Lords Sitting of 23 April 2002

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

Children's Commissioners
Baroness Walmsleyasked Her Majesty's Government:
Whether a children's commissioner will be appointed in all parts of the United Kingdom.
The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland): My Lords, a children's commissioner was appointed in Wales in March 2001. A Scottish parliamentary committee recently proposed the establishment of a children's commissioner. A Bill is being drafted in Northern Ireland to establish a children's commissioner. The Government are considering whether lessons might be learned for England given its different structures for children and young people and their manifesto commitment to consider whether to develop and extend the role of the Children's Rights Director.
Baroness Walmsley: My Lords, I thank the Minister for that Answer. I wish her a happy St. George's Day. Does she accept that it is an appropriate day to focus on the discrepancies in protection for children in England compared to those in Wales, Scotland and Northern Ireland? Can she confirm that the powers of the Children's Rights Director are not the same as those of the Children's Commissioner for Wales? He is not an advocate for children in the same way and he does not go around actively seeking the views of children and basing his priorities on those views. Is the Minister aware that the children's charities are so convinced of the need for such an advocate that they have used their budgets to establish an office of children's rights in London, which acts as a de facto commissioner although it receives no support from the Government? Can she give a timetable for the establishment of a children's commissioner for England?
Baroness Ashton of Upholland: My Lords, I am aware of the work of the children's charities within London and the setting up of a children's rights commissioner. I am also aware of the children's commissioner's role within Wales. As I said, that is one of the reasons why we are examining how the work is carried out in Wales. However, I should draw the noble Baroness's attention to the different ways in which we have approached this issue in England. For example, we have a Minister for Children and Young People; we have a Cabinet committee on children and young people's services chaired by the Chancellor of
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the Exchequer; we have the Children's Fund, which has £450 million for preventive work; and we have the children and young people's unit, the role of which is to co-ordinate policies. 1t is in the context of that ongoing work that we wish to look and see, and celebrate with our colleagues in different parts of the United Kingdom, what exactly would work best for England.
Baroness Blatch: My Lords, will the Minister consider persuading her right honourable colleague in another place to accept an amendment to be proposed to the Education Bill which seeks to strengthen protection for children throughout all the public services—education, social services, criminal departments, law and order and so on? That will be a golden opportunity to protect children in this country pending the decision about a commissioner.
Baroness Ashton of Upholland: My Lords, we are deeply concerned to ensure that children are protected so far as possible. It is in that context that we will examine carefully the proposed amendment to the Education Bill.
Baroness Gale: My Lords, does my noble friend the Minister agree that devolution in Wales has been an outstanding success and that part of the reason for that success is the unique appointment of the Children's Commissioner for Wales? Does she further agree that the commissioner, Mr Peter Clarke, is an excellent voice for and a champion of the children of Wales? Does she also agree that it would be beneficial for the children of England and the rest of the United Kingdom if they had a similar voice to speak up for them?
Baroness Ashton of Upholland: My Lords, Mr Peter Clark is doing an excellent job. His role is to safeguard and promote the rights and welfare of children. He is what is described as a "corporation sole"—that is, an independent appointment—and, as such, with his budget of £963,000 a year, he is able to work on behalf of children. He is working to ensure that children's rights are respected through the monitoring and oversight of complaints and whistle-blowing procedures; he is examining particular cases; he will be assisting children in making complaints and representations; and he will be publishing reports. As I said, we look forward with interest to watching the progress of Mr Clark and the work that is going on in Scotland and Northern Ireland and making our decisions in the light of that.
Lord Roberts of Conwy: My Lords, does the noble Baroness agree that there is some danger that the appointment of a children's commissioner is a way of salving the conscience of people in this country? Does she further agree that it would be right to have a full inquiry into the problems of children involving a number of departments of government?
