perhaps I may also add my congratulations to the noble Lord, Lord Brooke, on his maiden speech. It was erudite, entertaining and humorous.
I begin by declaring an interest. I served until last year as chairman of the Co-operative Group (CWS) and also as deputy chairman of the Co-operative Bank. I am now chairman of Unity Trust Bank, the trade union bank, owned by the trade unions and the Co-operative Movement. This debate is most welcome.

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The financial services industry, as has been stressed by many speakers, plays an increasing part in our nation's prosperity. It is vital that it is properly regulated. It is equally vital that the benefits of a successful and expanding financial services industry are available to all, and that the practical advantages of its prosperity can be translated into prosperity for all.
I want to comment on employee share ownership plans, on credit unions and in general terms on the social economy. ESOPs were introduced by Unity Trust Bank to the UK in 1997. They allow employees to purchase, or be awarded, shares under tax efficient profit sharing schemes. The Chancellor's recent initiative to re-launch ESOPs under the Share Incentive Plan (SIP) permitting employees to obtain up to £7,500 worth of shares is most welcome. This provides motivation and incentive, and encourages the retention of key employees and a participative style of management.
Surprisingly, credit unions are not widely understood or appreciated. They enable members to start the savings habit with small sums and thereafter to borrow at reasonable rates of interest. Credit unions can protect the most vulnerable members of society from the clutches of loan sharks and money lenders. There have been successes—most notably in the trade union sector. The Bakers, Food and Allied Workers Union, the GMB and USDAW have made considerable progress. Indeed, the GMB's credit union has become one of the largest and fastest growing examples in the UK. That is extremely encouraging.
What is also encouraging is that the Department of Health has produced a report on the positive impact that credit unions can have on improving quality of life. It used Tower Hamlets as a case study. The report was formally launched on 8th November.
The expression "the social economy" has only recently entered the business vocabulary. It embraces ESOPs, credit unions and community programmes which among other things support local schools and educational projects, help to organise community sporting events and offer specialist advice to projects and groups, not least to pensioners. The comments on pensions made by the noble Lord, Lord Freeman, struck a chord with me.
I take it that everyone accepts that every citizen should have access to a good pension scheme. There has been a good deal of tinkering with pensions over the years on all sides of the political spectrum. People have become uncertain and are often confused about their entitlement. Frankly, the vagaries of the stock market do little to overcome that. During the 1980s and 1990s, people became accustomed to consistent growth in stock market values. They become totally bewildered when stock markets suddenly show not signs of collapse but clear signs of decline. I appreciate that that varies from time to time. Stakeholder pensions may well be a step forward—I believe that they are—but I contend that they will need to be made compulsory in future.
The Government have shown sympathy with the concept of the social economy, which I welcome. The social economy is no longer regarded as the preserve of
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somewhat eccentric individuals who operate on the fringes of the financial world. To make Further advances, it is important that we recognise that personal financial management should be part of the educational process. In that regard, an increasing emphasis should be placed on the subject for example, the school curriculum.
We—certainly noble Lords on this side of the House—have talked about, "Education, education, education". That should be expanded to include sensible education in personal financial affairs. The key to further progress in the social economy sector is fiscal encouragement and better education. By definition, the social economy means self-help. self-reliance and self-determination. It would be appreciated if the Minister would confirm that the Government regard the social economy as an important part of the financial services industry and that they are committed to its expansion.
4.32 p.m.
Lord Hunt of Wirral: My Lords, I understand that I am not supposed to pay tribute to my noble friend Lord Brooke of Sutton Mandeville for his outstandingly brilliant maiden speech as the noble Lord, Lord Haskel, has already done so warmly on our behalf. So I confine myself to urging him to make many such contributions in future debates. I also thank the noble Lord, Lord Levene, for giving us this opportunity to debate a vital subject. As he said, the UK financial services industry is the flagship of the UK economy.
I am very proud to be senior partner at one of the leading financial services law firms, Beachcroft Wansbroughs. I know, from my own experience. of the tremendous international significance of this vital part of the economy.
First, however, I want to comment on the retail financial services sector in my capacity as chairman of the Association of Independent Financial Advisers. The recent report undertaken by the eminent consultancy firm Oliver Wyman indicates that a substantial gap exists between what people are saving and what they need to save for retirement. We share the Government's concern that more encouragement should be given to increasing the savings ratio. The retail savings industry has to provide the mechanisms by which that gap is bridged.
We have of course achieved a great deal. The savings gap may seem intimidatingly large but the provision for personal and occupational pensions in the UK is far higher than elsewhere in the European Union. Those who criticise the UK industry should bear in mind the fact that it has already delivered. Advice has played a significant part. All the research shows that advice is needed if consumers are to feel confident enough to purchase financial products. There will always be many consumers who want to discuss their financial futures with someone—preferably face to face—before they make a financial decision. There will always be many who need to be persuaded to defer spending today in the interests of providing for their future.

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Nearly half of those who are earning less than £13,500 a year claim that they would not save at all without advice and encouragement. Among the more highly paid, the figure is still more than a quarter. That is why the role of advice—in particular, that of the independent financial adviser—is so crucial. The FSA has embarked on an ambitious and excellent programme of consumer education. That starts in the schools but it will be many years before it feeds through into the market, although I am sure that the result will be better informed consumers asking better informed questions of their independent financial advisers.
The key for policymakers is to ensure that the regulatory requirements that they impose on the giving of advice in the interests of protecting consumers do not become so onerous—many noble Lords have already discussed this—that they deprive those consumers of access to advice altogether. In recent years, the balance has perhaps swung too far in one direction. Bureaucracy and paperwork have grown to a point at which too much time is spent in that process and too little in actually giving advice. I hope that the FSA will consider, in conjunction with the industry, how some of the burdens can be mitigated. In that regard I am encouraged by some recent comments of senior management at the FSA.
Such a review would be of especial importance to small businesses. It is they who feel most acutely the burden of paperwork and bureaucracy. They can play a significant part in bringing advice to those who need it, not least because many businesses are local businesses and are capable of attracting those who are put off by the less personal "mega" financial institutions.
AIFA recently co-sponsored a research project. About 70 per cent of those questioned indicated that they thought it important to receive advice from someone who was independent of a bank or insurance company. That is why it is vital to support a distribution channel and not to over-regulate it out of existence.
Much effort has been put into identifying substitutes for advice, such as decision trees and comparative tables. They have a role to play but the limits of that role should be understood. We should focus on the value of advice. Alternative mechanisms seem to leave many consumers cold.
I know that advisers will rise to that challenge and look for new and different ways of making their services available. They will have to provide a constant demonstration of their professionalism to clients and show that they offer value for money. In particular, the provision of advice through the workplace offers new opportunities for the provision of advice. Sir John Banham, as chairman of the inquiry into financial advice which was sponsored by the Institute and Faculty of Actuaries, highlighted that route. The economics of advice can be transformed if the adviser has access to individuals in their workplace. More individuals can be contacted at the same time and the
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availability of payroll and other data reduces the time spent collecting that data. It is also a valued employee benefit.
I hope that many more employers will see the benefits of making independent financial advice more available to their workforce.
Of course, the IFA sector is under review—perhaps I should say that it is under many reviews. Ron Sandler is undertaking an exhaustive—and exhausting—review of retail financial services. The FSA is looking at fundamental issues to do with the structure of the market, such as polarisation. All the reviewers must bear in mind that the central objective concerns getting people to save in the right products at the right time. Independent advice is crucial in that process. Constant fiddling with market structures is as likely to interfere with that objective as it is to promote it. Those undertaking the reviews need to have that fact at the forefront of their minds.
I reiterate, as the noble Lord, Lord Levene, pointed out, that we are proud of the UK insurance industry. Last year, UK insurers had more than £1,100 billion invested on behalf of their policyholders. The noble Lord rightly pointed out that companies in London face greater regulatory burdens than their competitors elsewhere. It is vital to have a level playing field for the industry rather than a competitive disadvantage.
I turn to flooding. I hope that the Government will embark on a stronger partnership with the industry. I commend the ABI's report, Flooding: a partnership approach to protecting people. Flood defences need to be improved.
I also want to mention Pool Re. We took that initiative following Irish terrorism. However, it covers only fire and explosion, and it evolved at a time when it was hoped that commercial insurance would take over the risk. Recent tragic events make that most unlikely. However, we need to cover the new risks, whether from an aviation accident or biological and chemical hazards. I hope that the Government will respond quickly and positively to this necessary extension of Pool Re.
4.40 p.m.
Lord Selsdon: My Lords, one of the great advantages of your Lordships' House is that one can receive eminent advice from eminent senior partners without having to go to the great expense that I can no longer afford.
I begin my intervention today by declaring, in accordance with the Williams code, as many interests as I think are relevant—and I am afraid there are many—commencing with the noble Lord, Lord Brooke, who was my Member of Parliament. I canvassed for him for many long nights in Peabody Buildings and others. We were very grateful for his success and I am very grateful that, at last, he has joined us here. The noble Lord's father was extremely kind to me when I was a young Member of your Lordships' House.
The words of the noble Lord, Lord Levene, who made a most excellent presentation of a very positive situation, caused me grave concern. They made me

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wonder what other pieces of good news there are in the United Kingdom economy. As he eminently pointed out, our manufacturing industry was always judged to be a good winner abroad. We had a positive balance of payments in manufacturing for 78 of the past 100 years, but we are now in deficit because we no longer make anything. We wiped out great companies, including that which my noble friend Lord Prior chaired, because everyone decided that we should not make any more but should outsource and downsizetwo strange words and phrases. That really meant that Hornby trains were no longer made in England but in China, and that everyone made things everywhere else. Was that because we were no good at making them, or were we really a nation of shopkeepers? Let us assume that the manufacturing sector in this country is near dead or dying. One reason we are not facing a recession is that we do not manufacture enough to be worried by those kinds of issues.
I turn to agriculture, which is bogged down in a quagmire of bureaucracy—totally unproductive, uneconomic, not loved, suffering. When I questioned whether there were any other productive areas of the economy, someone said, "Yes, my dear chap, property, which these days is 10 per cent of GDP". I tried to work out how property created added value other than to the owner of the property. So we come to what I suppose was once called the stomach of the country, from which all other organs took the tone. It was Gladstone; that is finance.
Can the finance sector support everything? Does it not have to finance something somewhere in our own country and not necessarily around the world? I have spent most of my career in the financial and banking world. When my young relatives used to be asked to describe what I did, they said, "We think he rings up and orders money from people who do not have it for people who need it desperately". In a way, that is the direction in which we are heading at the moment in the financial services world. I want to start at either the top or the bottom and move through the middle.
The bottom is an area of very great concern to me. It is called debt, more debt and debt compounded. I was no good with computers, I could not even use an abacus, but I used to navigate by guess, by God and by—that wonderful phrase—"the law of 72". If you divide 72 by the prevailing rate of interest, you are told how long you have to double the amount that you have to repay. Since the figure of 24 per cent was quoted earlier, in three years you have to double the amount you repay.
I refer to the example of a young student who happens to be handicapped or illiterate and who receives a credit card offer through a telephone call or the post, which he accepts, but discovers that he cannot afford to fund it, and then gets a succession of other similar offers. Based on that kind of example, one could, before long, find many underprivileged members of our society in debt up to their eyeballs; and those who can use a computer can do it even better because someone else then says, "Are you worried about your debts?"—of course they are—"Take out something else". I therefore request the noble Lord,
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Lord McIntosh, to ask his colleagues to consider those worrying issues—and they have been raised previously—that affect many members of our society who cannot afford to pay.
It is at the top end that we have a real worry. This is the area of the noble Lord, Lord McIntosh, for whom I have great regard and respect, because he has a major opportunity in front of him. We have to make major investment in a number of areas over which the Government have direct or indirect control. We have the worst and most expensive transport system in Europe, and possibly in the whole of the developed world. We have the worst and most incompetent health service—because it lacks resources—in Europe and probably in the world. We have the worst school system in Europe and possibly in many other areas as well. Those are historic infrastructures which, for one reason or another—I do not blame the Government of today or of yesterday—have left our people deprived. They require the investment of large amounts of money. They require not only large amounts of money but also the resources to build them, to complete them, to fit them out and to manage them.
In that respect, I have in mind the lovely phrase, "It is not me, Jack, it is you, it is PFI, it is someone else". The Government will rely on the private sector to finance this great programme and probably to design and build it, but at one level it has within it party bodies who think that PFI and PPP are wrong and not cost effective. At the other end, we have unions that do not want people to work for a private company. We also have contractors with fairly full order books at the moment, who may not be able to take on the extra work. Finally, we have the European Union, which has decided that there should be a new purchasing policy directive stating that you cannot negotiate and, therefore, you have to go out to wider tender, which is being considered at the moment.
The problem with a PFI project—I declare an interest as a director of one of the contractors that does a good deal of PFI work—is that in the process of bidding everyone has to incur costs amounting to probably 3 per cent of the total cost of the project. That amounts to 9 per cent in the case of three people and to 15 per cent in the case of five people, which adds very substantially to the cost of funding projects. We also have to bear in mind the cost created by a lack of decision making. For example, a modern hospital will cost approximately £200,000 per room, and in the inner London area approximately £400,000 per room—the price of five-star hotels—which is in some cases difficult to finance.
I ask the Government to give very careful consideration to being more open about how they plan to fund their major development programme, which is very welcome. We hear of PUK, or puke as some people call it; we have all the different pneumonics that are introduced; we see the rows that exist between different sectors of society. I merely say that I believe the financial services world would willingly help the Government effectively and quickly, provided they could get their own act in order.
4.47 p.m.
Lord Roll of Ipsden: My Lords, I, too, join in congratulating the noble Lord, Lord Brooke of Sutton Mandeville, on an excellent and deliciously witty maiden speech.
The thanks of the whole House are due to the noble Lord, Lord Levene, for giving us the opportunity of debating a subject which, unfortunately, is not very often discussed in the House at any length. He and many other speakers, including the noble Baroness, Lady O'Cathain, have clearly emphasised the importance of this sector of our economy.
I do not want to add to what has already been said. However, I remind your Lordships of one fact. It was about a century and a half ago that Disraeli warned us that Europe would not long allow England to remain the workshop of the world. It has taken quite a while, but in the end that prophecy has turned out right. Today manufacturing today represents 20 per cent of the gross domestic product. The rest is taken up by the service industries, notably financial services. That, of course, is much to be praised. However, it carries with it a certain danger. We have a very high level of consumption, which very much depends on the imports of consumer and consumer-durable goods. We know the difficulties that our manufactured exports, alongside manufacturing itself, now face in the world markets. How long can we rely on the export of services, notably financial services, to take up that slack? I leave that question with your Lordships.
The other point I want to mention—although I shall not dilate on it, because I fear that I have wearied your Lordships several times in the past—is my view on the euro. I very much agree with what the noble Lord, Lord Taverne, said. Leaving aside whether we should join the euro or what the scene will look like after 1st January, psychologically as well as mechanically, let us consider for a moment the likely world monetary scene in a few years. Will it not be dominated by the dollar, the yen and the euro? What then will be the position of sterling? I readily accept that even if the euro comes into force successfully on 1st January next, sterling and London will hold their own for quite a long time. But for how long?
Finally, I shall say a few words about regulation. After two other careers, I have worked in the Square Mile for 34 years. When I first worked there, regulation was practically non-existent. There was a modicum of gentle self-regulation here and there, partly because the financial services were divided into all kinds of specialisations. The financial services industry of which we speak today hardly existed. That has changed. As so often happens in our society, when we make a change we do not do it by half. We now have the Financial Services and Markets Act 2000, which is a formidable and very weighty document. It would be against parliamentary etiquette for me to display it to your Lordships.
What will the Act do? It gives statutory powers to the Financial Services Authority. I do not think that it is designed—or that it would succeed even if it were—to catch and destroy the myriad petty deceits and
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frauds of which we hear every day. That is not its main purpose and such a steam hammer could not do it anyway.
Will the provisions be effective on big deals? We can hardly use Equitable Life as an example, because the FSA was barely involved. But we know only too well, even from the experience of the United States, which we have often rather complacently dubbed a lawyer's paradise, that very often such big issues bring to the fore problems of a non-legal character of such weight—financial and otherwise—that they almost inevitably lead to some kind of compromise.
There is a fear in my mind that even in the very big problems of wrongdoing of one kind or another the FSA will not be able to be fully effective, despite the elaborate powers conferred on it by the Act. As has already been pointed out, the FSA will be effective in education and in gradually habituating the greater public, and more particularly the people working in industry and the financial services, to certain standards of conduct that we must hope will eventually come right.
There remains a question mark. The Romans knew a thing or two about this. The question that they used to ask remains relevant: who will guard the guardians?
4.54 p.m.
Lord Hodgson of Astley Abbotts: My Lords, I join other noble Lords in thanking the noble Lord, Lord Levene, for giving us the opportunity to discuss this important topic today. I wish to pick up one of his themes about the regulatory burden, but first I want to explain the extent to which the Government and the Labour Party continue to misunderstand the financial services industry at a strategic level. That was brought home sharply to me a couple of weeks ago, when we debated the prayer of my noble friend Lord Kingsland against the Financial Services and Markets Tribunal Rules.
The problem was not so much that the Government changed their mind on whether the appeals to tribunals should he heard in public—although that is probably serious enough. More important was their failure to appreciate the role of trust and confidence in financial services and how damaging to an individual or a firm a public hearing would be, not over a short period of a week or a month, but perhaps over many years. Those firms or individuals might, on appeal, be found to be innocent of any wrongdoing.
One Labour Peer—or perhaps it was a Liberal Democrat—prayed in aid the example of an elderly lady stealing a loaf of bread, who perforce had to appear in public at a magistrates' court. I find it hard to square that atavistic desire to switch the searchlight of publicity on to firms in the private sector with the Government's secretive behaviour over a number of episodes, particularly Railtrack.
If the Government were a regulated firm under the current regime, they would be found to have broken nearly every one of the nine basic principles of current regulation in the Railtrack example, including

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principle nine, which requires a regulated firm to keep proper records. Labour Members refer to old ladies stealing a loaf of bread. The Government have not stolen a loaf of bread; they have stolen the bakery.
I am particularly concerned about the heavy burden of regulation. I shall not refer specifically to the City. I fear that the Labour Party does not care much for the City. The remarks of the noble Lord, Lord Haskel, were very much in that vein. There is a fundamental feeling in the Labour Party that the City deserves what it has coming to it. I am more concerned in this context about the building society movement—a part of the financial services industry that the Labour Party finds altogether more cuddly. I declare an interest as the director of a medium-sized mutual building society. We are 17th in the rankings with £1.5 billion of assets and 54 branches in the West Midlands and the Welsh border counties. In many cases, we are the only or the last building society in a particular community or town. In that, we are doing our bit to help the Government avoid financial exclusion.
We are regulated not just by the Financial Services Authority, which, as the noble Lord, Lord Roll, said, has a weighty tome of regulations behind it, but by a mortgage code, a banking code, a general insurance code, the money laundering regulations, the Office of Fair Trading and the Data Protection Act. That does not include all the authorities that are involved in normal commercial life, including the social security authorities, the Inland Revenue, the Companies Act and the health and safety regulations. All those codes spawn their own armies of regulators and investigators and checkers. We now have a Mortgage Code Compliance Board, a Banking Code Standards Board, a General Insurance Standards Council, a Joint Money Laundering Steering Group and the Financial Ombudsman Service.
Let us examine that last body for a moment. What a nice title it has. It conjures up the image of a band of worthy men and women struggling to reconcile disagreements between regulated firms and their clients. The reality is somewhat different. Picking up on a point made by my noble friend Lord Brooke in his splendid maiden speech, they have long since moved on from referring only to individual cases and are beginning to issue general guidance, making ex cathedra statements with no prior consultation. When questioned, they say that these will not be taken as precedents in their future deliberations. Tell that to the Marines.
Taken as a whole, there is a huge burden of cost for all building societies, which has to be paid by the customers, as well as a burden of practicality for smaller societies. All for what? I do not think that any building society saver, investor or borrower has lost money in living memory. If the Government are serious about their desire to increase financial inclusion and to maintain a diverse range of building societies, reflecting the different needs of different parts of the country, they need to make a serious assessment of the regulatory burden that is now being imposed.
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In the two minutes remaining to me, I turn to the City. Again, I must declare an interest as the chairman of an investment bank regulated under the present framework. As noble Lords have pointed out, the City is a major success story, but not one that can be taken for granted. I should like to make three points.
First, I echo the point about stamp duty made by the noble Lord, Lord Levene of Portsoken. That is a business issue, not a tax issue. It imposes a burden on British industry that increases the cost of its capital. It therefore puts British industry at a disadvantage compared to its non-British counterparts. It also imposes a disadvantage on the London Stock Exchange, because it affects the competitiveness with which London Stock Exchange members can quote prices compared to continental bourses.
My second point concerns the takeover directive, on which, in the vulgar phrase, the Government do not know whether they are Arthur or Martha. At times, they have argued strongly for a statutory system; at others, they have backed self-regulation. Following the throwing-out of the takeover directive 11 years into its negotiation, I look forward to hearing from the Minister what position the Government now take on future developments in that area. The City needs, and we should have, some certainty about where matters stand.
Thirdly, as the Government stagger out of that mudbath, they stagger towards the next one, which is the prospectus directive. One size cannot fit all. That directive will affect the ability of smaller firms to obtain access to public markets, and therefore increase their cost of capital.
I end as I began. In addition to the blizzard of statutory instruments issuing from the Financial Services Authority, I understand that 18 European financial directives are lined up on the runway. I hope that those employed in the financial services industry during the next few years will be able to find at least some time to do some work for their clients.
5.2 p.m.
Lord Sheldon: My Lords, I must offer my congratulations to the noble Lord, Lord Brooke of Sutton Mandeville. He has brought his dry wit from the House of Commons, where it evoked many chuckles, to this place. I joined him in the journey from that place to this at the same time. I was fortunate to share in his transition.
The noble Lord, Lord Levene of Portsoken, has brought an important matter to the attention of the House. The noble Lord appeared before the Public Accounts Committee many times during my 14 years as its chairman. What impressed the whole of the committee was that, for the first time that any of us could recall someone in charge of defence procurement earned the approbation of the committee. I once went so far as to offer the maximum amount of congratulation that I could as chairman, which was to say that I was satisfied. In fact, on another notable occasion, I went so far as to say that I was very satisfied. We are satisfied with his performance today.