Baroness Ashton of Upholland: My Lords, the role of the children and young people's unit and the work of the Cabinet Committee are designed to work across

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government, to strengthen what is done in each individual department and to pull that together into a government response. It is in that context that we need to look at whether the way forward for England is to have a children's commissioner. I do not want noble Lords to have any view other than that the Government are committed to supporting and protecting all our children in all circumstances.
Lord Northbourne: My Lords, does the noble Baroness accept that parents have an important role to play in securing the welfare of children, particularly younger children? Obtaining the views of, say, a three year-old would not necessarily give useful information.
Baroness Ashton of Upholland: My Lords, I can think of a number of three year-olds, including my own at that age—they were very capable of telling me precisely what they thought on a wide range of issues and continue to do so—whose views would be useful. The noble Lord makes a very important point. We do not wish to get in the way of the rights and responsibilities of parents. It is for parents to take responsibility for their children. However, as a government—and, I am sure, as a House—we wish to make sure that where those responsibilities are not taken, or cannot be taken, we act in a way that supports our children.
Lord Campbell of Croy: My Lords, if commissioners are appointed, will the Government try to prevent their being known as "czars", as that is likely to mislead the public and frighten the children?
Baroness Ashton of Upholland: My Lords, I have heard of no proposal to call them "czars". I shall, however, take on board the noble Lord's comment.

Foreign Exchange Transactions: Taxation
2.43 p.m.
Baroness Whitakerasked Her Majesty's Government:
What is their response to the report by Professor Paul Bernd Spahn on the feasibility of a tax on foreign exchange transactions commissioned by the Germany Ministry for Economic Co-operation and Development.
Lord McIntosh of Haringey: My Lords, the Government have been closely following the debate about the feasibility of a tax on foreign exchange transactions, including Professor's Spahn's work. Other studies, such as the recent Commission report of February 2002, Responses to the Challenges of Globalisation, which was requested by EU Finance Ministers, have raised questions about the feasibility of the tax. The Government are not convinced that the tax would be particularly effective in stabilizing
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international capital flows, but are committed to exploring the full range of options for increasing the amount of financing available for development.
Baroness Whitaker: My Lords, I thank my noble friend for that promising Answer. Does he agree that the study makes it clear that such a tax is feasible, and that the main obstacle to developing it is in fact political will? Does he further agree that this would be the most promising way to respond to the Chancellor's call for innovative ways to finance international development?
Lord McIntosh of Haringey: My Lords, I do not quite agree. In paragraph 25 of his summary, Professor Spahn states that the obstacles,
"are related to political will, to international co-operation, and to legal enforcement".
That range of difficulties is a good deal wider. The problem is: whose political will? We may have the political will, but do the offshore havens, for example, which might take over currency markets have the same political will? As for the Chancellor's pursuit of the matter, we have enough evidence from his contribution to the UN Financing for Development conference in Monterey last month, where European and US pledges were made for an extra 30 billion dollars before 2006 for overseas development.
Lord Beaumont of Whitley: My Lords, do the Government have any plans to raise this matter at the G8 summit? The host will be Canada, which has already committed itself to this approach; and representatives from France and Germany will also be present—France having passed preliminary legislation for such a tax.
Lord McIntosh of Haringey: My Lords, I have no doubt that the matter will be raised at the G8 summit, especially in view of the participation of the countries referred to. The currency transaction tax is not the only global tax that is being considered. The issue has been discussed for a very long time, since Willy Brandt and Gro Harlem Brundtland raised it. There could be global taxes on carbon dioxide emissions, on aviation fuel, and on arms exports. But all present the same difficulty as the Tobin tax; namely, that they require near universal support to be effective.
The Earl of Northesk: My Lords, without in any way gainsaying the worthy intent of those who advocate the so-called Tobin tax, does the Minister recall his observation in a debate on this matter some two years ago? At that time he said:
"I am sorry, I would like to think that it would work but I cannot believe that it can".—[Official Report, 8/6/00; col. 1323.]
Does the Minister agree that nothing has happened since that debate to make the practicality of such a tax any more certain?
Lord McIntosh of Haringey: My Lords, perhaps I am a little less blunt than I was two years ago. This is what happens—it grinds you down after a time,

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doesn't it? Fundamentally, I think I am saying the same thing now as I was then. The problems are, as Spahn said, political will, international co-operation and legal enforcement. There must be near universal acceptance and enforcement in order to make such a tax work.
Lord Newby: My Lords, does the Minister agree that, so far as concerns political will, by far the single most important player is the United States? Will he urge his colleague the Chancellor to use the close relationship that the Government now have with the United States to build on the steps that it took at Monterey to accept some responsibility for the development of the poorest countries in the world, so that fresh impetus can be put into examining how these taxation proposals might he made effective—whether it is the Tobin tax, the Spahn tax, or any of the other options set out by the Minister?
Lord McIntosh of Haringey: My Lords, that is exactly what the Chancellor has been doing. That is exactly what he did so effectively at Monterey in March—from which the additional pledges from the European Union and the United States resulted. Indeed, there have been pledges of 12 billion dollars a year of ODA funding after 2006. In addition, the Chancellor has been pursuing, including with the United States, his plans for an international development trust fund, which I think the noble Lord would agree would he a very effective step forward.
Lord Paul: My Lords, will my noble friend confirm that a tax on foreign exchange transactions before we join the euro would make British products even more expensive, making it difficult to compete in Europe?
Lord McIntosh of Haringey: My Lords, given the Government's view that the precondition for a currency transaction test is that it should be universal, it should not make a great deal of difference whether it is carried out before or after joining the euro. The question to be considered as regards the feasibility of a currency transaction test is whether it would increase currency volatility if it caused trading volumes to fall. That applies whether or not we are in the euro.
Lord Stoddart of Swindon: My Lords, has the noble Lord seen the report that appeared today showing that 39 per cent of aid issued by the European Union is going not to the poorest countries in the world, but to countries in eastern Europe? Bearing in mind that we supply one-third of those funds and that 39 per cent of that is £350 million, is it not a great and crying shame that assistance provided by the British taxpayer for the poorest countries is not finding its way there?
Lord McIntosh of Haringey: My Lords, I can nearly always be caught out by being asked whether I have seen something that was reported today. I do not get up early enough to read all the newspapers. However, it does not follow from what the noble Lord is saying that there is anything wrong with development aid
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going from the European Union to eastern Europe. That has been an explicit objective for a considerable number of years—since 1989, in fact—and it is not necessarily in conflict with help for the most deprived countries in the world. Both are necessary.
Lord Campbell-Savours: My Lords, is it fair to say that my noble friend is saying that he is not opposed in principle to Tobin, but he thinks it is unenforceable at the moment?
Lord McIntosh of Haringey: My Lords, my noble friend has said more precisely and concisely what I was trying to say, perhaps with greater verbosity.

Angola
2.51 p.m.
Lord Hyltonasked Her Majesty's Government:
What is their assessment of the situation in Angola, following the agreed ceasefires.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Amos): My Lords, we welcome recent moves towards peace in Angola. The agreement signed in Luanda on 4th April between the chiefs of staff Of the Angolan armed forces and UNITA is a positive step. Both sides must now commit to an inclusive, transparent and sustainable political process. However, the humanitarian situation remains critical. We are encouraging the Angolan Government to put more of their own resources into the relief effort and to facilitate access and, where necessary, provide security for the relief agencies.
Lord Hylton: My Lords, I thank the noble Baroness for her reply. Does not Angola have oil revenues in excess of 3 billion dollars a year? Will that enable the Angolan Government to disarm and resettle 150,000 ex-soldiers and to cope with 4 million displaced people? Can the noble Baroness give us a little detail about the action plan intended to combine the efforts of Angola with international help?