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London's financial services were once pre-eminent in Europe; today we have problems with Frankfurt and Paris, to which the noble Lord, Lord Taverne, referred. Of course, they lag behind us, but there is a danger, which did not previously exist. We must be aware of that danger because financial services now occupy such an important role in our country's economy. We should give them more attention in future.
The enormous advantage that we had was our position as a bridge between the United States and Europe: we shared the language of the one and the geography of the other. That was an enormous advantage, but we never made the most of it. We made mistake after mistake, such as not entering the Community and over the European Central Bank. The European Central Bank should obviously have been sited in London; there should never have been any question or discussion about it. We lost it, as we are also losing some of our other advantages.
In the 1960s I spoke at a big weekend conference for German bankers. Their concern was that on entering the European Community, Britain would benefit from the financial strength of the City of London, which would be of enormous help to British industry within the Community. I had to point out that, sad as it may be for British industry, that was not the reality. The advantages of the City were available to all. That led to the great strength of the financial system that we had. Our task now is to retain our pre-eminence in financial services. Even Ken Livingstone, in his role as Mayor of London, must accept their importance. The world's financial centres must continue to be New York, London and Tokyo.
We need both a vigorous savings industry and a vigorous lending industry. We have a vigorous savings industry—pensions, unit trusts, home ownership and so on—but there are gaps. I welcome the FSA, because I think that it will do a good job. It states that its tasks are to maintain efficient, orderly and clean financial markets and to help retail consumers achieve a fair deal. It says that it wants to ensure that consumers are protected. That will be a most important aspect of its work as more people move into the financial sector. The FSA's success in that area will have international repercussions. The more that our financial service industry is made legitimate and seen to be legitimate, the more important it will become.
Like the noble Lord, Lord Selsdon, I am concerned about what is called predatory lending. We must protect naïve borrowers from escalating indebtedness. As I know from my previous constituency work, some suffer real anguish and, on occasion, develop suicidal tendencies because of mounting debt. We must consider whether there should be a further obligation on the lender to instruct and inform borrowers.
I have a few words to say about money laundering. There is an important difference between money laundering for the purpose of financing terrorist activities and that which arises from drug dealing and other criminal activities. Terrorist activities do not
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require the passage of large sums of money, so they are much more difficult to detect. There are problems, such as those of the spelling of names, which I know from my constituency experience always make it difficult to attach names to the passage of money.
In the absence of supervision, it was easy for terrorists to launder money. However, any further monitoring will lead to more evasion of controls. The best way to deal with terrorist finance is first to use the intelligence services and then to detect the relevant financial movements.
We have not been given a critical assessment of the difficulties in several areas. I hope that the Minister will enlighten us. A conference on money laundering was held in New York in September. It was clear that many of those attending had no intention of doing anything more than strictly necessary. One person said, "My boss just wants me to come up with the cheapest solution, so that we can say that we have complied." Another wanted to target wealthy individuals only because his efforts would then gross up the amount of money investigated. Those are real problems. I hope that the Minister will deal with them in his reply.
5.9 p.m.
Lord Northbrook: My Lords, we are all grateful to the noble Lord, Lord Levene, for initiating this debate. As a distinguished former Lord Mayor it is entirely appropriate that he should focus on the role of the City of London where the major part of our financial services industry is based.
I must declare an interest as a fund manager working in the City. First, I was pleased to see in yesterday's Financial Times that,
"London's position as Europe's pre-eminent financial centre is unchallenged in spite of the introduction of the euro and growth of Frankfurt as a eurozone financial marketplace-
according to a joint Anglo-German study of the rival cities. The article continues:
"The City has retained its dominant position as Europe's leading centre for banking, capital markets advertising, the law and management consultancy".
According to a July 2001study for the Corporation of London by the Centre for Economics and Business Research, the City's GDP was estimated at nearly £22 billion in 2000 and its share of UK GDP was close to 2.7 per cent. City workers contributed a net £8 billion to government revenues which is around 42 to 43 per cent of the national public sector surplus for 1999–2000.
During their first term the Government recognised the important place of the financial services industry in the economy of the United Kingdom. The decision to hand over control of interest rates to the Bank of England was widely welcomed and gave the industry a stable economic environment in which to operate. However, in their second term the Government by their actions on Railtrack have seriously damaged their relationship with an important part of the

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financial services industry in London. As Jeff Randall, the BBC business editor, stated in an 8th November commentary on the BBC News website,
"I don't think we can underestimate the bad will in the City now towards Mr Byers in particular and to some extent towards the Government. Gordon Brown and Tony Blair spent a lot of time nursing trust in the City and I think they did a pretty good job but this has become a big hole and many investors—professional investors—will say, 'Hang on a minute, do we really want to put money into anything the Government's going to do if this is the way they act towards shareholders?"'
That could have major ramifications for the future cost of raising finance from the private sector and in the area of public/private partnership. Serious damage has been done also to the Government's relationship with overseas investors. US investors have been hard hit by the administration of Railtrack. Franklin Mutual, which has one of the biggest holdings in Railtrack with 4 per cent of the shares, said that Mr Byers' actions indicated that the Labour Party did not believe in privatisation.
David Winters, a portfolio manager for Franklin Mutual, said that Mr Byers',
"political decision to force the company into liquidation has forever changed our involvement in the British market … It would not have happened this way in the United States. A bigger risk premium is to be attached to investing in UK companies now".
He also said that American investors would be wary of any British privatised utility or regulated company.
The state of Wisconsin is also a significant Railtrack shareholder and stands to lose millions of pounds. The evidence that the Government's handling of Railtrack will hit vital investment in infrastructure has been borne out by the collapse of a property deal worth £2 billion to raise funds for improvements to London Underground stations. The chief executive of Land Securities, one of the two bidders shortlisted to manage and develop London Underground's nonoperational property estate, said on 14th November that he had no doubt that the property deal separate to the London Underground public/private partnership had been jeopardised by the bitter row over the Government's role in forcing Railtrack into administration.
Outgoing Strategic Rail Authority chairman, Sir Alastair Morton, said in an interview on "Breakfast with Frost" last Sunday that,
"The City is annoyed and wondering exactly what the level of regulatory risk is in this industry now".
He added that,
"tremendous damage has been done"
by the Transport Secretary's action.
A number of commentators and investors have alleged that the Government allowed a false market in Railtrack shares in the days and weeks before the company was put into administration. Under Section 47 of the Financial Services Act 1986, the Department of Trade and Industry has responsibility for pursuing those offences. There is a strong case that Crown immunity does not apply in that situation. I have seen legal advice which states that the Secretary of State for Transport can commit an offence under Section 47 of
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the Financial Services Act 1986 and that, accordingly, he can be liable under Section 61 of the same Act to compensate investors for losses suffered as a result of misleading statements made outside parliamentary proceedings and, if the facts are proven, of dishonest concealment of relevant facts. The relevant case law here is The Madras Electricity Supply Corporation v Boarland.
In order to reassure the financial services industry, both in the form of professional and private investors, the FSA, whose prime job is to protect investors, should surely be required to investigate whether the Secretary of State has indeed committed any offence under Section 47 by making misleading statements outside Parliament or by dishonestly concealing facts which rendered an earlier statement misleading. In addition, I have seen further legal advice that, following the enactment of the Human Rights Act 1998, there is reason to think that the Crown must he included within the definition of a person under Section 47 of the Financial Services Act 1986. Will the Minister confirm my understanding of the FSA's legal obligations?
The financial services industry must have confidence that the Government will provide a favourable economic and regulatory climate for it to operate in. The Railtrack episode has dented that confidence. The reaction of major investors must serve as a warning that the hard-earned confidence can soon dissipate.
5.16 p.m.
Lord Barnett: My Lords, it appears that I am winding up for the Back Benches, therefore, I assume that I can speak for 10 minutes.
Most noble Lords who have spoken in the debate have declared an interest. I do not have much to declare. However, the noble Lord, Lord St John of Bletso, referred to the kind of plc which I chair and in which I have a major investment. Therefore, I declare that interest. I should have had an interest to declare in Equitable Life, but I am happy to say that I moved my investment elsewhere before the company got into difficulties.
As we know, the noble Lord, Lord Levene, has had a distinguished career, the most important points of which—which he did not mention today, understandably—are the facts that he attended Manchester University and he watches football avidly. I trust that he follows Manchester United and not the other Manchester football team.
In opening the debate, the noble Lord told us all the things about the City that we know. The importance of the City is well recognised; I certainly recognise it. However, I wish to discuss the exceptions to that state of affairs. He mentioned only one; that is, money laundering. I noted with interest that on that score he said that there were bound to be some leaks. I hope that he is right that there are only some. I fear there may be rather more.

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I also wish to mention the FSA and Europe. One of the major exceptions which has not been referred to sufficiently is that of Equitable Life—not because of the losses sustained by those who invested in that company, but because of the consequences of that for the industry and the City generally and what it means for others who are trying properly to sell insurance, banking services and investments of all kinds. I refer to the fear that has arisen in that area as a result of what happened at Equitable Life. I refer also to mis-selling and loan interest sharks.
I know that we are not supposed to congratulate maiden speakers in the middle of a speech, but I owe my congratulations specially to the noble Lord, Lord Brooke of Sutton Mandeville. He was my MP— although I did not vote for him—for a long time in the City of Westminster. I heard someone say that they canvassed for him although I cannot think that that would be necessary. He succeeded me as Chief Secretary to the Treasury and as the chair of the Building Societies' Ombudsman Council. I should always be ready to invest in a building society if he was the ombudsman.
Regulation is not always perfect, but the plain fact is that exceptions inevitably occur in a major industry such as the financial services industry and, therefore, it requires a regulatory body. I refer to the Financial Services Authority under the chairmanship of Sir Howard Davies. Last week, Sir Howard gave evidence to the Treasury Select Committee in another place. Now, of course, he is called a "super-regulator". He told the committee that companies are aware that failing to keep the regulator informed is a regulatory breach. I am sure that that is the case. He also said that it was clear that many companies are not keeping the regulator informed or are providing incorrect or inadequate information. I am sure that that is also the case.
Therefore. given the enhanced powers that Sir Howard will have on 1st December, what will happen now? He told us that the FSA currently employs some 2,000 people, of whom 157 are involved in front-line investigation in insurance and supervision. After 1st December the FSA will govern 217,000 authorised financial service personnel and 10,873 firms. I believe that those figures are correct; no doubt the Minister will confirm that that is so.
Sir Howard went on to tell the committee that he did not have enough staff to double-check all the information received. I cannot help wondering whether he has been able to single-check the information received or even to check whether it has been received. That is the problem. If we are to have a regulator, we must have a good one and he must have good authority. I have my doubts, but if Sir Howard approaches the Treasury to ask for more money to enable him to increase the number of his staff, I hope that the Minister can give us an assurance that there will be no cash limits to prevent him having that money.
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Finally, I turn to the crucial question of the fourth so-called "test" of the five that the Chancellor has said must be met before we enter the euro. There is an important point to be made about that. The fourth test is:
"What impact would entry into EMU have on the competitive position of the UK's financial services industry, particularly the City's wholesale markets?".
It must be said that if, at this stage, we were to announce that we would never enter the single currency, that would have very serious consequences for the City and for the financial services industry. I was surprised that the noble Lord, Lord Levene, did not feel that it was necessary to say so because it is an important exception to the benefits that we now receive in substantial form from the City and from the financial services industry.
We are told constantly by the Chancellor that not only must the fourth test be seen to be met now but that that must be sustainable. I want the Minister to tell me again—I have asked him previously but have never been totally satisfied with the response; perhaps he will be able to tell me today—how one defines what will be "sustainable" in the foreseeable future. How could one have a sustainable anything, let alone a sustainable convergence for the financial services industry if we were to join the euro?
That is all that I have to say. However, I hope that the Treasury is discussing with Sir Howard the amount of money that he requires and I hope that it will give it to him. I understand that consultation will take place with all kinds of people. I volunteer the noble Lord, Lord Saatchi, to take part in that because he has more time than I have. I hope that not only Sir Howard but a much wider field will be consulted so that the best kind of benefit for the financial services industry will be obtained.
5.24 p.m.
Lord Newby: My Lords, like other noble Lords, I begin by thanking the noble Lord, Lord Levene, for initiating this extremely interesting, important and wide-ranging debate. It has covered issues such as employee share-ownership, pensions, the leasing industry, the euro, and building societies. It has seen a notable and tremendous maiden speech by the noble Lord, Lord Brooke, and a very rare example of a former Chief Secretary saying that the Treasury should open its pockets and give no thought to the financial consequences of further expenditure. That is, indeed, quite a rarity.
Other noble Lords have spoken about the great significance of the financial services sector to the UK economy. They have concentrated necessarily on the City of London. I begin by reiterating a point made by the noble Lord, Lord Levene. Although the City accounts for, I believe, more than one-third of financial services employment and activity in the UK, it is by no means the only significant financial services sector.
The economy of my home town of Leeds has been transformed over the past couple of decades. The fact that that has occurred is due to, more than anything

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else, the spectacular growth of the financial services industry in that city. Employment numbers in financial and related services have grown over the past decade from 66,000 to 100,000. Another 50,000 new jobs are forecast. It is alleged by the Leeds financial sector that it and its associated employment provides 33 per cent of the city's GDP. That is a phenomenal figure and it demonstrates the strength, vitality and importance of the financial services sector. It is important not only in its own right in providing employment and income but also in providing in the regions, as in London, a motor for growth in all the other sectors of the economy which necessarily require financial services if they are to prosper and grow.
We heard something of the paradox that faces the financial services sector. It is one of the biggest in the country and hugely successful—arguably the most successful in the country. But it is not loved. I believe that polling evidence from the City of London Corporation, which has carried out this type of work in the past, shows that, although the majority of people accept the importance of the City, only a minority have a good word to say for it and for the people who work there.
This afternoon we have heard a number of arguments about the PR problems which face the City and the financial services sector. Of course, money lenders have had a bad press since biblical times, so perhaps we should not be surprised. However, in recent times a number of exemptions, to quote the noble Lord, Lord Levene, as interpreted by the noble Lord, Lord Barnett, have made people suspicious of the financial services sector, and with good cause. In recent years we have had to face up to the problems of pensions mis-selling. More recently, we have experienced the problems of Equitable Life.
We also find that individuals in the City and their exuberant lifestyle often jar pretty harshly with the success of the products that they sell to their investors. I refer this afternoon to one such case simply to demonstrate a problem that the sector has in promoting itself. The major shareholder of an organisation called BFS Investment Group paid himself £2.6 million at a time when the split income-investment trust which the company was promoting was in the process of breaking its banking covenants and postponing payment of a dividend. We have come across that type of mismatch between senior director remuneration and performance in other sectors. However, I would argue that in the financial services sector it is particularly damaging.
The characterisation of the sector—one of innovation, growth and complexity—has led to the type of regulation which we now consider to be necessary under the FSA. We on these Benches supported the creation of the FSA. I believe that we understand the problems that it faces, on the one hand, of being an effective regulator and, on the other, of avoiding being too heavy-handed. This afternoon we have heard many examples both of the need for a light touch and of the problems of being effective. I believe that the FSA is still grappling with that problem. There has been reference to an avalanche of regulation which
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is currently doing the rounds in the City and which is causing a major problem in terms of both understanding and compliance.
I strongly agree with the comments made by the noble Baroness, Lady O'Cathain, about splitting the job of the chairman and chief executive, an issue that was discussed at great length during the passage of the Bill. The FSA is hugely important to this sector of the economy. At its head it needs a chairman who can act as advocate and overseer, and a chief executive who can manage the many day-to-day activities and priorities, such as staffing, many of which are conflicting matters.
Many of the opportunities that will face the sector in the future lie on the international front and in Europe. We have heard of the problems that the City has faced as the EU has moved towards completing the single market in financial services. The good news is that the lobbying that was undertaken by the City last week on the prospectus directive has persuaded Commissioner Bolkestein to change the proposals in a way that will make them less onerous. That is welcome. One can hope that the Byzantine argument that is currently taking place between the European Parliament, the Commission and the Council, in terms of competences, will mean that the securities committee will be established so that it can move quickly in terms of further legislation.
A number of noble Lords have discussed the euro. Interestingly for this House, so far the debate has not been balanced, although the noble Lord, Lord Saatchi, may help to redress the balance. Every noble Lord who has spoken about the euro has taken the view that, although to date the City and the financial services sector have not been disadvantaged to any significant extent by Britain's exclusion from the euro-zone. In the longer term there will almost certainly be a cost. and possibly a significant one.
I refer to the three areas that my colleague, the noble Lord, Lord Taverne, mentioned, which I believe exemplify the long-term costs that will almost certainly be faced if we remain outside the euro-zone. The first point is that many of our financial institutions are effectively excluded from the growing European capital markets and equity markets by not being within the euro-zone.
Secondly, our exclusion from the euro group means that we have less influence. The discussions on the prospectus directive show that when we exercise our influence we can bring about change in Europe in a manner that we will find helpful. However, if we are not at the table, it will hardly be surprising if the proposals that emanate sometimes do not appear, at first sight, to be at all satisfactory from our point of view.
The third point raised by the noble Lord, Lord Taverne, which must be true, relates to foreign direct investment. If companies invest in a single European market, with a single currency—save for one or two economies—in the future those companies are likely to move towards the countries and regions that arc part of the euro-zone rather than those that are not.

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When people are asked what is the major challenge facing the City, amazingly, they do not mention any of those points. Indeed, the Anglo-German Foundation for the Study of Industrial Society found that most people in this country, when questioned about the weaknesses of the City, refer to transport as being a potential major brake—no pun intended—on the growth of the financial services sector. The failure over the years to undertake and to complete the CrossRail project, the farce of funding for the Tube, where in reality nothing is happening other than further chaos and confusion, and the huge delays in relation to planning for transport, have put the City at a disadvantage. The Government must grapple with those matters with greater urgency.
Every noble Lord who has spoken has recognised the importance of the financial services sector to the UK economy. It is one of the few major sectors of the economy in which the UK is a world leader. As has been said, it faces a number of major challenges and it is in all our interests that it meets them successfully.
5.34 p.m.
Lord Saatchi: My Lords, I join other noble Lords in thanking the noble Lord, Lord Levene, for initiating this excellent debate and for reminding us with the many telling facts in his speech of the special contribution that the financial services industry makes to Britain. We should also be grateful to the noble Lord for providing us with the occasion for the maiden speech of my noble friend Lord Brooke, which I and other noble Lords enjoyed. He said that all noble Lords should feel lucky to have the City of London; I say to him that all noble Lords are lucky to have him as a Member of the House.
The noble Lords, Lord Newby and Lord Taverne, said that the financial services sector may fail and I believe that the noble Lord, Lord Haskel, said that it deserved to. Most noble Lords have agreed with the noble Lord, Lord Levene, that we are the best. They are right. If the financial services industry did not exist, the UK would permanently have a balance of payments deficit. That is why we need to heed the wake-up call of the noble Lord, Lord Levene.
I believe that every speaker has mentioned regulation and I too want to speak on that subject. When the Financial Services and Markets Act completed its passage through Parliament it had racked up an astonishing 2,800 amendments. But it is not over. We and the City have to stand by for more amendments to the most amended Bill in history.
I want to introduce your Lordships to the financial services action plan of the European Union. Here are some of the actions in that plan: two directives on company prospectuses; the directive on insider dealing and market manipulation; the directive to upgrade the investment services directive; amendment to the fourth, seventh, tenth and fourteenth company law directives; the implementation settlement directive; the directive on take-over bids; the review of EU corporate governance practices; the two directives on
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undertakings for collective investment in transferable securities; the directive on the prudential supervision of supplementary pension funds; the directive on the distance marketing of financial services; the amendment of the insurance intermediaries directive; the amendment of the directives governing the capital framework for banks and investment firms; the amendment to the solvency margin requirements in the insurance directives; and the directive on prudential rules for financial conglomerates.
Shall I go on? Many of those topics may sound familiar to your Lordships as they arose during debates on the Financial Services and Markets Bill. The majority of necessary changes to accommodate those directives will be implemented by regulation, either as secondary legislation or by FSA rule book changes. However, there are three areas of the plan—the noble Lord, Lord Levene, mentioned two—that are likely to require further amendment to the Financial Services and Markets Act 2000.
First, the proposed upgrading of the investment services directive is likely to require amendments to Schedule 3 to the Act as it enacts into UK law the provisions of the directive. It is also possible that amendments will be required to Part XVIII of the Act, particularly Sections 285 to 313, which deal with recognised investment exchanges and clearing houses.
Under the Act an operator of an investment exchange has a choice of applying to become a recognised investment exchange under Part XVIII, or becoming an authorised person under Part IV. The proposed directive to upgrade the ISD may make it compulsory for all investment exchanges to apply to be recognised and, in those circumstances, amendments to Part XVIII of the Act would be required.
Secondly, the upgrade of directives on prospectuses, which has met a particularly hostile reaction from the City of London, has been mentioned by several noble Lords. The proposed prospectus directive could require significant change to the Act, particularly to Part VI, Sections 72 to 103. Those sections provide for the FSA to perform the role of competent authority in relation to the admission of securities to the official list. In practice, only securities traded on the London Stock Exchange are now admitted to the so-called official list.
Securities traded on other regulated markets—for example, AIM—are not admitted to the official list. But the prospectus directive would apply to securities admitted to trading on any "regulated market". Accordingly, the role of the FSA as the UK listing authority would change, requiring significant changes to the provisions of Part VI of the Financial Services and Markets Act.
Finally, and perhaps most troubling of all, is the EU directive on insider dealing or market manipulation, known in the Act as "market abuse". It is probable that the scope of the EU proposal will not overlap precisely with the existing provisions of the Act. So the City should expect further amendments to the most sensitive part of the Act—the market abuse regime in Part VIII, Sections 118 to 131.