Baroness Amos: My Lords, the noble Lord is right that Angola has significant oil revenues. There is a two-phase process on the action plan. The memorandum of agreement was signed on 4th April, but that has to go hand in hand with a political process, which, as I said in my original Answer, needs to be inclusive and transparent. Noble Lords will know that we are keen to see implementation of the Lusaka protocol. We agree that the process of DDRR needs to begin urgently. The noble Lord mentioned figures. It is estimated that there are more than 50,000 UNITA fighters and more than 300,000 families in addition to the more than 4 million people who are displaced within Angola. The Portuguese have offered military observers for the disarmament demobilisation

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process. We shall continue to work with the UN and other international agencies to make sure that the process stays on rack.
Lord Hughes of Woodside: My Lords, does my noble friend agree that at long last there is a real opportunity for the people of Angola to have a peaceful future? The Angolan Government have said clearly that they wish to implement the Lusaka accords in full and are prepared to move on a programme of social reconstruction. However, does my noble friend agree that even with oil and diamond revenues it will take time before the money currently spent on the Angolan army can be redirected to peaceful uses? Given the massive number of mines in the country, what help can we give to ensure that the demining process is accelerated so that the countryside is accessible and the people can get back to a decent economy?
Baroness Amos: My Lords, my noble friend has asked me two different questions. One relates to long-term reconstruction. The Government of Angola intend to have two donor conferences this year, one dealing with the immediate humanitarian situation and the second looking at the reconstruction effort. My noble friend also referred to land mines. Noble Lords will know that we had a demining programme in Angola. We stopped that programme because we had reliable evidence that the areas were being remined. We fund a UN agency that prioritises, on our behalf, areas where it thinks we should go back and remove land mines. If that agency said that the situation in Angola were now such that we could engage in constructive demining, we would do that as a matter of urgency.
Lord St John of Bletso: My Lords, does the Minister agree that peace in Angola is interlinked with peace in the Democratic Republic of Congo? The peace talks in South Africa on the DRC, initiated by President Thabo Mbeki, recently broke down. What action are the Government and the international community taking to get those talks back on track in order to secure long-term peace in the region?
Baroness Amos: My Lords, it is true that, while we have an important moment for peace in Angola after nearly 30 years of civil war, Angola is also involved in the conflict in the DRC. We were concerned at the breakdown of the talks in Sun City, but it is important to remember that a number of issues were agreed through that dialogue process. The political elements of any transition have yet to be agreed. We are doing all we can to support the South Africans and the facilitator of the dialogue process. It is anticipated that the talks will restart shortly.
Lord Avebury: My Lords, will the Minister confirm that the forthcoming G8 meeting in Alberta will feature a special session devoted to NePAD, which will be attended by some of the countries concerned, including Angola? Will the Government take that
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opportunity to impress on the Government of Angola the need to comply with the advice that has been given by the IMF and others on the need for greater transparency, particularly on oil revenues? What is the Government's attitude to the proposal by a number of distinguished NGOs that all states, not just the G8, should encourage those companies that are resident in their territory to make full disclosure of payments made to other countries for the use of development resources?
Baroness Amos: My Lords, there will be a discussion in Kananaskis at the end of June on the G8 Africa action plan. The five steering committee members of NePAD will be invited to attend that meeting. The G8 countries believe that peace and security have to be a priority for that action plan. Some of the issues that have been raised this afternoon will be part of that discussion.
We continue to encourage the Government of Angola to stay on track in their discussions with the IMF, because economic reform is important for Angola. Transparency in the oil account is important for Angola's long-term development. It is important to pay tribute to BP, which has done some good work on that.
The noble Lord asked me one further question, which I have managed to forget.
Lord Avebury: My Lords, the question was about the proposal by a group of distinguished NGOs, including Oxfam and Christian Aid.
Baroness Amos: My Lords, I am aware of that proposal. It would be difficult for G8 countries to regulate business. As we know, a number of international companies take corporate governance very seriously indeed, and a number of multinationals have signed up to the UN global compact. Through such voluntary initiatives we must try to ensure that our concerns about events in Angola are represented in those forums.