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The EU directive defines market manipulation as, "entering into a transaction or dissemination of information, which is likely to give false or misleading signals as to the supply, demand or price of financial instruments".
Noble Lords will note that there is no requirement that the abuser intended to commit market abuse. That is familiar territory to many of your Lordships. The statutory offence of market abuse created by the Financial Services and Markets Act also does not require intent to be shown.
Indeed, the Commission states explicitly in an explanatory commentary that market manipulation depends on,
"the behaviour of its authors and not on their intention or aim".
The Government refused to accept the amendments requiring intent proposed by my noble friend Lord Kingsland in the debate in your Lordships' House during the passage of the Bill. The noble Lord, Lord Grabiner, eloquently justified the Government's approach; if intent was necessary, he said, his small son who threw a cricket ball at a glasshouse could argue that he never intended the glass to break and escape punishment, which he said would be wrong.
We disagreed. We looked at the case of a second son who had thrown a cricket ball at the glasshouse with the deliberate intent of breaking the glass. We felt that the same punishment was not appropriate. Since then, I am pleased to say that the FSA has sensibly published a code of market conduct, giving practitioners examples of "abusive" behaviour. They do normally require intent. The FSA code provides safe harbours for Chinese walls and also for similar confidentiality arrangements. So the FSA has in effect correctly narrowed the scope of the market abuse provisions of the Act, which we argued at the time were too all encompassing.
But if the proposed directive is adopted in its present form, the FSA will no longer be allowed this discretion over its own rulebook, which is why considerable concern has been caused in the City, to practitioners and also to financial journalists.
To resolve the discrepancy with the FSA's approach the EU would have to provide safe harbours for Chinese walls, confidentiality arrangements and the other exemptions contained in the code of the FSA itself. Unless it does, many practitioners say the directive will he both unfair and unworkable.
It is touching that the Chancellor of the Exchequer says that he will fight for changes to the proposed prospectus directive and to the market abuse directive. But should we rely on that? I can see the logic of a single European financial services market; why a company trying to raise money should have a "single passport" for capital raising, one EU-wide approved form of prospectus; why market abuse should be defined similarly across the zone; and why in cases like these EU-wide rules may be desirable. But what I cannot see is why so many precious hours and days of debate in your Lordships' House and in another place were spent on an Act which is so quickly being overtaken by events outside our control. Perhaps it is that we have to face up to the fact that our new system
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of financial regulation, even before it has been implemented—next week—is slowly but relentlessly being overwhelmed by the concept of the single EU market for financial services.
Your Lordships may think that I am being paranoid, but I should like to leave the House with what a spokesman for the Treasury said about—for example—the prospectus directive. He said:
"This is a directive in its early stages, but we have to accept it will go ahead".
Of course we do because the EU Commissioner on tax and internal markets said this week about the EU directives on financial services regulation:
"The UK must pull its socks up".
Mr Lamfalussy, who was mentioned earlier, goes much further than that. He says that if a planned review proposed for 2004, at the latest, showed what he called "lack of progress", he suggested that the EU should,
"consider a treaty change including the creation of a single EU regulatory authority for financial services generally in the Community".
That proposition was strenuously denied during the passage of the Financial Services and Markets Act. I very much look forward to hearing what the Minister has to say now.
5.45 p.m.
Lord McIntosh of Haringey: My Lords, the House is very much in the debt of the noble Lord, Lord Levene, for introducing the subject and attracting so many distinguished and well-informed speakers. It is also much in his debt for encouraging the noble Lord, Lord Brooke, to make his maiden speech. The noble Lord is, after all, a one-man recreation of hereditary peerage in this House. He deserves his distinction. In a well run market economy the speeches of the noble Lord, Lord Brooke, would command very high fees. We are indebted to him for allowing us to hear him without making a charge. We have paid something back. The noble Lord, Lord Saatchi, the master of mixed metaphor, has given him a phrase, "safe harbours for Chinese walls", which I am sure he can incorporate in some future speech very much to his advantage.
I was going to recite the contribution to the UK economy of financial services, because that, after all, is the subject of the debate, but the noble Lord, Lord Levene, has done it. My figures do not coincide with the noble Lord's because he was taking, as he said, the broadest view of the scope of the financial service industry. But that does not matter. The point is that the industry is enormously important to the UK economy and to the position of the United Kingdom, both in Europe and in the world at large.
The UK is one of the world's top three international financial centres along with Tokyo and New York. When my noble friend Lord Sheldon rightly refers to the threat from Frankfurt and Paris, we must remember that the UK has been successful in resisting existing pressures from Europe to take over. I shall come on to some of those issues later in my speech.

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Your Lordships will notice that I say "the UK". I have not said "London" because it is not just London; it is Edinburgh and Glasgow in particular—if I may start with them—but also Leeds, Manchester, Bristol and Birmingham and probably other cities in this country as well.
The noble Lord, Lord Roll, asked the pertinent question of how long we can expect to go on maintaining our pre-eminence in financial markets when we are not one of the three largest and most significant currencies in the world. That is a good question. It is a question that was asked 70 years ago by Bernard Shaw in "The Apple Cart". The Member of the Government who sat for North-North-West Birmingham was really worried by the fact that the economy of North-North-West Birmingham was sustained by the export of chocolate creams to West Africa. He wondered how long they could continue getting away with it.
There are reasons why our financial services market deserves to continue. The success of our financial services market relies on the fact that we have a regulatory and competition policy which helped to create an environment that encourages foreign direct investment. We have a history of openness, combining relatively easy access to markets with a tradition of welcoming foreign firms. We have a dedicated and well-educated workforce with a wealth of expertise and experience. Of course the noble Lord, Lord St John, is right about downsizing. I was reassured to hear from the "inside"—so to speak—his view that things will turn around next year. We have office accommodation and an efficient telecommunications infrastructure, to which the noble Lord, Lord Levene, referred.
It is certainly the case that we have major problems with public transport in the capital. I accept all that has been said about the need for us rapidly to improve our public transport. I do not refer only to London Underground but to CrossRail and other major transport projects. However, I cannot accept that the situation has been without cost. My noble friend Lord Haskel referred to the high fees and public failures. The noble Lord, Lord Selsdon, talked about the encouragement of unmanageable debt, a quite significant feature. We cannot allow ourselves uncritical support of failing companies, particularly failing companies such as Railtrack. We must not move away from the fundamental rule that those who invest in equities must expect that it is possible for them to go down as well as up—as we see from the small print rushing across the bottom of the television screen or hear recited at breakneck speed on the radio. The fundamental point of the noble Lord, Lord Levene, was that we are about risk management not risk avoidance. I was sorry not to hear that reflected on the Conservative Benches.
On the subject of Railtrack, the noble Lord, Lord Northbrook, asked what I thought about legal evidence. I shall not answer that. It is clearly a matter for the courts. We are told that somehow grave damage is being done to the City by the fact that the
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Secretary of State for Transport decided that he could not put up with unlimited demands for more taxpayers' money combined with a holiday from regulation. None of us apologises in any way for what Stephen Byers did. If I am considering damage to the financial community, I am more concerned with issues such as the almost universal mis-selling of pensions and insurance and the continuing stream of rogue traders. We are always told that it is a rogue trader; it is the last; it will not happen again. Then the next month or year it occurs again. I sympathise very much with the remarks of the noble Lord, Lord Newby.
I shall speak about what I see as the Government's role in encouraging financial services, the European Union and then more international issues. We see our role as one in which we help industry and financial services by creating a stable and favourable macroeconomic environment, a modern and effective regulatory system and a strong domestic economy to act as a foundation for international success. I can say that now at a time when international economies are in great turmoil. I add to that the point made by my noble friend Lord Fyfe about our social economy and social policy because that is an essential element of economic and social stability. Companies need low and stable inflation and interest rates. They need the assurance that they will continue in the long term if they are to have the confidence to plan investment and growth; and we have been able to do exactly that.
The noble Lord, Lord Selsdon, asked how we plan to finance investment in the future. Again, it is a subject for the pre-Budget review next week. However, all the indications are that we are within the golden rules which the Chancellor has set for this country.
I confess that I was startled by some of the comments about UK regulation. I had heard the noble Lord, Lord Levene, say in a telling argument that our current regulatory regime is part of the attractiveness of London—and I am sure he means the financial services markets in the UK more generally. What did I hear from the Opposition Benches? I heard a sustained attack on what many—not simply people associated with the Government but those associated with industry and the economy in this country and world-wide—believe is a leading reform in the regulation of financial services. It is a reform which will protect consumers and maintain confidence in markets without creating an unnecessary burden on companies.
It is not for the Government to involve themselves in day-to-day regulation. I should say to my noble friend Lord Barnett that it is not for the Government to pay for it. The independence of the Financial Services Authority is maintained by the fact that it is paid for by a levy on the financial services industry. His startling departure for a former Chief Secretary does not mean very much. It is not much of a concession.
Our aims of minimising the regulatory burden and encouraging competition are clear in the constitution of the FSA. The Act requires the FSA to ensure that the restrictions it imposes on an activity are proportionate to the benefits. In his speech, the noble

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Lord, Lord Hunt, recognised that to some extent. The noble Lord, Lord Levene, recognised it and answered adequately in advance the points made by the noble Lord, Lord Saatchi. Under those circumstances, I cannot take seriously the renewed demands for the division of roles between chief executive and chairman. The FSA is to come into full force next week. Let us see how it progresses for a while before we divide Howard Davies into two.
It was inevitable that there would be some discussion of Equitable Life. The noble Lord, Lord Roll, rightly said that the FSA was barely involved. But of course government had been involved for a number of years and we must await the judgment of the inquiry on that subject. In establishing the FSA we are putting the old regime, with its complex, overlapping structures and uncertain responsibilities, behind us. It is no consolation for those who invested in Equitable Life but it should be some protection for the future.
I am very keen on the notion of proportionate regulation. In complying with its four statutory objectives, the FSA is required to have regard to the principles of good regulation, including the obligation to regulate proportionately so that there is a balance between the benefit of regulation and the burden it places on a firm or the industry as a whole. The FSA is required to consult when it makes its rules and publish a cost benefit analysis. It can reduce risk and enforce the higher standards but of course it cannot prevent it entirely.
It will be virtually impossible for me to respond in detail to the many points on taxation. Clearly some noble Lords feel strongly about stamp duty. The noble Lord, Lord Levene, described it as presentationally difficult. The sum is £4.4 billion. Anyone who proposes to abolish it will have to say where that money is coming from. I am interested in what the noble Lord, Lord Freeman, said about annuities. As the noble Lord knows, we take the view that the requirement to buy annuities is part of the deal which involves tax relief. If he is prepared to say that we should limit tax relief on payments into pension funds, I think that he should persuade his party of that. I do not think that that is its policy.
I turn to the European Union. I was astonished to read the well-prepared attack by the noble Lord, Lord Saatchi, in the Financial Times and the Daily Telegraph this morning. He does not bother to tell Parliament first, but I am even more astonished when I hear his views in detail.
We are engaged with our partners in the EU, the European Parliament and the Commission to complete the single market in financial services and to complete an integrated and efficient single capital market. At Stockholm we agreed to complete an integrated market by 2005. That means focusing on mutual recognition of core standards and greater regulatory co-operation; prioritising measures in the financial services action plan and concentrating on the measures that businesses have told us matter, and which we know deliver economic benefits to
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consumers; and producing legislation that is proportionate, flexible and responsive to market developments. In particular, we need to ensure that the prospectus directive has the effect of lowering the costs of cross-border capital. Those are the objectives that we set ourselves at Stockholm and which we aim to achieve at Barcelona and beyond.
Coming from a party that yesterday in this Chamber voted against enlargement of the European Union, we shall not convince our partners that we are serious about a single market for financial services if we take the same view as that of the noble Lord, Lord Saatchi.
Of course there are problems with existing or proposed directives, some of which are serious. The noble Lord, Lord Hodgson, is right that it is sad that the take-over directive fell virtually at the last fence this summer, but we hope that it will be revived. On the market abuse objective, we support the aim to ensure the integrity of the financial markets. That means that there will have to be greater unanimity of view about what market abuse means, but the directive must be effective and fair. It has not yet been agreed, but it is being considered by a Council working group and the European Parliament. There are parts of it that we consider to be unhelpful, and we shall argue for them to be removed, as we have done successfully on many directives in the past four and a half years.
We support the purpose of the prospectus directive, as does the noble Lord, Lord Saatchi. He said that he agreed that it is important to make pan-European capital raising easier and cheaper. But there arc major problems in the present draft, which have been expressed in authoritative letters to the press in recent times. We believe that the present draft could have a negative effect on the European capital market in general and the United Kingdom's market and its participants in particular. We are actively seeking changes to the text and are glad to hear the latest news that the noble Lord, Lord Newby, reported about the view of Commissioner Bolkestein.
If that means changes need to be made to the Financial Services and Markets Act, so be it. It is a small price to pay, to spend a small amount of parliamentary time to bolster the financial services industry in this country and Europe as a whole.
I should say a word about the euro—not that I can add anything. I am certainly not going to add to the theology. The wording is that which we used in October 1997. I shall not define "sustained" or "sustainable". I shall not change the five economic tests, except to observe that one of them was clearly about whether joining was beneficial to the financial services industry in this country. Clearly decisions are being taken without us and there are occasions when we would wish to be involved in those decisions. I leave it to your Lordships to await the outcome of the review of the five economic tests, which will take place within the first two years of this Parliament.
I shall say a final word about the effects of the events of 11th September. Over the next two weeks we shall be debating with horrible intensity the Anti-terrorism, Crime and Security Bill, which includes all the

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financial measures in Parts 2 and 3. We have already taken firm action in denying funds to terrorists, and we are taking firm action in increasing our activities against money laundering. I was glad that the noble Lord, Lord Levene, dealt with that matter in considerable detail. He recognised that we all have a part to play in the fight against financial crime. Of course there are compliance costs, but the Government have tried to ensure that those will not be excessive. We have tried to make it as difficult as possible to launder money through the United Kingdom, to help to maintain London's reputation as a leading financial services centre. That is the tone with which I wish to close my remarks.
6.5 p.m.
Lord Levene of Portsoken: My Lords, I shall first take the opportunity to thank all noble Lords who have taken part in the debate. It is gratifying to hear so much support in the House for an industry that has proved to be so successful in the United Kingdom, and which is continuing to do so much to support and develop our national economy.
I join all those who have congratulated the noble Lord, Lord Brooke of Sutton Mandeville, on his highly pertinent and very amusing maiden speech, and claim the privilege of thanking him here on behalf of the City of London for the tremendous amount of work that he has done and the support that he has given over so many years.
The noble Lord, Lord Haskel, spoke about schizophrenia. I think that he was perhaps trying to illustrate his concerns about the need for the financial services industry to support new technologies. That industry has supported new technologies in the past few years—much to its cost, in many cases. It may have got it wrong, but it did so with the rest of the world, and it has put a hell of a lot of money into it. As the Minister said, we have to take risks. Sometimes we get it right, and sometimes wrong. Before we think that all that money went into other pockets, let us not forget that in the case of Vodafone and others, the Minister will not begrudge the £22 billion that went to the Exchequer through the sale of third generation licences. Much of that money was raised through the help of the financial services industry. Schizophrenia is fairly evident in that case.
Concern was expressed about competition, but of course it exists. Fees are competitive because we live in a competitive world. They are at a level that the market will bear. I remind noble Lords that that is what a market economy is all about. I support the noble Lord, Lord Freeman, in his call for the removal of the actuarial cap on pensions and the need for far greater flexibility in pension schemes. I thank him, too, for his kind words about the World Trade Centre Disaster Fund and its great success in raising a considerable amount of money for people in New York. I was there this weekend to see what was happening. The fund is a true reflection of the close and enduring relationship between the UK and New York.
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It gives me great personal pleasure to be debating with the noble Lord, Lord Sheldon, again, albeit on a rather different basis. He mentioned the competition that we might face from Frankfurt and Paris. We certainly do face competition; we are not complacent, as I said. But if there were no competition, we would become complacent. We have to look over our shoulder all the time. The industry is doing a very good job in ensuring that we retain our pre-eminence, and I am sure that it will continue to do so.
The noble Lord, Lord Barnett, spoke about the leaks to which I referred earlier on the question of money laundering. I remind him that we are talking about a pool of some 500 billion dollars a day. It is inevitable that one will have leaks from a pool of that size. One cannot make omelettes without breaking eggs. We have a huge market from which we benefit enormously. The noble Lord referred to Manchester United. Although I do not support that team, I know that it lets in the odd goal. No one is perfect.
As to the euro, we are in a market. I do not take sides in this particular argument. At the time of the introduction of the euro, during my period of office as Lord Mayor, I was very concerned about the effect on the financial services industry of the UK being outside the euro. Happily, we remain at the top and, whether we go into the euro or remain outside, it is our intention to stay in that position. The effect on the rest of the economy is another issue. So far we have maintained our position, and we intend to remain there.
I concur with the observations of both the noble Lord, Lord Newby, and the Minister, particularly when wearing my hat as chairman of IFSI. We go out of our way to ensure that we represent the interests of the whole of the financial services industry of the UK. Of course the City of London is the largest section of that industry, but there are significant and very successful parts of it in Edinburgh and Leeds. We want to do everything to support them as well.
The hour is late and I do not wish to detain noble Lords any longer, save to thank all those who have contributed. As I have no desire to receive any Papers, I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

Medical Teaching and Research
6.12 p.m.
Lord Walton of Detchant Lord Walton of Detchant rose to call attention to the issues now confronting the National Health Service with particular reference to medical teaching and research; and to move for Papers.
The noble Lord said: My Lords, ever since, as a young medical registrar on £400 per annum, my salary was virtually doubled at the introduction of the National Health Service I have been one of its most fervent supporters. This brave and imaginative initiative was something of which we had very high hopes. All of us in the medical profession in those early years, and subsequently, worked exceptionally long