Baroness Sharples: My Lords—
Noble Lords: Next Question!

Middle East
3.1 p.m.
Lord Blakerasked Her Majesty's Government:
What steps they are taking to assist progress towards a settlement of the problems between Israel and the Palestinians.
Baroness Amos: My Lords, the Government are profoundly concerned at the violence in the Middle East and the terrible humanitarian situation in the occupied territories. We continue to press the Israeli Government to allow full access to humanitarian relief agencies. We support UN Security Council Resolution

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1405 which calls for a fact-finding mission into events in Jenin. We support continuing US efforts to end the violence and resume political negotiations. We urge Israel and the Palestinian Authority to implement UN Security Council Resolution 1402, which calls for Israeli withdrawal from Palestinian cities, and for both parties to move immediately toward a meaningful ceasefire and work toward a political settlement.
Lord Blaker: My Lords, has not the recent brutal behaviour by Israel put at risk the cohesion of the coalition against terrorism and made it more difficult to prevent Saddam Hussein proceeding with his programme for making weapons of mass destruction? Is it not imperative now that steps should be taken to resume some form of peace process? Is it not clear that the best and perhaps only country to initiate such a programme is the United States, using the economic levers which it has against Israel? Will the Government put that point of view to the Government of the United States?
Baroness Amos: My Lords, noble Lords will know—we have had a number of discussions in this House on events in the Middle East—that we are in constant contact with our US partners on this matter. On 18th April, Secretary Powell said that the US has a vision of,
"two states living in peace, side by side".
and that that is the,
"only solution to this conflict".
We agree with that.
With our European Union partners, the United States and the United Nations, we are working very hard to end the violence in the region and to bring both sides back to the negotiating table. We are very pleased that the UN fact-finding mission is intended to go into Jenin towards the end of this week or early next week.
Lord Wright of Richmond: My Lords, will the Minister confirm that the British Government still regard the Palestinian Authority, under the elected President Yasser Arafat, as the legitimate administrators of the occupied territories? Will she also tell us what specific representations have been made either directly or indirectly to Israel about what appears to be the systematic destruction of the Palestinian Authority's infrastructure, including their computers and health and school records, and their continued restriction on the freedom of movement of President Arafat?
Baroness Amos: My Lords, we have made specific representations. Indeed, my right honourable friend the Foreign Secretary has asked our ambassador in Israel to talk to the Israeli Government about the alleged abuses which have been said to have taken place. That is why we have welcomed the UN fact-finding mission. It is precisely because we are receiving contradictory information about what is happening
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and what is alleged to have happened that we require an independent fact-finding mission under the auspices of the UN.
Lord Howell of Guildford: My Lords, I agree with what has been said about the key role of the United States. I am also sure that the Minister will agree that European Union officials, provided that they can get the balance right, may have a role to play. However, does she agree with the comment this morning of a leading and very wise Arab leader that, of all the countries and major powers in the world, the United Kingdom has the most expertise and most experience in handling the appalling complexities of the Middle East? Will she encourage her colleagues in the Foreign Office to make a more direct contribution to the building up of a regional conference within which, out of all this bloodshed, the seeds of some kind of peace can be sown?
Baroness Amos: My Lords, first, I thank the noble Lord for his comments on the experience and expertise that exists in this country. However, it is important to remember that, as we have all said, this issue requires an international response. We have taken the lead within the context of the UN, but Saudi Arabia and Crown Prince Abdullah have also played a key role. The US has an absolutely critical role, and the countries within the region themselves have a key role to play. The key factor is that we should all work together and recognise that military action will not deliver a solution. We know that the two sides have to sit down and negotiate. In the long term, they have to be able to live together.
The Lord Bishop of Bradford: My Lords, is the Minister aware of the deep concern felt on these Benches about the deteriorating situation in and around the Church of the Nativity in Bethlehem, a place of the utmost significance for Christians and Christian sensibilities throughout the world? Among other concerns, am I right in my understanding that the people currently inside the church have water but no food although they have been there for 20 days or so? Can she please tell us what steps the British Government might be able to take to support local efforts by people of different faiths to bring this appalling solution to a peaceful and acceptable solution?
Baroness Amos: My Lords, I entirely share the right reverend Prelate's concern. There are at least 150 Palestinians—including about 80 members of the Christian orders—in the church in Bethlehem, and they have been there since Israel began its incursion into Bethlehem. It has been quite difficult to get accurate reporting on water and food. The last report that I saw indicated that water and food were running out, but I have certainly not seen a report indicating that there is no food. We are closely engaged in

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diplomatic efforts to resolve the stand-off, and we will continue to do all we can to bring this situation to an end.

Tax Credits Bill
3.7 p.m.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): My Lords, I beg to move that this Bill be now read a second time.
Last week, in his Budget Statement, my right honourable friend the Chancellor of the Exchequer made clear the Government's continued commitment to building a welfare state fit for the 21st century. We are determined to improve the support available to families with children, to streamline administration, and to tackle child poverty by targeting help to those who need it most. At the same time, we want to tackle the unemployment and poverty traps by making sure that work pays. Working within the constraints imposed by the systems we inherited, we took action in the previous Parliament to achieve those aims. We introduced the working families' tax credit, which is currently benefiting almost 1.3 million families, and the children's tax credit, a tax cut of up to £520 annually for about 4.6 million families.
Our reforms to date have been a success. However, the practical constraints imposed by the existing systems meant that they could not go far enough. Existing forms of support are divisive. Support for children depends on whether the parents are in work and whether they pay tax. Support for workers with a disability focuses on their disability rather than on the fact that they work; and some people, such as students and student nurses, fall through the gaps between those systems, excluded from all but child benefit.
Existing forms of support are also inflexible. WFTC and disabled person's tax credit are paid as a six-month fixed award, based on family circumstances and a snapshot of income at the point of claim. Once an award has been made, it cannot, except in limited circumstances, respond to changing circumstances and changing levels of need.
So, while the Government are not changing their objectives, we are—with this Bill and with the new tax credits it introduces—improving the way we deliver them.
The new tax credits represent the next, and important, step forward, allowing us to make further progress through a system which is fairer, more inclusive, better targeted and more flexible. The new credits will rationalise the existing systems of support, delivering more effective help to families with children and to working households.
Building on universal child benefit, the child tax credit will tackle poverty and provide targeted support to parents. For the first time, there will be a single credit to support families with children—one framework for income-related support for children,
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reducing stigma, smoothing the transition from welfare into work, and broadening the scope of support.
The working tax credit will improve work incentives, tackle in-work poverty, and remove barriers to work. It will provide a single, inclusive credit for those in work, so that workers with a disability receive the support they are entitled to under the same framework as other working households; and it will extend support to working households facing poverty without either children or a disability.
Last week's Budget set out detailed information about the structure of the new credits and the levels of support they will provide. That is why the Second Reading was tailored to follow the Budget rather than precede it. Together, the new tax credits will provide initially an additional £2.7 billion to support families with children, tackle poverty and make work pay.
The child tax credit will, in total, target around £13 billion of support to around 5.75 million families with children. The credit will be made up of two elements. The family element will be available to all families with at least one child, recognising the additional responsibilities that come with parenthood. From April 2003, this will be worth up to £545 a year (£10.45 a week). It will be worth double that for families with a child under one year-old—extending the extra support provided to families with a new baby through the children's tax credit down the income distribution so that families on lower incomes who do not pay tax can also benefit. On top of that family element, an additional amount of up to £1,445 a year (£27.75 a week) will be available for each child, tailoring support according to the size of the family. This child element will rise to £3,600 a year (£69.05 a week) for children who have a disability, and to £4,465 (£85.65 a week) for children who are severely disabled.