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hours, if only because of the excitement of clinical practice and caring for patients, the joy of teaching young, bright medical students and the intellectual fulfilment which arose as a result of being involved in fruitful clinical research. That clinical research not only nurtured clinical practice but brought about untold new developments in patient care.
At snail-like pace new hospitals were built, although with cheap materials because of government cost limits. Health centres appeared and GP premises were slowly upgraded. Vocational training transformed standards of primary care and support staff were recruited, so that in every respect primary care improved over the years.
In those days almost no one sought early retirement; indeed, the majority of members of my profession tried to find ways to continue to work after the age of 65. But from the earliest days clouds began to gather on the horizon. Many stentorian voices, not least my own, continually pointed out to government after government that we were spending less than 6 per cent of our gross national product on the NHS compared with 8 to 9 per cent in Germany and a very much larger figure in the United States. There were too few general practitioners, as is still the case, offering only five to eight-minute consultations; too few acute and intensive care beds; and too few consultants in all specialties. Five years ago there were 190 neurologists in the UK compared to 400 in Finland with a population of 4 million. Only today we learn from the British Thoracic Society of the appalling consequences of too few consultants in respiratory medicine. We now have about 240 neurologists, but that is only half what a proper service requires.
Report after report of the royal colleges has urged governments of both main parties to increase funding and consultant numbers and to reopen closed acute beds as our population ages, huge technological developments increase patient demand and expectation and new and effective, but often very expensive, drugs produced by that jewel in Britain's industrial crown—our pharmaceutical industry—come on stream. Effectively, we have seen the overt rationing of resources, postcode prescribing, trolley waits in accident and emergency departments, sometimes increased waiting lists and innumerable new initiatives by governments which impose additional administrative burdens on doctors, nurses and other staff.
All too often we have heard governments say when putting in more funding that there will be no more money at a later stage and we must have more efficiency savings. As a consequence, disenchantment and frustration grew.
Where are we now? I credit this Government with their desire to increase funding in the NHS and to recruit many more medical students—1,000 a year. That is welcome. But is the new funding which is coming on stream and now the policy of the Government too little, too late? A recent survey by the BMA shows that 48 per cent of general practitioners are considering early retirement. Many consultants are
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burnt out and in despair and also seek early retirement. Even the new hospitals built under the private finance initiative, such as Cumberland Infirmary and the University Hospital of North Durham, have provided fewer beds than the hospitals that they replaced.
We also see what I believe to be seriously misguided decisions, such as that made by Oxfordshire Health Authority to close Burford and Watlington community hospitals which provided care to patients on early discharge from acute hospitals, with the consequence that beds are blocked in acute hospitals like John Radcliffe.
Who will teach the new medical students? The Council of Heads of Medical Schools has pointed out that there are now 73 vacant clinical chairs. Recently, it has revealed 322 vacant lecturer posts in clinical medicine. Early in the days of the National Health Service there was an article of faith called the knock-for-knock agreement which was to the effect that the clinical services provided by doctors employed in clinical specialties in the universities would be compensated for by the teaching given by NHS consultants and registrars. The idea then was that six sessions would be devoted by clinical academics to clinical practice with the remaining five protected each week for teaching and research.
The recent report by the Council of the Heads of Medical Schools shows that academic clinicians spend a minimum of 40 hours a week—some as many as 58 hours a week according to a recent report—in clinical service. Where is the time available for teaching and research? In some NHS hospitals there are even some consultants who refuse to teach because of the sheer burden of their clinical work. Why is that the case? The answer is that managers exert pressure to increase throughput and cut down outpatient waiting times and inpatient waiting lists simply to meet government targets and new initiatives. The result has been a serious decline in recruitment into clinical academic medicine. The attractions of an academic career in medicine were not only the care of patients but also involvement in teaching and research. Therefore, the academic field has been gravely eroded. We must not forget that for many years the UK has had a proud international reputation in the field of biomedical and clinical research. As a result of these factors, that reputation is now in serious decline.
I commend the initiatives of the General Medical Council to weed out poorly performing doctors. But I believe that the great majority of doctors, nurses and other staff in the health service give outstanding dedicated service and long hours of work, sometimes under intolerable conditions. Will the Government do something to get rid of the culture of blame, which is now so prevalent throughout the NHS? Doctors and other staff continually have to look over their shoulders. Furthermore, is there any hope that the number of political initiatives, as well as political interference—if I may use the term—in the affairs of the NHS, may be sharply reduced, if only to allow health service providers to get on with the job?
Those in the NHS look enviously at their colleagues in Europe, who have more beds, more consultants and superb research equipment. Last week, a consultant told me that, on a recent visit to Uppsala in Sweden, he found that eight consultants were undertaking the amount of work that he, alone, was expected to do within the NHS.
The litany of gloom is not a figment of my imagination. It is a genuine, heartfelt cri de Coeur. So what are the solutions? First, increase the number of acute beds and increase the recruitment of nurses, who may well have to be paid more in order to attract further recruits. Open more outlet beds in community hospitals. Increase rapidly the establishment of consultants in all specialties and establish more GPs and medical training positions, which the Government intend to do, but not at a sufficiently fast rate. Expand the public-private partnership. Many more routine operations and other procedures could be carried out on NHS patients utilising spare capacity in private hospitals. I know that it will be controversial, but I urge the Government to restore and expand tax relief on private medical insurance, which I believe was withdrawn for the elderly because of outdated ideological concerns.
Secondly, I invite the Government to implement more rapidly the recommendations of the Saville report from the Academy of Medical Sciences on the training of clinical scientists. That will require funding. A further report is expected from the academy on such implementation. Will the Government consider making available public funding for the Academy of Medical Sciences, as they do for the Royal Society, in order to help the academy to act as an agent in furthering the implementation of the Saville report? What has happened to the Follett report, which contains many excellent points?
Several years ago, the House of Lords Select Committee on Science and Technology produced a report based on an inquiry which I had the privilege of chairing. It recommended instituting pilot studies of the development of university hospitals under joint NHS and university management. Is it not time that an initiative of that kind was brought forward in order to improve the standing of clinical academic medicine? Recently, the Council of Heads of Medical Schools recommended setting up a joint initiative between the Department for Education and Skills on the one hand and the Department of Health on the other to develop a training and teaching authority which, I hope, would provide support in pursuit of these aims. Such measures are absolutely vital to overcome the crisis in clinical academic medicine.
Thirdly, I believe that the Government must seek additional sources of funding. Of course we already capitalise on public goodwill. Over the length and breadth of the country, people raise funds to buy new equipment, to help the work of hospices and to assist many other organisations. However, those efforts can make a contribution only at the margins. Furthermore, it must be recognised that, while the Government happily put more money into scientific
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research and the Association of Medical Research Charities makes a truly outstanding contribution, regrettably there are fewer clinical academics with the time and opportunity to carry out research using those funds for reasons which I have already explained.
The amount of money that the Government have now committed themselves to investing in the NHS is still, I believe, not enough. Please will the Government stop tinkering at the edges and consider urgently alternative and additional sources of funding? Thirty years ago, I recommended to a then Royal Commission on the National Health Service, chaired by Sir Alec Merrison, that the Government should at least consider hypothecated taxation and that they should think about an index-linked, income-related health tax as a supplement to national insurance. I know that all will respond by saying that the Treasury will not stand for it. Are the Government brave enough to confront that mystical body and persuade it that at least those ideas have some merit? Is it not time that such proposals were examined in depth and in detail?
The increased government funding recently announced has been most welcome and I do not doubt the Government's good will towards the National Health Service. But we cannot go on as we are at the present time. Radical measures are needed, not least to save clinical academic medicine and to be able to teach those additional medical students now coming on stream. We need to restore and preserve this country's proud reputation in biomedical and clinical research. That is an objective which we should all seek to pursue. I beg to move for Papers.
6.26 p.m.
Lord Turnberg: My Lords, I am most grateful to the noble Lord, Lord Walton of Detchant, for initiating this very important debate. As usual he has delivered his remarks with enormous clarity and in so doing has stolen some of my best lines. However, I should like to make a number of points.
First, it is important to emphasise that academic medicine is not something distinct and separate from the practice of clinical medicine. It is not merely academic; it forms a completely integrated part of the practice of medicine. Without it, we shall not advance medicine and we shall not be able to teach future medical practices to today's students. We must be able to transcribe the fruits of the many exciting advances being made in the biomedical sciences into clinical practice.
Never have there been such bright prospects for future cures and treatments. Here I should express an interest as vice-president of the Academy of Medical Sciences. But if we are to achieve all this, we must have in place the academic clinicians to do the work. At a time when, as we have just heard, we need more such clinicians at least to staff adequately the medical schools that have recently been created, we cannot even fill the existing vacancies. The reason why academic medicine is unattractive, despite the excitement of progress in medical research and despite

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the fact that in the UK we are pretty good at it, is—we heard this from the noble Lord, Lord Walton—largely because of the pressures of clinical service work.
Clinical academics serve two masters: the universities and the NHS. They are stretched between the two. The balance has now swung much too far over towards clinical service, to the immediate detriment of teaching and to the future detriment of patients. What can be done about that?
In 1990, a committee was set up comprising members from the Department of Health and the Department of Education. It was chaired by the Permanent Secretary to the Department of Health, Sir Christopher France, and sought to ensure that universities and the NHS co-ordinated their efforts and collaborated so that academic medicine could prosper. That committee agreed 10 key principles. In 1996 those principles were revised and included a number of extremely important points. I shall quote one or two as examples:
"The provision of undergraduate medical and dental education and research, guided by clearly defined and co-ordinated national policies, must be supported by effective joint planning".
A further principle states that:
"The universities and the NHS should work closely together in funding research and development within the NHS in England".
Many of the other principles are set out in a similar vein. I am afraid that the standing group has fallen into abeyance and the key principles have been largely forgotten. I ask my noble friend on the Front Bench whether he would strongly consider setting up a new committee established along similar lines to take on that work and to revise and revisit the 10 key principles, some of which were again introduced in the recent Follett report, to which the noble Lord, Lord Walton, referred.
I should like my noble friend to consider in particular one element; that is, to make it possible for an academic department, comprising perhaps a dozen academics, to contract with their NHS trust to provide a total service, as a department, in specialties such as cardiology, neurology, surgery and so forth. Within that department, some would provide the clinical service for most of the time, while others undertook research. This flexible approach could be effective and efficient for both the service and the research, but it is currently not possible while individuals within a department have to do everything according to their individual job plans. Will the Minister look kindly on what seems to me to be an eminently sensible approach?
Finally, perhaps I may mention one other serious threat to research which, in this case, I am afraid, largely is to be laid at the door of the Department of Health. I am not sure how long my noble friend will remain my noble friend when I tell the House that a whole segment of important research, which depends on the use of information derived from patients over many years in, for example, cancer registries and other disease registries, has now ground to a halt.
Section 60 of the Health and Social Care Act was specifically designed to ensure that this kind of research, given certain safeguards, could be pursued.
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In practice, the body which was to undertake this work, the Patients Advisory Group, which was to be set up and running by October, the deadline, has not been. Meanwhile, research ethics committees around the country do not agree that this research can be done, with the result that disease registries are not registering patients, and research has stopped.
I understand, unofficially, that the group will meet in December, but its membership and its chair have not been announced, nor has notice been given of the way in which it will go about its work and what criteria it will adopt. It gives me no pleasure whatever to know that the worst fears I expressed during the debate on the Bill have been realised. Instead of ensuring that epidemiological research can be undertaken—for which the Bill was designed—the bureaucracy in which it is so ineptly enmeshed will effectively strangle it.
The longer this situation is allowed to continue, the greater the damage to research and to the patients who will depend on that research. I hope that when he comes to reply the Minister will offer some reassurance that there will be a resolution of this self-inflicted damage.
6.32 p.m.
Lord Colwyn: My Lords, it is always daunting to take part in a debate initiated by and with contributions from academic members of the medical profession. They are the kind of professors who, some years ago, used to set my examinations. However, I am grateful to the noble Lord, Lord Walton, for this opportunity to discuss some of the issues confronting the NHS. There are so many, a fact reflected in the speech of the noble Lord, Lord Walton. We seem to have come such a long way since my party lost an election because one patient spent one night on a trolley.
I declare an interest as a practising dental surgeon, although the Minister will be delighted to hear that I am not going to speak about dentistry today. We shall be doing that at about this time tomorrow.
The modern, research-based scientific advances in medicine over the past 50 years have been beneficial to countless numbers of patients. This growth of knowledge has been such that different specialties have developed, each competing for and making legitimate demands on the NHS budget, which has always been, and will always be, incapable of funding the personnel and materials needed to treat all those patients who are perceived by conventional methods of diagnosis to be ill.
It has been estimated that about one-third of all patients with chronic symptoms have no organic disease, and that another third have symptoms unrelated to their organic condition. Scientific advances in medicine have also affected the patient-doctor relationship and caused difficulty in communication.
This crisis in healthcare is world-wide and will not disappear. We cannot legislate our way out of it, nor pass the buck until someone else pays for it. Because of its dependence on expensive technology, medicine simply cannot be delivered to the people who need it.

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There is a serious risk of hospitals having to restrict the services that they provide and, because patients are not getting the services they require, more and more are going to other kinds of practitioners. At the same time, as the noble Lord, Lord Walton, said, the routine, day-to-day practice of medicine has become less and less satisfying. It is not easy to work on your own. The autonomy, which was so attractive some years ago, has gone. Many doctors now have to work in corporate settings, where a bureaucrat tells them how many patients to see and the insurance companies dictate how medicine is practised by their policies of reimbursement.
What is done in medicine today is not always what a doctor chooses to do, but what is going to be paid for. No one envisaged the increase in practice litigation, which is destroying doctor-patient relationships. If you come to regard every patient coming in the door as a potential plaintiff in a lawsuit, it will detract from the relationship that you have with patients, which was once a great source of satisfaction to doctors.
In our report, the Select Committee which considered complementary medicine, which the noble Lord, Lord Walton, so capably chaired, recommended that there should be more consistent training offered to complementary therapists in all the different disciplines, and that formal training should be offered to doctors, dentists, nurses and physiotherapists who wish to practise complementary disciplines, both at undergraduate and postgraduate levels. The Government agreed and promised funding. I shall be interested to hear how this is moving forward.
This setting up of a formal training structure should produce practitioners and therapists who have a research-based background. This will lead to the increased research that is so essential in the creation of a new approach to medicine—one that is based on a model of health rather than disease; one that trains practitioners to take time to listen, to value nutritional and lifestyle influences on health and illness, to offer treatments in addition to drugs and surgery, and to understand the potential of the organism for self-repair and healing.
Less than a century ago, most orthodox medicine was what we now call complementary or alternative because there was little understanding of the mechanisms of human disease. Today we understand some of the chemical, neurological and psychological factors that contribute to the complexity of the human being, but the fact that so many people are turning to complementary medicine indicates that conventional medicine is failing in some areas.
A massive research commitment will be required to investigate the mechanisms in CAM, ranging from social psychology to genetics. There is already an evidence base that could be used to inform trial design, particularly for herbal remedies and acupuncture.
There is no longer a right way of practising medicine. Both conventional and complementary systems are a mixture of wisdom and folly; both have very sensible ideas and both have weaknesses. The
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challenge is to look round dispassionately and critically and to take those elements of different systems that make sense. This is best described as "integrated medicine". It works from the premise that people can get better, and it must be cost-effective. I declare an interest as president of the renamed All-Party Group for Integrated and Complementary Medicine—or Healthcare.
Earlier today, together with the noble Lord, Lord Walton, and the noble Earl, Lord Baldwin, I attended the Integrated Health Awards, at which His Royal Highness the Prince of Wales, who is president of the Foundation for Integrated Medicine, presented a wide range of practitioners with awards for the best examples of the integration of complementary and conventional healthcare.
Two winners were selected from a short list of 11 projects. The first winner was the Derriford Maternity Acupuncture Service, a unit which initially offered acupuncture to provide more choice of pain relief for women in labour but soon expanded to a popular outpatient and in-patient service for ante-natal and postnatal problems. The second winner was the Blackthorn Medical Centre and Trust, which is an NHS general practice and charitable trust which adopts an anthroposophical approach towards providing treatment, rehabilitation and supportive employment for patients suffering from chronic illness. Its methods are aimed at actively engaging patients in re-establishing the quality and direction of their lives, thereby reducing dependence on statutory health and social services. His Royal Highness confirmed his belief that integration is the way forward, and I am grateful for his continued support for the concept of integrated medicine.
Patients have the right to take responsibility for their lives and the right to receive all the information that they need to do that. I believe that medical training and research should reflect the fact that multidisciplinary co-operation is the strategy that best provides health and healthcare. Education is the core for understanding, and medical teaching should reflect the need for a basic knowledge of the theory, practice and application of the wide range of complementary therapies.
6.40 p.m.
Baroness Northover: My Lords, I thank the noble Lord, Lord Walton of Detchant, for introducing this important debate. Medical research and teaching are the key to the future of the NHS and neglecting their current problems will cost us all. I look forward with particular anticipation to hearing the noble Baroness, Lady Greenfield, whose contribution to science, but also in sharing that knowledge with the public, has been outstanding. Bridging the gulf between science and society is especially relevant today.
I find myself hearing quite a bit on this subject one way or another. My husband is a surgeon who runs an Imperial Cancer Research Fund cancer unit and he is also a professor of surgery at Imperial College School of Medicine. I used to teach the history of medicine to medical students within the University of London.

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Teaching and medical research have been integral to the National Health Service since its foundation over 50 years ago. Teaching had of course long been part of hospital practice. Research was far patchier and in many ways Britain lagged behind the United States and Germany. But under the NHS, clinical research in particular developed rapidly and productively. We had a particular strength in our clinical trials. Assisting this was a public-spirited feeling among NHS patients that it was appropriate and in the public interest that they should take part in trials.
But things have changed over the lifetime of the NHS and there are now new question marks over teaching and research. There is a continuing decline, as we have heard, in the number of medical academics and that is set to get much worse. How can we plan to expand, as the Government do, the number of medical students by 56 per cent while the number of medical academics is falling? With so many unfilled chairs of medicine and surgery, there will be fewer leaders and role models for those who might follow on, making it even less likely that the problem will sort itself out.
Reduced training time means that fewer junior doctors are undertaking sustained research. That means that fewer will see the attractions of academic research, further undermining efforts to fill academic posts. How can we advance the cause of evidence-based medicine if those coming through the system are less familiar with this approach? I heard with great interest the recommendations of the noble Lord, Lord Walton, to reverse these trends. I look forward to the Minister's response.
But there is one area in relation to medical research which can be addressed immediately. It is something which does not require large investments of money. No doubt the Minister will be pleased to hear that. However, it requires commitment. That is the issue of medical researchers having access to confidential patient information for the public interest purpose of research. We have just heard the noble Lord, Lord Turnberg, speaking about that.
For years this kind of information has been a vital tool for researchers. Without that, how could Sir Richard Doll have demonstrated the link between smoking and cancer? Your Lordships will remember that this was considered in the Health and Social Care Bill which we passed just before the election. Whether it was because of the new data protection laws or whether it was always a tricky area under common law, the GMC issued new guidance to doctors. This guidance served to scare doctors away from passing information through to the disease registries and elsewhere lest they appeared in court.
After much debate inside and outside your Lordships' House, the Bill was passed and included a Patient Information Advisory Group to oversee regulations in this area. It was to contain a balance of those with an interest in the area, including advisers from the patient's point of view. So where is it? No names for the group have yet been announced although I understand that they may be on the Minister's desk. Where are the draft statutory
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instruments? I understand that the draft regulations are in such a basic and early stage that they are nowhere near ready to be published.
I therefore wish to learn from the Minister answers to these questions. How many people has he working on this area; when can we receive the names of those in the group; when will we see the regulations and when can the medical research community continue its research? One medical researcher in this area remarked rather bitterly to me that the reluctance of the UK Government to move rapidly in this area, which was so clearly in the public interest, contrasted rather darkly with the speed with which that same Government are proposing to take sweeping new powers to restrict our civil liberties in the face of terrorism.
Sir Julian Peto of the Institute of Cancer Research pointed out on 29th May in the Sunday Times that some health authorities are refusing to provide women's computerised cervical screening records for potentially lifesaving research commissioned by the NHS. He added, not surprisingly, that,
"the requirement that we contact 100,000 women would prevent this research from being done".
I thought that we were on the road to the resolution of this problem. I expect the Minister to give concrete assurances that the delays hitherto are to be a thing of the past.
There are many problems today in medical education and research as they relate to the NHS. Let us at least resolve this particular problem forthwith. I therefore look forward to the Minister's satisfactory reply I shall now sit down so that we can hear the speech of the noble Baroness, Lady Greenfield.
6.46 p.m.
Baroness Greenfield: My Lords, amid the very warm welcome and kind advice that I have been very grateful to receive since my arrival in your Lordships' I louse, it has been repeatedly emphasised to me that one has to adhere strictly to times: every second counts. I have some small experience of that already in television and radio. On one occasion when I was on the "Today" programme, towards the end of the interview I was horrified when the presenter said, "And now, in the last 30 seconds, since you work on the brain, can you tell us about the soul?". Time is once again short. The subject is perhaps not quite as wide or as deep, but for some of us it is just as important.
I would like to comment on the issues as someone who has taught medical students at Oxford University for 15 years. I still have a lab there where I conduct medical research into Alzheimer's disease.
I fear that those conducting medical research and teaching in the university might be, as already in the National Health Service itself, re-evaluating the cost-benefit balance. Everyone has always known that salaries for academics are much lower than in the private sector, most typically compared to those in big pharmaceutical companies. But now other factors are creeping into the equation. There is an increased teaching load. Medical student numbers are set to rise relative to the number of lecturers and that will mean

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less time spent on research. In addition, research is becoming more expensive. Information technology is now much more sophisticated and becomes rapidly obsolete each year so that computers have to be replaced.
With the current trend towards molecular biology, the consumables for this type of research are much more expensive and therefore the final budget is much greater. Perhaps it is no wonder that the public sector funding bodies are beginning to become increasingly risk averse, less speculative and less open to the novel, adventurous projects and less open to interdisciplinary research which, arguably, is why one was engaged in it in the first place as it presented an intellectual challenge.
There is the audit. Let us imagine that you have been teaching for several decades and someone is listening to your lecture and evaluating you. Imagine how you might begin to feel somewhat demoralised, even resentful. What about the audit for research? Again, that is surely pushing scientists into playing safe so that they can publish.
Let us now add to the landscape the burgeoning bio-technology sector. Here there is no drain in teaching loads. One has to do novel research. That is a prerequisite otherwise your company will become extinct. You have the chance to learn other transferable entrepreneurial skills and let us not forget the possibility of an enhanced income. No wonder that some of the brightest and best are defecting from the campus to the science park.
Therefore, how can we motivate university scientists to stay where they are and engage in the public sector doing research and teaching medical students? The answer lies in enhanced interaction between the private and public sectors. We are getting much more used to university "spin-out" companies as part of the landscape of academia. That is due in part to admirable schemes such as those of the Medical Research Council and the Wellcome Trust, and to the Government's university challenge schemes. But the problem is that they apply when you have a patent in your sights. You can seek help from such projects once you are near to gaining a patent. What happens for the university scientist whose work is in the pre-patent stage? You cannot apply to the public sector, because that will violate your intellectual property. So where do you obtain the funds to carry through an idea that might eventually be exploitable commercially? What we need are more funds to help scientists to do that.
One possibility would be to have, let us say, 1 per cent surcharge on grants. Another would be to encourage universities to plough back the money that they are making from their equity stakes in existing spin-outs to help the much more fundamental research that goes on in universities. And the money should not be spent merely on that. At Oxford, for example, the ratio of technology transfer unit staff to research workers is 1:500. It is impossible for people to be alert to the patentable possibilities of the work in which research scientists are engaged. Surely we should be
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increasing the number of technology transfer staff, especially if we want to lure them back from the private sector where they are used to the levels of salary.
Surely money should also be spent on organising fora, on workshops, and perhaps on developing websites, so that the average university scientist, who has never before contemplated the prospect of the private sector, will easily be able to access an idiot's guide. If we can do that, we can start to encourage people to think outside of the ivory tower. We can start to bring about a mindset whereby people can blend private and public sectors for the benefit of both.
Almost 400 years ago Francis Bacon developed a pretty Latin dichotomy. He said that there were two types of experiments: experiments lucifera, versus experiments fructifera—those that shed light, versus those that bore fruit. I suggest that if we are to meet the challenges of 21st century medical teaching and research, such a distinction is as inaccurate as it is obsolete.
6.52 p.m.
Baroness Greengross: My Lords, it is a privilege to follow the noble Baroness. She made a truly remarkable maiden speech, based on a depth of knowledge and understanding that makes it obvious to all of us who heard it that her contribution to this House will be an outstanding one.
For me, the noble Baroness's address was not as remarkable as it would have been had I not heard her speak previously. I refer in particular to a recent occasion when she entranced a huge audience at the culmination of the Millenium Debate of the Age (for which I was responsible) at Greenwich. She spoke about the human brain and its potential, and about our realistic capacity to use our scientific and technological knowledge to improve the health and well-being of humankind. Many Members of this House will also know of the noble Baroness's dazzling academic career, now both as a professor at Oxford and as director of the Royal Institution, where she has already achieved an enormous amount. She has raised the profile of science, and particularly of women in science, with the public as well as with professionals. I know that noble Lords will wish to join with me in congratulating her.
I also congratulate the noble Lord, Lord Walton, on initiating this important debate. Much attention is rightly given to the problems that are faced today in the NHS. They are critically important to all of us. But I want to emphasise that we must also think ahead to tomorrow's agenda, where training and research are particularly highlighted.
Society is ageing fast—in some countries staggeringly so: particularly, for example, in Japan and Italy. In the 3rd November edition of the Economist Peter Drucker wrote:
"the dominant factor in our society will be something to which most people are only just beginning to pay attention—the rapid growth in the older population and the rapid shrinking of the younger generation".