This is an inclusive system. These amounts of child tax credit will not start to be withdrawn until family income reaches £13,000 a year—meaning that around a quarter of all families will receive the maximum amount of child tax credit on top of their child benefit. Together, this will ensure that these families are guaranteed £54.25 a week for the first child. So a family with two children and income of less than £13,000 is guaranteed support of £92.75 a week.
The family element of the child tax credit will not start to be withdrawn until family income reaches £50,000. Your Lordships will recall I explained that the child tax credit replaces the children's tax allowance. Some 80 per cent of families will receive at least this full family element on top of their child benefit, guaranteeing a family with income of up to £50,000 at least £26.50 a week for the first child. A family will continue to benefit from the child tax credit until family income reaches £58,000.
The working tax credit is designed to tackle poor work incentives and persistent poverty among working people. As I say, the child tax credit is designed to support children. The same level of benefit applies whether one is out of work or in work. One ports it from one to the other. It is a secure, portable

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bridge of income. As I say, the working tax credit—the adult element—is designed to tackle poor work incentives and persistent poverty among working people. It will broadly replicate the support for adults provided through WFTC and DPTC but, for the first time, will extend support to those on low incomes without children or a disability aged 25 or over and working 30 hours or more a week. In other words, the adult element is available to those without children, unlike the current WFTC, unless they are disabled.
The working tax credit will consist of a basic element for all those who are eligible of £1,525 a year (£29.20 a week). Additional elements will provide targeted support according to household circumstances. For example, there will be additional elements for couples and lone parents worth an additional £1,500 a year (£28.80 a week), and a top up of another £620 (£11.90 a week) for those working at least 30 hours a week. People aged 50 or over returning to work from welfare will also be eligible for extra support from working tax credit for the first 12 months, helping them to settle back into work.
The working tax credit will be available for households with incomes up to a maximum of around £13,000 for part-time workers with children and almost £15,000 for full-time workers. On its introduction, it will guarantee a minimum income from full-time employment for those aged 25 or over without children or a disability of £183 a week for couples and £154 a week for single people. That is well above the minimum wage for the same number of hours. A family with one child and one earner working full-time on the national minimum wage will have a guaranteed minimum income of £237 a week.
Working tax credit replaces DPTC, bringing people with disabilities into the same system of support as other workers, but providing additional elements to recognise disability. The basic tax credit available for a disabled worker will increase to £68.35 a week—around £5 more than would be payable under DPTC. The minimum income guarantee for a single disabled full-time worker will rise from £172 currently to £194 in 2003–04. In addition, work incentives will improve for couples with two disabled workers, as the disabled worker element of WTC will be available for each person who qualifies.
We are also building on the success of the childcare tax credit in WFTC and DPTC by including a childcare element within the working tax credit. The childcare tax credit is already helping around 160,000 families in WFTC and DPTC with their childcare costs—around three times the number who benefited from the childcare disregard in family credit. Levels of employment among lone parents are now at their highest for 20 years. One message comes over consistently from lone parents when asked what is their greatest barrier to work: it is being able to afford reliable, quality and safe childcare.
In designing the working tax credit as a modern mechanism for removing barriers to work, we have listened to what parents and childcare providers have had to say about the existing arrangements, as one
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would expect. As a result, we will make sure that help with childcare costs, provided through the working tax credit, is paid directly to the main carer, alongside the child tax credit. And, so that couples can decide themselves how to share responsibility for looking after their children, we will allow couples with children to add their hours together to qualify for the 30-hour top-up.
The Government will introduce changes to ensure that the childcare tax credit can in future meet the needs of even more parents. From April 2003–this is something I am sure the House will welcome warmly—eligibility for the childcare element of the working tax credit will extend to those who use approved childcare in their own home, as opposed to a child having to go to a nursery or a childminder outside, benefiting families who need home-based care, such as those with disabled children or parents who work outside conventional hours.