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Such is the global impact of that factor that the United Nations is convening a world assembly on ageing next spring.
With regard to training, I want to point to the importance of injecting across the board what is known as a "life course" approach. Bearing in mind that the majority of patients seen by healthcare professionals will—a fact that we must welcome—be older people, all our professionals need to understand how people develop throughout their lives and the key factors, both endogenous and extraneous, that affect their health throughout their lives.
Through an organisation called the International Longevity Centre-UK—which I chair—I am part of an international partnership which is examining this issue with the World Health Organisation, which has firmly embraced a life course approach as the key perspective in its ageing and health programme. It is already used in part; but if it is injected more widely it can give individual healthcare professionals a holistic and integrated response to some of the greatest challenges that they face, bringing together in a single framework the ability to look back across the life of an individual, and also across generational cohorts, emphasising both temporal and social factors. It aims to identify biological, behavioural and psycho-social processes which operate across the life-span and across the generations. It helps us to identify critical periods of growth and development, chains of risk and springboards which can alter life course trajectories, with implications for a person's future health.
I am gratified that many medical students—mostly from the International Federation of Medical Students' Associations—have enthusiastically adopted this approach, which I hope we can take forward in this country, as we are beginning to do with the welcome support of many experts in medical and nurse training.
Turning to research, I welcome the announcement on 12th November that the Government intend to invest £8 million in research into ageing and services for older people. This will be conducted through the research councils, taking forward past work done under the EQUAL banner. But more is needed—not only by government but by all sectors. There is a need for all of us to rise to the challenge and the opportunities presented to us by the demographic shift.
More thinking could also be done within government. The DTI's foresight panel on ageing, which I raised in a debate in this House in March, highlighted various important issues, many of which touch on health, but which need to be taken forward more enthusiastically.
There are still too many examples of clinical trials stopping at the age of 65. In professional practice, the rigid demarcation lines drawn by age rather than competence and ability to perform critical tasks is totally out of tune with reality. That is illustrated in today's Times, which points out that Professor Magdi Jacoub is banned by his trust from performing operations because he has just reached the portentous
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age of 66. Surely his skills are worth assessing in a more individual manner. The cost to patients and to the NHS might well be much greater than the cost of appraising his abilities in a way that should be routine for all of us along our own life course.
While I know that there are many issues confronting the NHS, I hope that your Lordships will agree with me that is it fundamental to examine NHS training and research in the present situation of increasing longevity. I see it as an opportunity to be welcomed, not a threat to be feared, so long as we plan ahead as best we can.
6.59 p.m.
The Lord Bishop of St Albans: My Lords, perhaps I may add my congratulations to the noble Baroness, Lady Greenfield, on her incisive, wide-ranging and deeply committed speech. I hope that she will accept my gratitude as a Bishop for all that she represents in the world of science to which all of us are so deeply indebted. And I should love to have heard her speak for 30 seconds on the soul!
Philip Larkin had a wonderful capacity for downbeat and melancholic honesty. One of his favourite aphorisms, which I treasure, was that which stated:
"Life was so flat you could see the tombstone at the end".
Debates about healthcare are frequently littered with statistics. We have had several examples this week, including the league tables concerning heart surgery and, on the "Today" programme at five minutes before seven this morning, the brilliantly constructed opening salvo from the British Thoracic Society, to which the noble Lord, Lord Walton, has already referred. It was about deaths from respiratory disease and it quoted the figure of one in four.
I have no problem with statistics—clearly they are a useful management tool. However, there is only one statistic about human beings that has 100 per cent accuracy; it is that each of us will die. That statistic, as a result of the pioneering work of the hospice movement, has impacted upon palliative care and bereavement counselling in many hospitals and trusts. However, the quality as opposed to the quantity of that care is not easily susceptible to statistical analysis. When it comes to the quality of spiritual care that is offered to the dying, management-speak falters and stutters to a halt.
The death of a patient, I venture to suggest, represents a moment at which medical staff are brought face to face with their own mortality.
"Ask not for whom the bell tolls".
Exactly the same can be said of the clergy when we say prayers with the dying or stand at a graveside. I n the face of death, each of us is forced to draw on the wellsprings of our own faith and belief—whatever they may be.
I recognise that this debate is about the NHS. While we rightly concentrate on measurable improvements in health service delivery, I wonder whether we sometimes do that at the expense of ignoring the

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profound human issues that daily affect staff and patients alike. My plea is that in the NHS a wholehearted commitment should be made to ensure that the range of religious and other beliefs that are held by patients are recognised by the chaplaincy team and by everyone in the relevant structures. In a multi-faith society, the complexity of the issues that are involved is considerable. I hope that when the Government publish guidelines for spiritual care-givers—it would be interesting to know the date on which those guidelines will be published—they will encourage trusts and others to offer training to all staff in those matters. I hope that chaplaincy teams will be specifically involved in that initial training. Research in that field may not appear at first sight to be of as urgent a priority as other pressing medical conditions. However, if we ignore the profound significance of death, we shall fail our patients and staff at the point of greatest need.
I move, if I may, to a different level of discourse. Her Majesty's Government have made much of their laudable desire and determination to have more consultants and doctors in training by 2004–05. However, I pick up around the place a certain degree of tired scepticism about whether or not those numbers can really be achieved. The pressure is undoubtedly on to reach the targets. It is not clear how the objectives can be achieved in all honesty. For instance, can the Minister assure the House that junior doctors will not be put on some fast-track system so that accreditation can be achieved in a shorter period than normal? Lying behind that is another question. Can the Minister assure the House that if fast-tracking is used, standards will not fall?
I return to my initial point. The learning of skills in healthcare is not a matter of treating either patients or staff as if they were engineered and engineerable objects. Slapping "go faster" stripes on junior doctors to try to achieve ambitious and laudable objectives will be counterproductive. Skills and wisdom require appropriate timescales in which to mature. When dealing with the most vulnerable in society and with fellow human beings in their greatest need, only the highest, most well-founded and mature levels of skills and wisdom will do.
If the targets are going to be met, it would be helpful at this stage to know how. If they are not going to be met, a degree of openness now would, ironically, be more confidence-building than much rhetoric followed by failure. That would involve building demoralisation even more firmly into the system. That benefits no one, except perhaps the makers of Philip Larkin's tombstones.
7.6 p.m.
Lord Rix: My Lords, it is good for those of us approaching the sere and yellow to retain some unfulfilled ambitions. I confess to having more than one. Near the top of my list is an ambition to convert the young doctor who, when faced with a patient with Down's syndrome, kindly but simply asked the patient's mother, "How long has he been retarded?".
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My ambition has been honed over a good many years—so far without much success. Indeed, as long ago as the early 1960s I visited the then Minister of Health, Mr Enoch Powell, to enlist his support for a postal campaign to all NHS doctors, midwives, nurses and maternity units, giving them some pertinent facts regarding the birth and ongoing health problems of people with a learning disability who were then cruelly referred to as mental defectives. Mr Powell listened politely to my request and turned it down. Statistics, he pontificated, proved that nearly every member of the health service knew exactly what to do in that situation. He added that the matter was totally under control and that the health service was not the Post Office.
Unhappily I must also report that, on trying again 20 years later, Mencap, of which I am proud to be president, received a similar cold shoulder from the heads of medical schools. I am therefore delighted that my noble friend Lord Walton of Detchant has instigated this debate. It encourages me to have yet another go; it allows me to put the case for people with learning disabilities to enjoy some modicum of interest when medical education is being considered. Only a minority of doctors in training are exposed in any way to formal teaching about the healthcare needs of those people.
Not so long ago, large numbers of people with learning disabilities lived in Victorian institutions that we chose to call hospitals and the healthcare of the patients was seen as the responsibility of the doctors—some dedicated, some desiccated—who worked there. Now, thank God, very few people live their lives in such places. And that healthcare responsibility has been placed fairly and squarely on the shoulders of the general practitioners and consultants to whom the rest of us turn for help when we have health problems.
Unhappily, there is a great deal of evidence suggesting that people with a learning disability do not get as good a deal from their doctors as we get from ours:
"Rough-hew them how we"
They seem, on average, to be less likely to attend the doctor, hesitating, no doubt, because of their likely reception. Yet people with learning disabilities have a higher incidence of health problems, which are undiagnosed and untreated. Indeed, some of those health problems are directly related to the disability, but others are not.
When the patient finally sees the doctor, there may be communication difficulties—difficulties for the patient in explaining and difficulties for the doctor in understanding. Further difficulties arise from the doctor's misunderstanding about consent to examination and treatment, despite the excellent guidance recently issued by the Department of Health. Screening and healthcare programmes, too, appear to be denied to both male and female learning-disabled patients, and consequential problems are caused by late or incorrect diagnosis.
It follows, therefore, that improved training while a medical student, plus improved postgraduate training, could help to prevent the present grave disadvantages

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suffered by patients with learning disabilities. I am happy to say there is a little glimmer of light on the horizon. First, the Government have issued a number of reports on the health of people with learning disabilities, culminating in the White Paper, Valuing People. Government recommendations include the identification of patients with learning disabilities—a basic requisite, I would have thought—improved support for their access to generic health care; and individual action plans which, where appropriate, cover screening. Along with that goes encouragement for all healthcare professionals to have appropriate training. Amen to that!
Secondly, in conjunction with the Royal Society of Medicine, including its distinguished immediate past president, the noble Lord, Lord Soulsby of Swaffham Prior, Mencap held a seminar to bring together current wisdom on this topic, and earlier this year Professor James Hogg distilled a report on the proceedings, Improving Essential Healthcare for People with Learning Disabilities: Strategies for Success. Needless to say, that underlines the importance of medical training, which, with the support of the current president of the Royal Society of Medicine, Dame Deirdre Hine, who also carries responsibilities for enhancing quality in the NHS, we hope to convey to those responsible for such work.
Thirdly, there are a number of other promising initiatives, among which I single out training for doctors in particular and healthcare professionals in general, produced by Professor Sheila Hollins and her colleagues at St George's Hospital, the training team of which includes two ladies with learning disabilities. I commend the St George's initiative to your Lordships and, more particularly, to the Minister.
These days we recognise the right of people with learning disabilities to empowerment and citizenship. Those rights will not be advanced unless we allow the right to health, which in turn depends greatly on the quality and extent of medical training. Just over 2,000 years ago, Ovid could well have been reflecting on the way in which the health needs of people with learning disabilities have too often and for too long been neglected when he wrote—and I shall leave the Latin translation to my noble friend Lady Greenfield—
"Too late is the medicine prepared when the illness has gained strength by long delay".
7.12 p.m.
Baroness Warwick of Undercliffe: My Lords, I join others in thanking the noble Lord, Lord Walton, for introducing this timely debate. I also congratulate the noble Baroness, Lady Greenfield, on a fascinating and forceful maiden speech, compellingly presented. She will be a great asset to this House.
In speaking in this debate, I declare an interest as the chief executive of Universities UK. I hope that that gives me a vantage point, because it allows me some insight into the successes of medical teaching and research as well as the problems facing them, which I hope your Lordships may find illuminating.
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The relationship between the universities and the National Health Service is a very close one. First, the higher education sector provides virtually all the pre-registration education for the nation's doctors, dentists, nurses and midwives. Secondly, universities provide most of the clinical and basic medical research on which the future of UK healthcare depends. Thirdly, universities' clinical academic staff, often in positions of leadership, make a substantial contribution to patient care. That partnership between the NHS and the universities is vital to achieving an improved NHS that meets the needs and expectations of the country. It therefore follows that if improvements are to be made in the performance of the NHS, the contribution of the universities is essential; and, needless to say, universities need to be resourced and equipped to fulfil their role in that partnership.
The education of health professionals is undoubtedly a very important growth industry for our universities. In 1999–2000 some 225,000 health and medical students studied in UK universities. That equates to approximately 12.5 per cent of the total number of students in higher education. Furthermore, the recent review of social work education recommended the introduction of a new three-year social work degree, which would be delivered through partnership between universities and employers. That also indicates the extent to which higher education plays an integral part in the nation's health and social well-being.
With regard to medicine, figures recently released show that the number of applications to study medicine in 2002 has increased by almost 18 per cent. It therefore seems clear that the encouragement and resources provided by the Government have paid off. The figures also positively reflect the work being done by universities to widen participation in medicine, particularly in schools that have no tradition of encouraging pupils to enter medical schools. In addition, they are developing shorter medical programmes for graduates from other subjects wishing to enter the profession. In that regard, the Government could help through a willingness to fund experimental schemes for professional training and retraining.
Of course, those schemes exist in addition to all the other initiatives across the country to widen participation in the higher education sector generally, such as mentoring in schools and hosting summer schools for prospective students from lower socioeconomic groups. But such initiatives are not cheap. Supporting new types of students once they are in university is an expensive business. When published later this month, Universities UK's spending review submission will make it clear that the Government need substantially to increase their funding for these programmes, so that universities may receive enough help to attract and support these new students into medicine and more generally.
However, it is not just a question of attracting and supporting students. As the noble Lord, Lord Walton, said, universities also need to be able to attract

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additional teachers for these new students. The Council of Heads of Medical Schools has shown that there are 73 unfilled clinical professor posts and 136 unfilled clinical senior lecturer posts. We can only attract more medical academics by giving universities the resources that they need properly to reward and motivate their staff.
I am delighted to proclaim biomedical research in universities a real achievement, or, as the noble Lord, Lord Walton, said, a real jewel for the United Kingdom. It is a glowing demonstration of the benefits of working in partnership, which in this case takes in universities, the NHS and the pharmaceutical industry. University research underpins new treatments and improved patient care. It also provides an opportunity for medical and healthcare professionals to develop the skill of using evidence to underpin practice.
Additional funding already allocated for new medical students totals £95 million. Regrettably, capital funds are limited, and research funds for new medical centres are lacking, hampering the creation of new centres of medical research. Perhaps the Government will review the way in which capital and research funds are distributed to those new medical schools.
In conclusion, the growth of partnerships between the NHS and universities has been a great success story. I hope that the Minister will agree that it could be taken further if links between teaching hospitals and the NHS were increased through the establishment of clinical centres of excellence, and I hope that he will address that point in his reply.
7.18 p.m.
Lord Patel: My Lords, I declare an interest. I am a consultant in the NHS and a professor of a university. I am also the Chairman of the Clinical Standards Board for Scotland, a sister organisation to the Commission for Health Improvement.
I would have liked 60 minutes, not six, to inform the Minister of the issues now confronting the NHS, if he is not already aware of them. Six minutes will have to suffice for today. First, however, I congratulate the noble Baroness, Lady Greenfield, on her excellent maiden speech. I also thank my noble friend Lord Walton of Detchant for initiating today's debate.
Before expressing my own views about the woes of the NHS, I will get the good news out of the way. Many of today's ills of the NHS—shortage of staff, shortage of beds, poor access to services and care—have their origins in the reforms of the late 1980s and 1990s. The Government have now agreed that the NHS needs more resources and they are providing them, on which they should be congratulated. However, perhaps the Minister will agree that in the long term other ways of funding the NHS, apart from Exchequer funds, will have to be found if the UK is to match the quality of healthcare of some of our European partners.
The NHS has huge shortages of nurses and doctors and the omens are not good. Today I shall concentrate on doctors, but the nurse shortage is even worse.
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Nearly 25 per cent of our doctors qualified overseas—most in developing countries. Despite their training, experience and ability, they feel discriminated against as they cannot get on to specialist registers and therefore be considered for consultant appointments. More and more patient care is delivered unsupervised by doctors in training.
Entry to medical school is also being affected. I am informed that four medical schools this year had to go to clearing to fill their quota. Nearly 5 per cent of graduates leave the profession and many more choose non-clinical work. The training of specialists is too long and inflexible. Basic training before entry to specialist training is also too long. In both cases, that acts as a disincentive to academic training. The answer is early entry, shorter specialist training and many more specialists providing care, but not all necessarily leading to consultant status.
I hope that the Minister also agrees that the new medical education standards board should have the responsibility and the authority to make sure that training programmes meet the needs of the service. Clinical academic medicine has other problems over and above that—a lack of clear career pathways, tenure track appointments and workload related to teaching, research and service.
One of the new demands placed on clinical academics is the need properly to professionalise medical education. That involves training medical educators and recognising them in promotional ladders. The new medical schools have realised that and are actively recruiting, mostly by poaching from established medical schools, which is the only place where such expertise exists. We need targeted funds to provide opportunities and develop medical education expertise.
Protecting academic time is difficult because of issues such as burdens of service, external quality assurance and coping with massive NHS changes, but it must be an absolute requirement. The Follett report is welcome in that context.
RAE pressures are another difficulty. Clinical senior lecturers and other clinical lecturers are compared directly with their non-clinical colleagues, despite the fact that they spend more than 50 per cent of their time on patient care. It will be a huge help for them to be counted as half of whole time equivalent. That would remove a significant disincentive to the employment of clinical academics.
Academic remuneration is another area that needs to be addressed. I hope that, whatever else they say, the NHS consultants' contracts will also be reflected in clinical academics' pay structure.
There has been some progress through many schemes supported by medical research councils and the Department of Health and others, particularly following the Saville report, as has been mentioned, but much more needs to be done if recruitment of both clinical academics and clinicians is to improve. A commitment to that is required. I hope that the Minister will show us the way forward.
7.24 p.m.
The Lord Bishop of Portsmouth: My Lords, like many others, I am grateful to the noble Lord, Lord Walton, for initiating this important debate. I have been dazzled by the array of medical academe manifested so far, including the wise and profound contribution from the noble Baroness, Lady Greenfield. I hope that the draft lay MPhil thesis that follows will not be sent back for resubmission too expeditiously.
The various NHS reforms announced over the past 18 months seem to be going in the direction of devolving the control of NHS resources away from the centre and outward to the primary care trusts. That is bound to exert a growing tension on the practice of medical education. All that, coupled with the aspiration to give patients a greater say in the provision of services, seems laudable in itself, but, as ever, we need to take what our friends across the pond call a reality check.
The NHS Plan promised a 6.3 per cent increase in funding over five years to 2004, but all the signals that I receive indicate that there is a considerable gap between the provision of high-tech services and the reality of local delivery. That exerts another tension on the practice of medical education. It is no good having MRI scanners costing millions of pounds but having waiting lists of up to a year to use them. I could mention an example of that but I shall not. It is no good saying that there will be more doctors when the reality on the ground is that GPs in Gosport, for example, are closing their lists through the pressure of the number of patients. It is no good saying that more nurses will be provided but to do so by importing able and trained staff from overseas, which is very much our gain and their home country's loss. I understand that the Isle of Wight has been reasonably successful in encouraging nurses who have taken early retirement back to work. A similar observation can be made about the target of 7,000 more consultants by 2004. That would mean 70 more in Portsmouth and 20 extra per year. This goes back to some of the observations made by the noble Baroness, Lady Northover.
I have spoken on a number of occasions in the House on issues relating to the provision of public services in health, housing, prisons or education. On each occasion, the same point has applied. If I came from the north country, I might be tempted to say, "You can't have owt for nowt". As a Scandinavian by descent, I am pleased to note that some of my ancestors appear to have shared their culture and, to adapt a phrase from the speech of the noble Lord, Lord Walton, perhaps their non-mystical bodies in the northern areas of this country.
I am continually amazed that we expect from our public services a level of provision comparable with those of our European partners yet we appear to have no intention of spending sufficient resources to supply that. We are faced with a circle that it appears cannot be squared. However uncomfortable the issue may be politically, it will need to be addressed. To speak the unspeakable, we may well have to consider the mixed
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economy found in much of northern Europe. where public healthcare and private insurance run hand in hand—a situation obtaining in many countries that have traditionally been further to the Left than ours.
Speaking from these Benches, I must in conclusion bring to the debate the reflection that there is an imperative from all faith traditions, including my own, that care for the disadvantaged in society is not an option but an obligation. Those who are On the margins, whether through age, gender, ethnicity or wealth, should expect that, hand in hand with society's calls for personal responsibility, there will also come the provision of efficient and effective public services. The highly complex system that has been developed in the National Health Service fails to deliver at various points what all parties aspire to. That can lead to the madness whereby, in my diocese, the excellent facilities and services provided by the Royal Military Hospital at Haslar have in recent years been threatened with closure. I know that the issue is complex. I have read all the material on it, but the people of Gosport feel badly let down because 50 per cent of the Haslar facilities have traditionally been NHS facilities.
We cannot think of the provision of these services in an idealised and abstract form. They are rooted in the loyalties of local communities. Those communities, as well as the individuals within them, have rights
I hope that the reforms that have been announced in recent weeks will lead to a narrowing of the gap between aspiration and reality. The debate has shown how essential a high-level, innovative and flexible education infrastructure is to ensure that that happens.
7.29 p.m.
Lord Chan: My Lords, I add my thanks to the noble Lord, Lord Walton, for introducing this timely debate. My aim is to examine medical teaching and research in the context of the National Health Service Plan introduced by the Government 16 months ago. It promised an ambitious programme of improvements for the NHS and local government. Outcome targets were set for people-centred services to provide the highest standards of care and to tackle major causes of disease and health inequalities.
Two key essentials identified to deliver the NHS Plan are an adequate number of staff and evidence-based practice founded on robust scientific clinical research and development. The Department of Health's implementation programme for the NHS Plan identified workforce issues, including recruitment, retention and training and development. On staff numbers, it states:
"the NHS plan commits the NHS to 7,500 more consultants, at least 2,000 more GPs, 20,000 extra nurses and 6,500 extra therapists by the year 2004."
The increases in GPs and consultants will not be met, despite the increase in medical student intake of our existing and new medical schools. According to the department's Medical Education Unit, the number of medical school places rose by 1,000 last year, Over the next decade, medical student intake will rise to 7,000 per annum.

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I declare an interest as an honorary public health professor at the University of Liverpool, where the new medical student curriculum is taught. Practice-based learning is better at equipping our future doctors with the skills for lifelong learning than is the former system of rote learning. However, the number of full-time clinical teachers is decreasing because, as noble Lords have said, excellent teachers are not rewarded as well as are medical researchers. For clinical teachers of surgical specialities, an academic career restricts income that can be earned in private practice.
With the important growing emphasis on primary healthcare in the NHS, more exposure of medical students to GP practice is becoming increasingly difficult. In Liverpool, 30 per cent of our inner city GPs are single-handed doctors, and the same is true in other English inner cities.
The Secretary of State for Health has recently been recruiting doctors from our European neighbours. While that is necessary to meet workforce targets, another source of doctors in the United Kingdom appears to be being overlooked. That is the estimated 2,000 refugees with medical qualifications, who could be recruited if they were offered a scheme of clinical attachments, support to pass tests in English language and in basic modern medicine, and an induction course to practise in the NHS.
In 1999, the Department of Health published a report of the working group on refugee doctors and dentists. That report, supported by the Advisory Group on Medical and Dental Education, Training and Staffing, produced several short and long-term recommendations to help integrate medically qualified refugees into our health service. Has the department considered implementing any of the report's recommendations?
Medical research has traditionally tended to be biological and disease-centred, leading to publication in high impact journals such as Nature. Such research is highly prized by universities for funding assessments, but does not usually cover the broad priorities of the NHS, including population health, which is focused on reducing health inequalities and improving the quality of health and social care.
I therefore welcome the position paper, NHS Priorities and Needs: R&D Funding, published in February this year. My concern is directed to the imbalance between the relative abundance of research and the paucity of development to harness the fruits of medical research for the NHS, patients and communities. I hope that that imbalance will be an issue that the Minister will raise with medical and NHS researchers, managers and doctors, as well as with the National Institute for Clinical Excellence.
7.34 p.m.
Baroness Masham of Ilton: My Lords, I thank my noble friend Lord Walton of Detchant for raising this most important subject. I congratulate my noble friend Lady Greenfield on a truly masterful maiden speech.
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My grandfather trained and worked as a physician in Scotland. Many people from all over the world have been proud of the medical qualifications they gained in Scotland. The Government tell us that we are short of doctors and surgeons, yet a ridiculous situation exists. South African orthopaedic surgeons with five years' training appear unable to get onto the UK General Medical Council's specialist register because they lack an extra year's training. It is ironic that South African surgeons can work as locum consultants, doing all the work of a consultant, and with a substantive post. However, the new rule and change in political emphasis make it extremely difficult for such young people to make progress unless they return to their country of origin—or perhaps go elsewhere in the European Community—and are able to get onto a training programme formally to complete an extra year's training.
It seems extremely difficult for young doctors to get onto a training programme in the UK to specialise. I heard that the professor of orthopaedics at Bristol University had 200 applicants for two training posts. The lack of facilities—especially human resource—to train young doctors in a specialty appears to be the major problem. Also, those older than 35 are advised by the colleges that they would be wasting their time.
At a local hospital near where I live in North Yorkshire, two South African consultants are trying to formulate a plan to comply with the new ruling, and a young Pakistani surgeon, who is a Fellow of the Royal College of Surgeons and has all the enthusiasm and talent to become a good consultant, is finding it impossible officially to study further.
Why cannot the Government, in co-operation with Scotland, set up some training and assessment programmes in Scotland to help to solve that problem? It will be impossible to shorten the waiting lists without good surgeons and their aftercare teams of nurses and therapists.
The Minister knows my interest in the need for specialist units for conditions such as cancer treatment, spinal injury and many other challenging, rare conditions. In some cases, it would be neither practical nor cost-effective to have all specialist centres in every region. How will the Minister ensure that patients are not denied life or death choices? What is the current situation with extra-contractual referrals, and what are the plans for the future? That is one of the most important matters involving patients, their doctors and post-graduate training.
Another important update that I hope the Minister will give us concerns how patient participation will be incorporated into the English NHS, without being fragmented. Wales and Scotland are building on existing community health councils, maintaining independence. Patient participation should be part of medical education, helping to make doctors human and receptive.
There seems currently to be a limited list of charitable funders identified as qualifying for support in research and development for the National Health

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Service. Although I know that work is in progress to extend the list, many charities remain unaware of the official recognition procedure. Limiting the number of charities that will attract service support funding may jeopardise much research currently undertaken within the NHS.
There are many good and dedicated people working within the NHS. They need encouragement and appreciation. The agency staff culture which has grown within the NHS in the past two years is draining many of the resources which should go to direct patient care and much needed updated safe equipment for many of our hospitals.
7.40 p.m.
Lord Rea: My Lords, I join other noble Lords in congratulating the noble Lord, Lord Walton, on drawing our attention to the crisis in academic medicine. Of course, he has flagged up the issue ever since he joined the House.
I think that every noble Lord who has spoken has pointed out that there is not only a shortage of academic staff in medicine and nursing in the UK but also a shortage of their products—the nurses and doctors who serve us in the National Health Service. In several branches of clinical medicine, and not only in the "Cinderella" services, there are serious shortages and unfilled positions, as my noble friend is very well aware. In general practice, which is the front door to the rest of the National Health Service, that is well recognised by the Department of Health, and 2,000 additional general practitioners are planned by 2004. In parenthesis I should say here that the BMA's GP Committee feels that 10,000 more GPs will be needed to undertake the additional tasks that will be required as the National Health Service develops.
Medical school places are being sharply increased which, as the noble Lord, Lord Walton, and others pointed out, is in itself excellent news. But the quality of those new graduates will suffer if there is not a corresponding increase in numbers of academic staff, both clinical and non-clinical, to ensure that these graduates have a sound basis for their professional life in the National Health Service.
Across the Channel the French health service was recently classified by the World Health Organisation as the best in the developed world and, therefore, the best in the world as a whole. It is, of course, more expensive than the National Health Service, consuming some 9.6 per cent of a greater GDP than our 6.9 per cent. That was the figure at the last count, but perhaps my noble friend can say where we are now. It is, of course, gratifying that we intend to proceed to a figure of 8 per cent which is the European average. In fact, the French system is more expensive than it need be, with excessive prescribing, payment of doctors by item of service and direct access of patients to specialists. So, it is quite possible that we could achieve the same standards as the French with perhaps less cost, even with the 8 per cent figure that is proposed. However, there is a huge backlog of underinvestment to make up before that proportion of
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our national income would be able to sustain a health service in which the infrastructure is as good as it is in France.
France has three doctors per thousand of the population which is nearly double our 1.7 per thousand; and the European average is 3.4 per thousand. It is probable that the French and the European levels are too high, but the population makes use of them and appreciates them. However, I suggest that demand is not the same as need and that we could provide an excellent service with perhaps fewer doctors per thousand than the French but with many more than we have now.
In nursing much the same applies although the contrast in numbers is rather less stark. There are 5.6 nurses per thousand of the population in France and 4.3 per thousand here. That means that the French have a 30 per cent higher nurse to population ratio. As other noble Lords have pointed out, the Department of Health is making a determined effort to attract, recall and retain nurses, but it is having to run in order to keep still. I am not the only one who is unhappy that as part of that drive we are actively recruiting some nurses from poorer countries with far greater health problems than we have. But as with medicine, increasing the intake of new recruits into nursing will make more demands on nurse educators. As the Royal College of Nursing says, there are now,
"not enough nurse educators to supervise the existing clinical placements of nurses in training".
One of the problems facing the National Health Service and the Department for Work and Pensions is the persistent high level of sickness absence among the working population, despite steady overall improvements in our basic health statistics. Of course, as the Thoracic Society pointed out two days ago, there is an increase in asthma and lung cancer among women. But I think that these contribute only a very small proportion of that sickness absence and that it is mainly due to a mixed bag of recurrent and chronic conditions which are not life threatening. Among those, depression and social and family related problems loom large. They occupy a high proportion of medical time, particularly in primary care. The symptoms presented by those patients are many and varied; some are very puzzling and may result in referrals to specialists in outpatients departments. Others, of course, find their way to complementary practitioners. General practitioners and all clinicians benefit by sharing the care of those troubled patients with other professionals such as nurses, counsellors, psychotherapists, social workers and complementary practitioners.
The National Health Service would work more smoothly if this group of patients were handled better. Much time in primary and secondary care could also be saved. Liaison between doctors and the other caring professions can be greatly enhanced if at an early stage of their training there is inter-professional contact, when two or more professionals can learn from and about each other to improve collaboration and the quality of care. I suggest that my noble friend looks carefully into that matter and sees that the Department

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of Health gives a rather more generous core support to "CAIPE", the Centre for the Advancement of Interprofessional Education. I think he will find that that will pay a good dividend.
7.47 p.m.
Baroness McFarlane of Llandaff: My Lords, I wish to add my thanks to the noble Lord, Lord Walton, for initiating the debate and for the authoritative and spirited way in which he introduced it. I believe that many of us from time to time have had the privilege of working with the noble Lord on various subcommittees of the Select Committee on Science and Technology and know the tremendous contribution he has made to the discussion of medical research. I believe that this debate will form another landmark in the work of this House in respect of medical research.
I believe that the issues now confronting the National Health Service point to the need for research right across the NHS and in professions such as nursing, midwifery and health visiting, together with the 12 allied health professions which are shortly to be grouped together in the allied health professions council.
The debate is timely as I have heard that on 4th December the Higher Education Funding Council for England is to launch two major reports. Last year the Higher Education Funding Council and the Department of Health established a task group to examine the research base in nursing and the allied health professions. To support its work the task group commissioned a major investigation into the current state of the research base by a consortium led by the Centre for Policy in Nursing Research, which is based at the London School of Hygiene and Tropical Medicine. The consortium included representatives of the Association of Commonwealth Universities, the Higher Education Consultancy Group and the Research Forum for the Allied Health Professions.
The consortium produced its report in August under the title, Promoting Research in Nursing and the Allied Health Professions. I understand that the task group has now completed its own report which it says draws heavily on that of the consortium. I have been able to read the consortium report. I found it impressive and compelling in its arguments. The report maps the present position as regards university research in nursing, midwifery, health visiting and the allied health professions. It compares the research activity with that in education and social work, which are comparable professions, and makes international comparisons. It suggests funding models and explores the case for further investment by HEFCE and the Department of Health. I believe it is important that some of its findings should inform this debate.
It was estimated this year by the National Health Service Executive and the Wellcome Trust that the UK invests almost £3.5 billion in medical research from public and private sources. Yet nurses, midwives and the allied health professions make up two-thirds of the staff responsible for direct patient care. The cost of
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nursing and midwifery salaries is the largest single item of NHS expenditure, and 3p in every pound of public expenditure goes on nursing. Yet little is known of either the clinical effectiveness or the cost-effectiveness of this largest sector of care.
An analysis by the Wellcome Trust shows that only 1.8 per cent of NHS research outputs between 1990 and 1997 related to nursing. The public is thus poorly served by the current capacity for research and by the research output of these professions in this country. If there are to be measures to improve the quality of care, it is essential that we have the basic evidence on which to base practice.
Frequent emphasis is rightly placed on the need for evidence-based practice. We now have a massive infrastructure of research-commissioning bodies and disseminating mechanisms to help that to happen. Yet the Wellcome Trust has indicated that fewer than 1,500 research publications in nursing have been produced over the past eight years at a time when the NHS supports over 13,500 research publications annually.
Recent policy changes in the NHS, such as the move to more home and community-based care, necessitate extended roles in nursing, midwifery and the allied health professions. But if such advances are to benefit the patient and to be cost-effective, they must be based on sound evidence. Therefore, the demand for further research for these professions is essential.
We have a vicious circle, as someone called it, of disadvantage. The consortium compared research activity in nursing and midwifery with that in education and social work. When deficiencies were found in education research, a special teaching and learning research fund, managed for HEFCE by the ESRC, was created. That now has a budget approaching £23 million which is used to enhance the capacity for research-based practice. We may well ask why it compares so unfavourably with the budget for nursing research.
The consortium also made interesting comparisons with America and Canada. We could ask why we in this country are in a position of such deprivation. I plead with the Minister that these two reports should receive detailed consideration and form part of a coordinated solution.
7.54 p.m.
Lord Clement-Jones: My Lords, first, I add my thanks to the noble Lord, Lord Walton of Detchant. In a series of superbly well informed speeches, we could not have had a better demonstration of the value to this House of our Cross-Benchers. I have learned a huge amount in the course of this debate. I want in particular to congratulate the noble Baroness, Lady Greenfield, on her superb maiden speech. She certainly enhanced her reputation as a formidable communicator. I look forward very much to further incisive contributions in the future.

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I have no particular expertise in this area. I can pray in aid only that my late wife was a registrar at St Bartholomew's Hospital, specialising in endocrinology. Twenty years ago she ran a very busy practice as an endocrinology registrar. At the same time, she was able to carry out original research which demonstrated, ultimately, the physiological basis of acupuncture. I do not believe that she would be able to do that today. That is precisely the problem on which many noble Lords have put their finger.
Some may say that the noble Lord, Lord Walton of Detchant, painted a sombre picture. However, it seemed to me to be a pretty true and fair picture. I was particularly taken by his apt description of NHS staff providing outstanding service in intolerable conditions. I consider that to be a key phrase in today's debate. I believe that, as I expressed in this House last week, health Ministers should understand that there is grave doubt among medical professionals and managers about whether we should be moving ahead with yet more structural reform in the midst of trying to achieve so much in the NHS.
A recent Financial Times leader was headlined "Maoist NHS", pointing out quite rightly that:
"Another huge structural reorganisation is under way, taking management eyes off delivery. Devolution is preached but centralised micromanagement still rules".
If the NHS were delivering, it would be a different matter. More reorganisation might well be in order. But under this Government it transparently is not. Recent figures show that so far this year fewer waiting-list patients have been treated by the NHS, despite the NHS budget having risen 6 per cent this year and 30 per cent since 1997.
A recent Audit Commission report on the NHS described the problems that patients in accident and emergency services, in particular, face, with people waiting longer in casualty than they did five years ago. Clearly that is mirrored in public opinion. In a recent poll, six out of 10 people believed that Labour had made no difference to the NHS since it came to power in 1997. Indeed, 16 per cent considered that the NHS had become worse under this Government.
The problem is that the funding promised seems to leak out of the system, whether it relates to cancer, mental health or heart disease—all of them key priorities—let alone respiratory disease, which, as we have heard today, is the biggest single killer. All the evidence is that budgets for the major priorities are being raided to make up for lack of funding in other parts of the NHS. Health service managers, it seems, are saying that there are unbridgeable gaps in funding for the NHS this year. They have made it clear that they believe there will be major financial problems this year unless they receive more money or targets are reduced. So far, the response of the Secretary of State appears to have been an announcement that the money to be spent in the private sector is to be doubled. I do not believe that that is a particular vote of confidence in the NHS.
There are many other pressing problems apart from that of finance. Bed-blocking, particularly in the south-east of England, severely affects NHS delivery.
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A risk-control expert told a conference last week that bed-blocking costs £32 billion annually. I find that figure very hard to believe, but it shows the scale of the difficulty. The Government now recognise the problem after several years of failing to do so. However, in trying to cure that particular problem they acted too late and with money that transparently was too little. Residential care beds al k. still disappearing at unprecedented levels.
On top of that, as we have heard from many noble Lords, are the issues of recruitment, retention and morale in the health service across a huge range of professions. The problem in these cases is not helped by the protracted and difficult discussions over regulation and the creation of a new overarching body—the council for the regulation of healthcare.
In this climate, morale declines. The noble Lord, Lord Walton, mentioned consultants leaving the health service. I believe that a quarter of our general practitioners want to retire. Even today I have received a letter from a health visitor saying that health visitors are convinced that the role and title of "health visitor" will be abolished in the new regulatory order. I am sure that the Minister can give reassurance, but that demonstrates the level of morale in the service.
The key purpose of the debate has been to highlight issues in the area of medical teaching and research—and as we have heard, there are many issues. I have considerable concern about training. Yesterday we heard from the Royal College of Nursing about the state of nurse education and the problems faced by nurse lecturers in "Charting the Challenge for Nurse Education" in terms of workload, role and clinical practice, with particular dangers for adequate clinical supervision. Are the Government addressing those issues with the Royal College of Nursing?
In terms of training doctors, the noble Baroness, Lady Warwick, highlighted some of the positive initiatives that are taking place. Of course, as she pointed out, they all require more resources. The Minister and his colleague, the noble Baroness. Lady Ashton of Upholland, know full well that I have highlighted the problems with the skewing of medical education as a result of the research assessment exercise (RAE) that values, and gives resource to, research at the expense of medical training. The RAE was described as a juggernaut by no less than the vice-chancellor of Manchester University, which is a fairly telling description. What answer does the Minister have to that?
We have a massive shortage of doctors in this country, which is a legacy of the previous government and the first two years of this one. Yet government policy appears to be designed to ensure that we do not achieve the numbers of well trained doctors that we need. In the past, the noble Lord, Lord Hunt, has recognised the problem at the interface of RAE with the need for teaching quality and resource, but what are his current thoughts? Who will fulfil teaching commitments? Surely not hard-pressed NHS consultants.

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I had wanted to cite one example at some length, but unfortunately I cannot. I am sure that all noble Lords could give a number of examples. At Imperial College there have been some 59 redundancies over the past year. Some people have been brought back on short-term contracts, but many of them have not and they are lost to medical teaching.
Despite that type of culling, there is a major problem with the recruitment of medical teaching staff. The noble Lords, Lord Walton and Lord Chan, and the noble Baroness, Lady Warwick, pointed to the vacant chairs that cannot be filled by suitable applicants. The hours that need to be worked to fulfil clinical and academic commitments are clearly unreasonable. It is no wonder that in many specialties doctors are choosing to drop their academic and teaching commitments. Overwork for teaching staff and inadequate training for medical students inevitably follow. As a result of that and similar actions, the workload for medical academics has increased massively. The Minister needs to produce answers.
On research, the noble Baroness, Lady McFarlane, identified key areas where further research is needed in nursing. Similarly, the noble Lord, Lord Chan, in relation to medicine and my noble friend Lady Northover raised some pertinent questions that I hope that the Minister will answer today about the Section 60 regulations and the fate of the PIAG.
A further aspect is the matter of research fraud. A number of prominent research doctors have raised this issue and have proposed a body to respond to research misconduct. Many involved in academic medicine would like to see that set up.
Although this debate has only scratched the surface of this subject, a huge amount of wisdom has been displayed. As the right reverend Prelate the Bishop of St Albans pointed out, there is a considerable degree of scepticism and disillusionment with the Government's performance. The Government still have to demonstrate that they mean business with the NHS and that they are prepared to share their doubts and worries about the NHS and its performance.
The Government took a dramatic step in increasing the funding for the NHS following their first two years of inaction. I did not realise, with reference to the noble Lord, Lord Rix, that Ovid was quite so apposite in the circumstances. A notable number of practitioners have taken part in the debate. I urge the Minister to accept at least their diagnosis, even if he does not accept every jot of their prescription. To paraphrase the noble Baroness, Lady Greenfield, this debate has shed a great deal of light, but it is up to the Minister to ensure that the debate bears fruit.
8.5 p.m.
Earl Howe: My Lords, for those who may be tempted to downplay or belittle the role of your Lordships' House as a House of experts, there can surely be few better rejoinders than this debate today, so ably introduced by the noble Lord, Lord Walton of
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Detchant. We have heard some outstanding contributions, not least that from the noble Baroness, Lady Greenfield, whom I warmly congratulate.
I believe that the noble Lord, Lord Walton, has done the House a considerable service by raising a topic that is of central importance for the future of healthcare in this country. Indeed it is probably not going too far to say that the targets set out in the NHS Plan for the recruitment of additional GPs and consultants, as well as the maintenance of adequate standards in training those new recruits, depend critically on the availability of sufficient and properly qualified teaching staff.
To appreciate the importance of clinical academics, one has to understand their role. Clinical academics have three principal functions as employees of universities: they are fully trained specialists or GPs who teach undergraduate medical students; they undertake clinical practice which includes direct responsibility for patient care and the training of young doctors; and they undertake research into the prevention, diagnosis and treatment of disease.
It is the last of those, the research activity, that is seen as the raison d'être of clinical academics. Universities are research-led. The work carried out in university medical schools leads directly to advances in the clinical management of disease and to improvements in both the health and the wealth of the nation.
In the past, as the noble Lord, Lord Clement-Jones, reminded us, clinical research was also undertaken by NHS doctors. For reasons that do not need stating, doctors are increasingly unable to perform that role, and it is clinical academics who are now the predominant drivers of research in British medicine. It is to them that the country turns whenever there are new and unforeseen public health crises such as new variant CJD or HIV; and it is often they who are leading contributors to the medical royal colleges, the research councils and the international medical bodies.
The prospects for making real advances in biomedical and health research have seldom been more exciting than they are today. Despite that, over the past 10 years we have seen an increasing reluctance among young clinicians to enter the world of academic medicine. The Richards report of 1997, acting in response to concerns raised by a Select Committee of your Lordships' House, voiced serious worry about the growing shortage of academic clinicians, as graphically evidenced by numerous vacancies in professorial chairs. The unavailability of suitably qualified candidates for such senior posts is seen as a real threat to the future of some key disciplines.
Even at junior level, as many noble Lords have reminded us, there has been a fall in the numbers of clinical lecturers in post. Overall numbers of clinical academics have fallen by 20 per cent since 1992. Unless those trends are halted and reversed, centres of excellence will literally disappear and we shall be unable to provide the standards of training to medical students that both they and the nation expect and deserve.

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The disincentives against taking up an academic career have been well articulated by the noble Lord, Lord Turnberg, and other noble Lords. Some of those arise from the need for medical academics to reconcile the competing demands of two employers: the universities and the NHS. In many specialities workloads have become almost insupportably high, with medical academics far exceeding their contracted hours of employment, especially on patient care. The Royal College of Physicians has found that 64-hour weeks are common. There is a shortage of opportunities for protected post-doctoral research and insufficient flexibility to combine such research with clinical training.
But the more fundamental disincentives relate to the absence of a clear career structure; prolonged insecurity of employment before obtaining a senior post; and, significantly, the lack of financial incentives. Medical research is not a lucrative occupation. It must also be remembered that clinical academics, unlike NHS consultants, have no opportunity to generate earnings from private practice. The NHS Plan, while providing for a system of rewards for consultants, does not extend these rewards to academic clinicians specialising in general practice. That deficiency must be addressed. Unless such clinical academics are made eligible for distinction awards, recruitment and retention can only worsen further.
If we look at one of the Government's key targets—cancer—there is already a worrying shortage of clinical oncologists. It took the University of Glasgow and the Cancer Research Campaign over 18 months to replace the head of clinical oncology at the Beatson Oncology Centre in Glasgow. That is not the only example in oncology. In fact, in cancer research posts, more and more of the funding is being left to charities which are finding it very difficult to compete with the draw of Europe and the United States in particular. The situation is unacceptable and really cannot continue if the imbalance between cancer survival rates in the UK and other countries is to be corrected. In pathology, in psychiatry and in surgery the shortages are even more acute.
Last year the Academy of Medical Sciences, under the chairmanship of Professor John Savill, published a succinct and authoritative report on these issues, called The Tenure-Track Clinician Scientist. I hope that the Minister will be able to tell us that the seven principal recommendations in that report are being actively pursued by the Government. I hope too that any such action will recognise the intimate interdependence of the three facets of clinical academic medicine that I mentioned just now. Medical training is funded by two government departments— the Department of Health and the DfES.
I worry sometimes that the substantial new money promised to the NHS, however welcome it is—and it certainly is—may mean that in the joint departmental responsibility for medical education the DoH will assume a dominant role. That would be regrettable. Medicine needs constantly to relate across to the wider
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science and education base, and the DfES therefore needs to be kept closely involved in the fastchanging field of medical education.
Equally, we need to ensure that the forthcoming delegation of budgets to PCTs will be associated with improved clinical teaching and research in all subject areas, and not either with short-termist attitudes or with a curtailment of academic disciplines.
When the noble Lord, Lord Walton, and my noble friend Lord McColl raised the issue last year of the number of vacant clinical chairs in the UK, the noble Baroness, Lady Blackstone, gave a reply that I thought was quite alarming. She said that the recruitment of university staff was nothing to do with the Government. That answer seemed to me at the time to be an abdication of legitimate ministerial concern. This really is the time for the Government to take the issue in hand and to take it seriously.
It is certainly true, as the noble Baroness, Lady Greenfield, so eloquently said, that for clinical academic medicine to become a more attractive career choice it will take a concerted effort by all stakeholders, including government, the royal colleges and the universities. But the Savill report pointed the way to how this might be done. It is vital both for our healthcare and for our country that such efforts are encouraged and that they succeed.
8.14 p.m.
Lord Hunt of Kings Heath: My Lords, I start by echoing remarks made by the noble Earl, Lord Howe, in paying tribute to the quality of the debate today. Much of that is due to the noble Lord, Lord Walton, both for his initiative in introducing this debate and for the quality of his speech.
I also take the opportunity to pay tribute to the noble Baroness, Lady Greenfield, on what I can only describe as an extraordinary and delightful maiden speech. We look forward to her contributing more in our health debates in the future.
The focus of today's debate is on medical teaching and research but undoubtedly within the wider context of the future direction of the National health Service. I want to respond to the many comments that have been made about medical teaching and research. I agree that they are vital. They have a direct input to the quality of our doctors. The United Kingdom has a worldwide reputation for the excellence of its academic teaching. That is important to us in terms not only of the quality of doctors but also of this country's investment in the science base and in the relationship, as my noble friend Lady Warwick said, with the research-based R&D, pharmacy companies which are responsible for 23 per cent of all commercial investment in R&D in this country.
There needs to be the strongest relationship possible between the National Health Service, universities and the private sector. That must be seen within the wider context of the National Health Service. The noble Lord, Lord Walton, very much echoed by the noble

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Lord, Lord Patel, raised issues over funding, the shortage of GPs, beds and consultants. I shall come to those matters.
The UK is not unique in facing up to issues and problems in its healthcare system. Most healthcare systems of the world face considerable challenges over the same kind of issues as we do such as funding—although some of them may be at a higher funding level than ourselves—issues to do with patient involvement and consent and issues in relation to the undoubted pressures that there are on many of our health professionals.
Although the right reverend Prelate the Bishop of St Albans warns us of statistics, I believe that there is convincing evidence that considerable progress is being made—the national standards arising from National Health Service frameworks and the focus on quality and outcomes. Ten years ago there was great concern that quality and issues to do with standards hardly rated a mention by trust and health authority boards. The whole issue of quality and standards is now right up there as the number one concern of all NHS organisations.
For the first time in 30 years extra beds are being brought into commission. I listened with great care to the noble Lord, Lord Walton, when he referred to a number of PFI schemes. He said that the bed numbers had been reduced. The process that we adopt for a new capital proposal is that there is a projection of the number of beds before any decision is made about whether it should go down the PFI route or the public finance route.
Our latest PFI hospital, the Norwich and Norfolk, which is truly magnificent, successfully increased its required number of beds during the contract. Overall, more beds are being opened in the health service. It is not just a question of capacity increase; we must give patients choice. I accept the point raised by the noble Lord, Lord Walton, that we cannot have a culture of blame in the health service. We need to decentralise decision-making in the health service.
The noble Lord, Lord Clement-Jones, is always accusing the Government of micro-management. But, shifting the balance, the process of change we are seeing now is designed to move away from such micro-management, to have more focus on a limited number of priorities and to have much more frontline decision making. Seventy-five per cent of the NHS budget by 2004 is to be decided upon at the primary care level.
It is not a matter of either capacity or structures. I accept the point raised by the right reverend Prelate the Bishop of St Albans that of course we have to look at the personal needs of patients. He asked whether the NHS is wholeheartedly committed to recognising the spiritual needs of our patients. I say that we are. I recognise that in some places we have not been able to do all that we need to do. However, I can assure him that the Government are ever willing to discuss with the Churches and other faiths ways in which we can improve that spiritual care for those patients who wish to receive it.
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The right reverend Prelate the Bishop of Portsmouth asked for a reality check and referred to the gap between high-tech equipment on the one hand and waiting on the other. A number of other examples were given. We need to equip ourselves with high-tech equipment. The NHS has run for far too long on out-of-date, old-fashioned equipment. But the key to dealing with waiting is to increase overall our capacity; and the key to that is staff.
We have an ambitious programme for increasing the number of staff. I believe that we shall meet the target of 10,000 extra doctors by 2005. As my noble friend Lord Rea pointed out, a key plank is the increase in medical school places. Between 1997 and 2005 over 2,000 medical school places will have been created in England, with four new medical schools and three new centres of medical education.
The noble Lord, Lord Patel, asked whether there is a problem with regard to the number of applicants to medical schools. The latest figures for the 2001 entry are 8,438 applicants, with 5,869 accepted. For the 2002 entry, 9,018 applicants—a large increase over last year—have been received. I have no indication whatsoever that the quality of those applicants is any lower than in past years.
A number of noble Lords made important comments about the curricula. I do not disagree with those comments. The noble Lord, Lord Colwyn, referred to complementary and alternative medicine; and the noble Lord, Lord Rix, referred to learning disabilities. He put forward a persuasive case and I noted the support of Dame Deirdre Hine. The pressure on deans and medical schools to ensure that they cover so many different parts of the curricula is very great. While I would encourage medical schools to think widely about what should be in the curriculum, we need to recognise the pressures on them.
I say to the right reverend Prelate the Bishop of St Albans that I believe we shall meet those targets. We believe that we have enough specialist registrars in post to deliver the bulk of the 7,500 consultant targets. But we shall look further to boost their numbers by action to reduce delays in training throughput and international recruitment.
We have already announced the first 300 of the extra 1,000 specialist training places we plan. Those will be in place by April. Further increases will be supported by full funding of new posts from this year and all posts from next year.
Let me address the issue of international recruitment. The right reverend Prelate the Bishop of Portsmouth and my noble friend Lord Rea expressed some concern. I want to make it clear that we are recruiting only from countries where there is a clear surplus of either doctors or nurses; and that we are doing so with the encouragement and agreement of the governments of those countries. I believe that that is the right approach. As I mentioned earlier, we think that by changing the arrangements for training we can ensure that in some cases we can speed up the training programme. I want again to respond to the right reverend Prelate the Bishop of St Albans by saying

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that this is being done by eliminating some unnecessary delays and dead time. It is not fast tracking in the way he suggested.
The noble Lord, Lord Chan, asked about refugee health professionals. I recognise that there is a community of people who could be used in the National Health Service. We are working with the Refugee Council and the BMA. We have also set up a steering group to allocate funding for projects targeting the needs of refugee health professionals. I understood the point that the noble Baroness, Lady Masham, made. We are conscious of the need to make the best use of doctors in the UK.
It is important to recognise nurses' contribution to expanded capacity in the National Health Service. We have seen a massive increase in the number of nurse training places. That will give us confidence to ensure that we will meet the targets we have set in relation to the nursing staff we require for the future.
One cannot discuss the NHS without talking about resources. Many noble Lords have recognised that we are putting in considerable extra resources and that we now have the fastest-growing health service of any major European country. It is true that we have a long way to go to catch up with many of our European partners. The scale of increase—it is 6.7 per cent in real terms—for this financial year is impressive. I am not convinced that there are magical alternatives to the current funding regimes. The right reverend Prelate hinted at social insurance as used in parts of Europe. But that is not always an advantage. Many companies in Europe are concerned about the cost to them of their contribution to that social insurance scheme. In many ways one can think of social insurance schemes as a tax on jobs.
The noble Lord, Lord Walton, encouraged by the noble Lord, Lord Patel, wished me to be brave in standing up to the Treasury in relation to hypothecation. It is true that I had a briefing from the Treasury on this matter but I failed to understand it. I am not convinced of hypothecation. In the end it is still part of the general taxation picture. When government make a decision about the general level of taxation I am not convinced that the NHS would do any better than at present. My right honourable friend the Chancellor has asked Mr Derek Wanless, previously of Nat West Bank, to undertake a long-term assessment of the trends which may affect the UK health service over the next 20 years and to identify key factors which will determine the financial and other resources required to ensure that the NHS can provide a publicly funded, comprehensive health service. I understand that his recommendations will inform decisions to be taken in next year's Budget. I believe that in the meantime the amount of resources that we have put into the health service are very significant indeed.
The noble Baroness, Lady Northover, and my noble friend Lord Turnberg, raised concerns about progress in relation to Section 60 of the Health and Social Care Act. I well understand the issues they raise. I would be concerned about "research blight" as it has been
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described. I understand that membership of the advisory group will be announced shortly and that the regulations will be made as soon as possible. I have taken notes of the comments raised. I shall make sure that the matter is drawn to the attention of those responsible for ensuring that those proposals are up and running.
This question is related to teaching and research. The research infrastructure in this country is of a high order. In partnership with the Wellcome Trust, we are now investing an extra £1.75 billion in the research infrastructure, much of which supports biomedical research in the universities. I accept that we need to consider whether investment in research, especially when we examine the trends in the past few years, ought not to relate only to medical research.
I listened with great interest to the remarks of the noble Baroness, Lady McFarlane, who was a distinguished nurse academic in her own right at Manchester University. She put forward a convincing case with which I have every sympathy. We have not seen the consortium report, but we shall read it with interest. I have made the point in my discussions with Sir John Pattison, the department's director of research and development, that we need to consider research in relation to nursing and the other non-medical professions.
I turn to a number of the specific issues that have been raised in relation to clinical academics. I can tell the noble Baroness, Lady Northover, my noble friend Lady Warwick and the noble Lord, Lord Walton, that there is no doubt that there has been long-standing anxiety about the recruitment of clinical academics. Those concerns have been further fuelled by the increase in medical students and the need to have a sufficient quality and quantity of clinical academics to teach that growing number of students.
I was interested in the references made to current vacancies. I understand from the CHMS survey on clinical academic staffing that there are 73 professorial vacancies but that 45 were being filled at the time of the survey. With regard to lecture posts, the figure is 322 vacancies, but 180 of those are being filled. I am not suggesting that that is particularly comforting. I recognise that there are enormous pressures in the universities to ensure that those places are filled. Certainly the Department of Health via the academic and research sub-group of the Advisory Group on Medical Education, Training and Staffing has the long-term aim of developing a comprehensive database of clinical academics and is embarked on a project to conduct it. In addition, the sub-group of AGMET, as it is known, is responsible for taking forward the recommendations from the report of the Academy of Medical Sciences to address perceived disincentives to an academic career in medicine.
The noble Earl, Lord Howe, was right to refer to Sir John Savill's report. We are keen to ensure that the lessons from that report are fully learnt. The noble Earl may know that as a result of that report. we created a clinician scientist scheme jointly funded with

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research interests. I understand that eight of those posts have now been filled and eventually we wish to see 250 posts. This is an exciting scheme that offers new career pathways for the real academic high flyers.
Since the Savill report, the Academy of Medical Sciences, whose work in this area has been outstanding, has commissioned Sir Peter Morris to review and make further recommendations. The academy has highlighted particular areas that it views as a priority for action. I am not sure whether the report has been published yet, but some of the results have been shared with the department. The conclusion of the report is that concerted action by all stakeholders is required to highlight the seriousness of the current position. The academy has commented that, as one of the key stakeholders, the department has already made good progress in taking action to address concerns. We shall want to work with the academy on these issues, and I understand that action has already been taken on one of Sir Peter's recommendations with joint work between Universities UK, the BMA and involving the Department of Health to develop joint appraisal arrangements for clinical academics.
That brings me to the report of Sir Brian Follet on appraisal, disciplinary and reporting arrangements for senior NHS and university staff. It is extremely relevant to remarks made by the noble Earl, Lord Howe. Follet recommends better joint supervision of clinical academic staff. By March 2003 all researchers not employed by the NHS will hold an NHS honorary contract, which includes both research governance procedures and responsibilities if they are to react with individuals in a way that has a direct bearing on the quality of care.
Follet arose from the problems at Alder Hey hospital. The Redfern report identified difficulties in relation to accountability for clinicians who have joint appointments. Follet will be important in sending us in the right direction. I noted the comments of my noble friend Lord Turnberg about the need for a flexible approach, and I shall take that on board. The noble Baroness, Lady Greenfield, talked about the importance of attracting public/private partnerships and the need for workshops, and we shall consider those suggestions carefully.
I am also aware of the career choices facing young doctors. Some may have seen disincentives in opting for academic medicine as they saw rewards more quickly available by pursuing a clinical service-based path. The noble Lord, Lord Chan, made that point. I assure noble Lords that part of our response to the Follet review is to look at the recognition available to clinical academics through the new consultant reward scheme. Outstanding contributions by clinical academics and research workers will be recognised within the new schemes. There is clearly a need to increase rewards for service achievement without diminishing the recognition of university and MRC based consultants. That review should be completed in
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the spring and we want to see coming through from that the potential to reward academic excellence of clinical teachers.
My noble friends Lord Turnberg and Lady Warwick asked about liaison between my department, DIES and Universities UK. We have received proposals from Universities UK and the chairs and chief executives of teaching hospitals. I assure the House that my right honourable friend Mr John Hutton will be listening carefully to those proposals. We certainly accept the need for close collaboration.
The clock ticks away and I shall conclude my remarks by saying how confident I am that the NHS is up to the tough challenges that it faces. I am sure that we need good quality teaching and research to help us to do that. The NHS is one of our finest assets which we must support and cherish. We are determined to do so.
8.38 p.m.
Lord Walton of Detchant: My Lords, we have had a fascinating and, at times, outstanding debate. I must say how grateful I am to all noble Lords who have contributed to it and who have made so many important and valid points. In particular, I echo the remarks of congratulation made to my noble friend Lady Greenfield on her electrifying, inspiring, lucid and outstanding maiden speech. I trust that we shall hear a great deal more from her in the future.
I should love to comment on every contribution that has been made in the debate, but I am conscious of the fact that not very long ago I was gently but firmly rebuked by the Chief Whip for spending too long on my closing remarks at the end of such a debate.
The noble Lord, Lord Turnberg, talked about the 10 key principles, which, in this collaboration between Universities UK and the NHS, must be maintained. The noble Lord, Lord Colwyn, referred to integrated medicine; the noble Baroness, Lady Northover, spoke about the importance of epidemiological research; the noble Baroness, Lady Greengross, talked about the crucial importance of examining the problems of an ageing population; and the right reverend Prelate the Bishop of St Albans highlighted the crucial importance of a multi-faith society, the hospice movement and palliative care.
As one would expect, my noble friend Lord Rix talked about the importance of training in the care of patients with learning disabilities. The noble Baroness, Lady Warwick, spoke about widening participation in medical education, while my noble friend Lord Patel referred to the important role played by doctors trained overseas. I hope that the Minister will take note of one matter of importance arising from his comments and those of my noble friend Lady Masham. The GMC is most anxious to introduce a single form of registration for all overseas doctors. The present process of registration creates barriers to many doctors, for example, refugees who come to the UK, as my noble friend Lord Chan said. I hope that that will be examined very carefully.

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The right reverend Prelate the Bishop of Portsmouth, in one telling phrase, said that there was a narrow gap between aspiration and reality of which we must be very well aware. The noble Lord, Lord Rea, referred to primary care and the crucial importance of increasing the number of general practitioners, while my noble friend Lady McFarlane of Llandaff spoke very forcibly and effectively about research in nursing.
I am very grateful for the support that I have received in this debate from the noble Lord, Lord Clement-Jones. He referred to many issues, for example bed blocking, the importance of community hospitals and residential care beds. The noble Earl, Lord Howe, stressed the need for the NHS Plan and targets to take fully into account the crucial importance of clinical academic medicine and research in the university/NHS interface.
In his gracious and courteous response, the Minister carried his bruises manfully. He referred to international comparisons. There are many problems in healthcare systems across the world. If one talks to people in France, there are very few in that situation. The French healthcare system is very properly regarded as an outstanding example. Obviously, it costs very much more than the present provision in the UK. I was glad to hear the noble Lord say what he hoped to do about removal of the culture of blame and increasing not only bed capacity but the number of health service staff under an ambitious programme. I also appreciate his comments on resources and hypothecated taxation.
The Deputy Speaker (Baroness Hooper): My Lords, I regret that the time allotted to this debate has now elapsed. Does the noble Lord wish to withdraw his Motion?
Lord Walton of Detchant: My Lords, I simply suggest to the noble Lord that if he did not understand the briefing from the Treasury he should try a little harder in future and proceed with the implementation of the Saville and Follett reports, which he so wisely commended, through the Academy of Medical Sciences. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

Religious Hatred
8.43 p.m.
Lord Campbell of Alloway Lord Campbell of Alloway rose to ask Her Majesty's Government, given that they are proposing to legislate to proscribe incitement to religious hatred, why they do not consider it appropriate to treat such incitement as an aggravating circumstance under existing law to afford a greater sentence.
The noble Lord said: My Lords, I rise to ask my Question with an expression of sincere gratitude to the noble Lord, Lord Rooker, for his ready agreement that we should have an exploratory discussion on Part 5 of the Bill and not be restricted to the terms of the
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Question on the Order Paper. My Question is an attempt to identify aspects of concern. It is an irenic exercise to seek an exchange of opinion on matters of general importance which affect the approach to Second Reading of the Bill.
Before we enter into the matter, as I have no other opportunity, perhaps I may acknowledge with gratitude the help from Lambeth House, from right reverend Prelates who are unable to attend this debate and all noble Lords who are due to speak, including the right reverend Prelate the Bishop of Oxford
On 15th October the noble Lord, Lord Rooker, heralded the introduction of new laws, as he put it, to make incitement to religious hatred a criminal offence which, when presented in Part 5 of the Bill as a series of "grafts" on existing law as aggravating circumstances to afford an increased sentence, adopted the very suggestion made when this Question was tabled.
The parliamentary draftsman, faced with a cat's cradle of complexity, is to be congratulated on having produced a simple, straightforward and satisfactory result, perhaps subject to reservations on paragraphs (d) to (f) of Clause 38(4), with which I shall deal in principle but not in detail when I conclude.
The problem with which Part 5 was devised to deal—this is part of the essence of the debate—was identified by the right reverend Prelate the Bishop of Birmingham as the misuse of religion as a proxy for other purposes: the exploitation of religion as a cover for racial hatred in this country where Islam is perceived as an Asian religion and attacks on Islam are used for incitement of hatred against people of Asian origin. If one studies the Official Report—I shall not quote from it because there is not time—that analysis was, I believe, accepted by the noble Lord, Lord Rooker. The noble Lord said that the Government did not intend to define religion as that was not the issue.
The problem is that, if such be the essence of the problem in our country—I have had another word with the right reverend Prelate the Bishop of Birmingham and, although he cannot attend, he confirmed that that analysis is correct—certain questions arise which assuredly I am not able to answer. Is there any need to introduce new measures if one can deal with the stirring up of racial hatred under the law as it stands? To me, that question begs any simple answer. On the other hand, can one empty religion—a source of identity, allegiance and way of life—into some other category of container?
The next question as to our approach is whether the introduction of new laws as proposed by Part 5 would be effective to serve their intended purpose or perhaps defeat such purpose. Is not Part 5 more likely to be used against Islam, which writes and speaks as a matter of belief with overt contempt of Christianity, than against adherents to the more tolerant faiths?
The next question that arises, as I see it—although I am no expert in this affair—is: are there not problems of definition as to what is religious in the context of hatred? There are many sects which claim to be religious—we know them all, or at least most of them—which are not recognised as such.
Another problem arises on an approach to the Bill. If satirical or serious aesthetic, agnostic or religious expressions of opinion on religion are not excluded from the prohibition, the new laws will not conform to Articles 9 and 10 of the convention covering freedom of expression and belief. But the noble Lord, Lord Rooker, will be aware that those provisions have either been used or misused, for example, to ensure that the appointment of an administrator to a religious institution shall be open to those of no religious belief. That is a form of anti-discrimination or equality of opportunity which, in my opinion, has gone right over the top.
There is another problem. As we are concerned with an indigenous domestic problem of ethnic proportions in our country to protect the subjects of Islam, is it appropriate to seek to deal with this in a Bill to contain and defeat international terrorism? I do not know the answers to these questions; I raise them as questions because I am not competent to answer them. Is it appropriate or requisite that incitement to religious hatred should be included in the Bill?
The other day, I had a discussion with the noble Lord, Lord Rooker—always in amity—about recruitment. Apart from that, I ask whether there is any connection between religious hatred and international terrorism? Lastly, I ask respectfully: if we are to introduce new laws as proposed in Part 5, ought that not to be the subject of a separate Bill and removed from Part 5?
If such be the broad parameters of debate, may we look at the broad structure of Part 5, which would not appear to be incompatible with Articles 9 and 10 of the convention—and I accept the noble Lord's certificate, save perhaps as regards Clause 38. Although this complex structure, a kind of cat's cradle of criminality, is set out in Clauses 36 to 41, the devil is in the detail and it would not be appropriate to deal with that tonight. We are concerned with matters of principle and that can be dealt with on Second Reading of the Bill.
But this complex structure of criminality is relevant, as I see it, when considering some of the questions within the parameters of the speech that I have made. However, I respectfully suggest that Clause 38(4)(d) to (f)—there is no need to look at those paragraphs at the moment—which concerns the public performance of plays, distributing, showing or playing a recording, broadcasting or including programmes in cable television services, is really beyond the scope of any Bill. One may well ask whether such provisions are proportionate to protect the Asian community within the ambit of Articles 9 and 10 of the convention, if Part 5 were enacted.
It is appreciated that it is easier to ask questions than to answer them.
8.56 p.m.
Lord Haskel: My Lords, I am most grateful to noble Lords for staying late this evening, and of course I include the noble Lord the Whip on the Front Bench and the Deputy Chairman. The right reverend Prelate the Bishop of Oxford has been up for a long time. I think that I heard him speak on the radio early this morning and so he has had a long day. I had thought that rather more noble Lords would have been tempted by the Question put down by the noble Lord, Lord Campbell. They could have used it to have a preliminary canter around the terrorism Bill, in particular Part 5. I must confess, like the noble Lord, Lord Campbell, that was partly my motivation for speaking in the debate. However, our numbers are small and I shall be brief.
For eight years I have sat opposite the noble Lord, Lord Campbell, and have constantly disagreed with him. However, tonight may be the one occasion on which he and I are in agreement, but perhaps for different reasons. I am not a lawyer and so my knowledge of the law is rather simplistic. In my simple way I had always thought that in this country we have freedom of speech. However, if by abusing that freedom a person incites others to break the law, that person can be prosecuted if it is in the public interest. It does not matter whether the cause of the incitement is religious, racial or whatever.
Perhaps I may illustrate my point. I should say straightaway that I do not expect the Minister to comment in detail on the material to which I shall refer because it is now in the hands of the police. I have with me some disgraceful recent examples of religious hatred. I have a leaflet which states that paradise will not come until all the Jews are killed. I have the transcription of an audio tape purchased earlier this year in Luton. It gives 19 reasons why there cannot be peace in the world as long as there are Jews: that is why they must all be killed. The justification for that murder is religious.
Surely that kind of incitement is contrary to the time-honoured British civic tradition and law which allows people freely to organise themselves as religious and cultural communities but within civil society and within the law. That is why I think that the noble Lord, Lord Campbell. may be right. Incitement to break the law through hatred is already a crime under existing law and religion can be no excuse for crime.
Indeed, I go further. I am rather nervous of any attempt to create a kind of class legislation as far as religion is concerned. Perhaps I am a little sensitive about it. My sister and I came to this country because that kind of class legislation made life impossible for our parents. Noble Lords may recall that in countries under the control of the Nazis or under the communists, the law gave protection to some religions but not to others. It was against the law to steal but it was all right to steal from Jews or gypsies. This had the effect of codifying religious hatred and religious prejudice, and we all know what that did to Europe only 60 years ago. So I am against any vestiges of

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attempts to separate religious crime from any other kind of crime. Why separate religious hate from other kinds of hate?
No, religious legislation relating to religious and theological issues should be avoided. Indeed, it should be the other way round. Membership of a synagogue or a mosque or a church, or following any religion in Britain, should remain a voluntary, autonomous, individual act fully compatible with the rights and responsibilities of British citizenship and complete equality in British society but within the law.
Here I must declare an interest. I am a deputy chairman of the Institute for Jewish Policy Research. This organisation is a think-tank which was established in London in 1948 by some far sighted people precisely to look at these matters; to study, to inform and to advise on the social and cultural aspects of Jewish life in Britain and Europe. It does not deal with religious matters.
I am advised by that organisation that, for Jews, this matter of religious law versus civic law has been settled business for many years. The principle, which I shall quote in English for the benefit of those whose Aramaic may be a little rusty, is that,
"The law of the land is the law".
This dictum was made by the authority of a Rabbi who lived in Mainz, Germany, from 960 to 1028. Its original purpose, interestingly, was to deal with the number of wives that Jewish men could have depending on whether they lived in an Islamic country or in a Christian country. It still applies.
Indeed, this principle was used in the recent past in Sweden when the Jewish method of animal slaughter was banned. Of course people complained, objected and made a fuss, but in the end the ban became the law. Under the principle that the law of the land is the law, the Kosher method of animal slaughter was stopped in Sweden. For those who want it, Kosher meat can be imported freely from Denmark, where ritual methods of slaughter remain legal.
So I ask the Minister, does he not agree that legislation on religious matters is a very dangerous and slippery path which malevolent people will exploit? Does he not agree that it is up to religious and cultural communities to organise themselves within the law of civil society? The legal weight given to religious authority is up to the individual. People must decide for themselves how far they submit to religious jurisdiction, as long as it is within the existing civil and criminal law. If so, no further laws are necessary to deal with religious hate. The noble Lord, Lord Campbell, may well be right.
9.3 p.m.
The Lord Bishop of Oxford: My Lords, I am grateful to the noble Lord, Lord Campbell of Alloway, for introducing the Unstarred Question. It provides an opportunity for a more reflective discussion than usual on an issue that can be genuinely perplexing for people of good will.
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The Church of England has long supported the principle of extending the protection of the law to all major faith communities in this country. Indeed, I supported two amendments put forward by the noble Lord, Lord Lester, who has long championed this cause, in relation to the Criminal Justice and Public Order Bill in June 1994; and I moved an amendment in July 1994 with substantially the same content as the clause in the anti-terrorism Bill.
The clauses in the anti-terrorism Bill have two main sections. First, Clause 39 amends Part II of Chapter 37 of the Crime and Disorder Act 1998 so that offences can be religiously as well as racially aggravated. This has the great merit that one of the nine crimes so proscribed has first to be demonstrated. In addition to that, it may not be easy to prove that there was a religious element in the crime, but at least there is a clear crime first to which the aggravation would refer. This, I suspect, is why the noble Lord, Lord Campbell, is drawn to this aspect of the Bill. There have been about 21,000 cases of racially aggravated offences, so clearly this is an offence which it will be possible to pursue and prosecute.
Secondly, Clause 38 amends Part III of the Public Order Act 1986 so that it becomes an offence to incite hatred of a group, not only on racial grounds but on religious ones. It is this clause in particular which has given rise to serious questioning, as the noble Lords, Lord Campbell and Lord Haskel, have said. For example, the word "religion" itself is left undefined.
There is a fear that healthy criticism of religion might be inhibited. Religion needs criticism and should not get too bothered by lampooning. Those columnists who fulminate against religion are a familiar and much loved feature of our cultural landscape. We would not want a society in which such expressions of dislike for religion were inhibited.
In their response to the Select Committee in another place, the Government gave assurances that legitimate criticisms of religion, humour, artistic depictions of religion and scholarly analysis would not be liable to prosecution in the proposed legislation. I am encouraged by Section 18 of the Public Order Act 1986, which the anti-terrorism Bill seeks to amend, because subsection (1) of that section states:
"A person who uses threatening, abusive or insulting words or behaviour, or displays any written material which is threatening, abusive or insulting, is guilty of an offence if—

"(a) he intends thereby to stir up racial hatred, or

"(b) having regard to all the circumstances racial hatred is likely to be stirred up thereby".

Subsection (5) of the same section goes on to state:
"A person who is not shown to have intended to stir up racial hatred is not guilty of an offence under this section if he did not intend his words or behaviour, or the written material, to he, and was not aware that it might be, threatening. abusive or insulting".
I am encouraged and, to some extent, reassured by those words. It is clear that for an offence to be proved there must be a proven intention as well as a judgment that racial hatred is likely to be stirred up.
Nevertheless, I believe, with the noble Lord, Lord Campbell of Alloway, that this whole issue needs to be probed further. It would be disastrous if a genuine

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desire to protect all faiths in their central convictions from criminal hostility should lead to any diminution in the right to free speech. It also needs to be pointed out, as has been mentioned already, that a variety of Muslim organisations who gave evidence to the Select Committee in the other place also expressed a number of reservations about this legislation. They feared that in the present climate it could work against rather than protecting them.
So there may very well be a case for further consultation, at least as regards the clause referring to the incitement of religious hatred before a final decision is made. I understand that that is going to be the case in Scotland.
Quite rightly, people point to the difficulty of obtaining convictions for incitement to racial hatred. In fact, since 1988 only 42 defendants have been successfully prosecuted. In 1999 there were only four prosecutions which resulted in only three convictions. But it may be that the smaller number of convictions itself highlighted the case for this kind of legislation. As we all know, the law has a declaratory purpose and a deterrent effect. It could be argued that the laws against incitement to racial hatred have in fact played a role in making such hatred less frequent. It is for that reason that, although I believe that there needs to be further discussion and probing along the lines I have suggested, I am at this stage at any rate inclined to accept both Clauses 38 and 39 of the anti-terrorism Bill even though I do have sympathy with the concerns of the noble Lord, Lord Campbell of Alloway, and believe that we need further probing and reassurances from the Minister, particularly as regards Clause 38.
9.10 p.m.
Lord Dixon-Smith: My Lords, I am grateful to the noble Lord, Lord Campbell of Alloway—as, I am sure, are other noble Lords—for introducing this preliminary skirmish, if one can permit that general phrase, around the question of religious prejudice and incitement and the forthcoming anti-terrorist Bill. I have enjoyed some discussions with the noble Lord before this evening. I believe that this debate can be nothing but helpful to those major debates next week in that to a degree it will clear the air. We are on extremely ticklish and difficult ground because I believe that everyone who has spoken has highlighted the problems of defining the distinction between what is regarded as freedom of speech, which is proper, and what is regarded as incitement to something rather worse, which is clearly improper.
I hope that the right reverend Prelate will forgive me for saying this, but when one considers freedom of speech in the religious sense, if one is dealing with a dedicated evangelical person of any religion, the debate verges on incitement to other things if one is not extremely careful. I acknowledge that most people, certainly in a country such as ours, would not wish to incite anything worse, but the danger is that that can be done inadvertently.
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There is a further problem which has been illustrated to some degree in the debate this evening. All too often the use of religion is in fact a surrogate for race. Religion is not a surrogate for race and we should never treat it as such. I hope that I can say without fear of contradiction that on the whole whatever religion people profess in this country, this would be regarded as a Christian society. We may express agnosticism; we may adhere to the Christian faith, the Jewish faith or any other faith; but our history and tenets are those of a Christian society. There are Christian societies all over the world—French, German, American, Australian, and South American. It is easy to make a distinction between such societies on racial grounds.
Precisely the same is true in relation to Muslims. I mention this deliberately because all too often in this country, which is supposedly a Christian society, we behave in an un-Christian way towards Muslims. We do it on a racial basis, and we presume that one is a proxy for the other. But let us consider Muslim society: there are Pakistanis in this country, there are Bangladeshis, there are almost certainly some people of Indonesian extraction, I know some Iranians here, there are Iraqis, Arabs, and people from Malaysia—all of whom are Muslim.
I am grateful to the noble Lord, Lord Ahmed, for a story which has some significance. I am sure that he will not mind my quoting it. In a town which I shall not name, as this is a matter of some shame, a job advertisement was placed for a van driver, added to which were the words, "Muslims should not apply". The matter was referred to the Campaign for Racial Equality on the grounds that the advertisement demonstrated prejudice and was wrong. I believe that we should have no difficulty in agreeing that it was wrong. The CRE could find no redress in law. It found that it was not a racial offence to include a religious distinction in an advertisement. So we need to think carefully what we are about.
My noble friend Lord Campbell mentioned another problem. I agree that there is a difficulty when we come to consider religious incitement. Without quoting the source religion, the noble Lord, Lord Haskel, quoted from some documents that had come into his possession. That religion is not the only offender in this regard. There are those—sadly, not always religious groups—who use religious incitement just as much against a particular faith in the opposite direction, as it were. Everyone present will know what I am talking about. We regard these matters as wrong—I believe that we are in complete agreement on that. But we are used to more tolerant ways than those to which many other countries are accustomed.
I am trying to pick my way gently through a situation that is extremely difficult. It is all too easy when discussing this issue to give offence one way or the other. We are fortunate in one regard. We are not in a situation in this country where we have to stand up and be counted for our religious views. That is not the case in many other parts of the world, and we should remember that—I do not know whether with pride or humility. We are blessed in that regard.

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If a law is introduced to deal with religious prejudice, I say in the strongest terms that it must apply with equal force to all religions within this country. For it to do anything else would be improper. If the concern expressed by my noble friend Lord Campbell of Alloway is real—namely, that such a law might impact on the Muslim religion—we should not withdraw from such action because that might be the case. I know for a fact that within that religion there will be those who would regard that fact as a matter of protection for themselves. For moderate and ordinary Muslims who are, as it were, more attuned to the philosophy to which we are accustomed in this country, extremists are an embarrassment. They are an embarrassment to the majority of the Muslim community. We should regard in the same way any Christian who was so fanatical about his beliefs that he preached against other religions in such a forceful way as to incite hatred. Because the situation is not properly covered, there probably is a case for legislation in this area.
That leaves a second question. Is trying to resolve that issue appropriate in the present context? An antiterrorist Bill is being introduced in an emergency situation and with great speed. This House has agreed to throw all of its normal legislative practices to the winds. However, I am bound to say that we are being treated quite generously—this House is being allowed eight days to discuss the Bill, whereas the House of Commons has to pass it in three. When I heard today that those who are against cloning for reproductive purposes will have to steer a Bill through all of its stages in one day, I thought that we had been fairly generously treated!
These issues have very serious implications for freedom of speech—grave implications run across society. Those issues deserve considerably more discussion—the word "consultation" is not quite right—in the wider community than has been possible with regard to the Bill. I have grave doubts about whether it is appropriate to include the proposal in the Bill. I should vastly prefer it—we shall go into this next week in much more detail—if the subject were not part of the Bill. The matter should be given much more careful and considered attention in a separate Bill, which could be introduced in the near future for full consideration by Parliament. It has to be said—I shall say this again next week—that the enormous haste with which the Bill is being pressed through means that the consideration that has been given to it is not really sufficient to deal with this fundamental issue.
9.23 p.m.
The Minister of State, Home Office (Lord Rooker): My Lords, I am extremely grateful to the noble Lord, Lord Campbell of Alloway, for initiating this brief debate and to my noble friend Lord Haskel, the noble Lord, Lord Dixon-Smith, and the right reverend Prelate the Bishop of Oxford for their contributions.
I do not intend to make a long speech or give the speech that I, or one of my colleagues, will deliver next week. To the best of my knowledge, this part of the Bill has not yet been debated in the other place—I believe
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that that will be done on Monday. I shall not prejudge any of the decisions that may be taken in the other place. It is therefore best that I stick to the central issue.
We have had a run round the course and some interesting questions have been raised. That will be helpful to Ministers and those in my department who are considering the issue. We do not in any way regret this debate or that on Monday when we had in effect two debates—one was closely related to the Bill and the other was related to anti-terrorism and to other Bills. I have no problem at all about that.
I shall give an overview of the way in which the clauses are contained in the Bill. At present there are two kinds of race hate laws on the statute book. First, in relation to incitement to racial hatred, there are six offences contained in Part III of the Public Order Act 1986. They are offences that deal with stirring up racial hatred by, for example, making speeches or distributing inflammatory leaflets. Secondly. there have been introduced into the Crime and Disorder Act 1998 nine racially aggravated offences, based on four types of existing offence: offences against the person, including assault and malicious wounding, criminal damage, threatening behaviour and protection from harassment. Where there is evidence of a racist motive or racial hostility in connection with the offence. those aggravated offences carry higher maximum penalties than the basic offences. That is how the law currently stands. It has, of course, been much debated iii both Houses over the past 30 years since the original Race Relations Act.
In the Anti-terrorism, Crime and Security Bill, we are proposing that those two groups of offences should be expanded to cover incitement to religious hatred and religiously aggravated offences. Regrettably, since 11th September some people in this country have sought to stir up tension between communities and have attacked people apparently on the basis of their perceived religious beliefs. The Government do not believe that that kind of behaviour is acceptable in our society.
As the noble Lord will know, it is an offence to incite another to commit a criminal offence. However, there is no criminal offence of religious hatred, nor is there a criminal offence of racial hatred. Racial hatred per se is not a crime. That is why there is a specific offence of incitement to racial hatred and why that offence has existed in various forms since the 1960s when it was first enshrined in the Race Relations Act.
Of course, religious hatred and racial hatred may be motives for other crimes, such as assault or criminal damage. Prior to 1998 it was the case, on the clear direction of senior judges, that a racist motive should have been considered by a judge as an aggravating factor in any offence meriting a higher sentence within the maximum available. The racially aggravated offences in the Crime and Disorder Act 1998 were introduced to put that guidance on a statutory basis and to provide for higher maximum penalties for racially aggravated offences. There was a clear perception by communities and by victims of those

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crimes that judges did not consider racist motives as aggravating factors, or, if they did, were not making that fact known.
Religious hatred may also be reflected in other public order offences. Noble Lords may have in mind the offences contained in Sections 4, 4A and 5 of the Public Order Act 1986. Those offences essentially outlaw the use of threatening, abusive and insulting behaviour, but are different from the incitement to racial hatred provisions because they deal with the direct effect that such behaviour would have on an individual. For example, under Section 4, it is an offence to use towards another person threatening, abusive or insulting words or behaviour with intent to cause that person to believe that immediate unlawful violence will be used against him. Those three offences also have racially aggravated versions with higher maximum penalties.
We need the Part III incitement offences and the Sections 4, 4A and 5 offences because, although they may in some respects seem similar, they deal with different circumstances and address different harm. Because of experiences since 11th September, we need to expand those provisions to religious hatred. It is true that many people outside—I do not refer to Ministers or Members of both Houses—initially demanded those provisions and, having reflected on them, may subsequently have thought that they are not such a good idea.
Our proposals will end the unquestionable anomaly in the law whereby some religious groups, by virtue of a distinct ethnic identity, have been considered by the courts to be racial groups and, therefore, offered protection under the race laws, whereas others have not.
That is one reason why those of the Islamic faith feel that they are second class in that sense. It is clear from court decisions that some religious groups—I shall not go into a debate on the details because it is known that there are two—have a close affinity with an ethnic racial background, which means that they are covered under the race laws. There is an anomaly that can be exploited by those who seek to cause problems.
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As the right reverend Prelate said, we are not looking to snuff out vigorous debate and discussion about the merits or practices of various religions—far from it. We are certainly not looking to knock out humour or jokes—or what is intended as a joke. That is the opposite of what we intend.
We are not looking to stifle free speech. There are restrictions on free speech. The classic example is that to stand up in a crowded theatre and shout "Fire!" when there is no fire is an abuse of freedom of speech. Everybody accepts that. We are not looking to create windows into people's minds—far from it.
Looking back at some examples from recent years, I felt incited by the sight of people burning books many years ago. I consider that to be a heinous crime. I do not mind getting rid of a CD or a tape but as a working class boy I have a thing about books. You do not get rid of books and you certainly do not burn them. I felt incited to commit a public order offence when I saw photographs of people burning books because they did not agree with what had been written in them. The hatred in that case was stirred up against the author, not as claimed. I think that our laws should be more likely to catch the book burners than the book writers in some respects.
There is a debate to be had and we shall have it in the next couple of weeks. Having had a run round the course, we should start our debate on the detail after the other place has concluded its consideration of the Bill, however short that consideration may be. I do not want to pre-judge anything that may be said in the other place.
We are not looking to stifle free speech—far from it; the exact opposite is the case. However, when people use threatening, abusive or insulting words or behaviour with the intention or likelihood of stirring up racial or religious hatred, we have to deal with it. That is not a limitation on the free speech that we have fought hard to protect in this country. I do not want to pre-judge the debates in the other place and I look forward to the debates that we shall have in this House over the next two or three weeks.
House adjourned at twenty-seven minutes before ten o'clock.