The working tax credit and the child tax credit will form an integrated part of the tax system. Based on annual income for a tax year, they represent a sea change in the way support is targeted. By basing entitlement on annual income before tax and national insurance contributions are deducted—in other words, on gross income—and aligning the measure of income more closely with that used for income tax, the new tax credits will extend the light touch income test currently enjoyed by middle and higher income families—what we all take for granted—to all families.
Assessing income on an annual basis, which the system will do, reduces hassle for claimants, who will be required to report their income only once a year and will be able to use information that is already available for tax—for example, on their P60—to do so. It also provides a fairer measure of income than the "snapshot" approach used in WFTC and DPTC, which bases entitlement for six months on income around the date of the claim.
Looking at gross income for the year—many commentators have not picked up this point although it is vital in the new system—will improve work incentives for second earners, who will be able to get the full benefit from their personal tax allowance when they move into work rather than seeing the effect of that allowance eroded, which can happen now because entitlement to WFTC and DPTC is based on their net, after tax, income. One of the by-products of the older social security system, as noble Lords will be aware, is that second earners have always been penalised by very high deduction rates that go as they move into work; otherwise, their partner would be eligible for support. Going for gross rather than net income reduces the deduction rate. It introduces additional income into and stabilises income in low-wage families. Moreover—in my view, this is extremely important— perhaps three-quarters of lone parents have come from couple families and they might have been encouraged to work through the arrangements while in a couple family. We should give them the best possible financial insurance, should they go on to become lone parents in future, to remain attached to the labour market.

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Second earners stand to gain by virtue of going for gross rather than net income. Overall, the move to the new tax credits will mean that the gain to work for a second earner taking a part-time job at typical entry wages will increase by around £14 a week where the first earner is on half average earnings.
The new tax credits will also provide a system that combines continuity of support with the flexibility to respond quickly to changes as they happen, ensuring that support is targeted where it is needed and when it is needed. There will no longer be any need for families to wait for up to six months for their awards to respond to their changing circumstances, as people receiving WFTC and DPTC do now. Where circumstances change after an award of new tax credits is made—for example, if the composition of a household changes or a family's childcare costs change significantly—the awards will be able to respond to that change straightaway.
Awards will initially be based on family income for the previous year, ensuring that claimants have a known starting point and a degree of assurance about the level of their award. But awards will also be able to respond to rises and falls in income in comparison with the previous year—that is, going on to a current year figure—ensuring that resources are targeted effectively and, in particular, that those who experience a fall in income can have their awards increased to reflect that fall and thus prevent any perverse drive to drop out of work altogether.
After careful consideration of the available evidence, having examined similar systems in other countries and having discussed possible arrangements with representative groups, the Government have decided that awards should be able to adjust for all falls in income in comparison with the previous year. That means that recipients who experience a fall in income that will increase their award will be able to inform the Inland Revenue that they expect their income in the current year to be less than last year's, giving them the opportunity to get increased payments when they most need them.
However, we have decided that the system should be less responsive to rises in income. In other words, there is an asymmetry of generosity. Responding to all rises in income could lead to significant numbers of recipients having overpayments of tax credit—through, for example, wage increases or extra hours worked—which would need to be recovered. The Government have therefore decided that awards should respond only to rises in income in the current year of more than £2,500. Any increase below that amount will be entirely ignored. Rises of more than that amount will be taken into account only to the extent that they exceed the threshold. The first £2,500 of any rise will be disregarded. That will mean that the system provides certainty for people who enjoy small rises in income—they will not have an overpayment to make—and that people who are able to increase their income will know that they will see the full benefit of the first slice of their additional income. In other words, if one's circumstances worsen, one can get one's
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increase in working tax credit and child tax credit immediately; if one's circumstances improve, one need have that figure adjusted for the current year only if the increase is of more than £2,500. That asymmetry allows for a decent response by the Government.
Finally, I should not neglect to mention that the Bill also provides for the transfer of child benefit to the Inland Revenue, as announced by the Prime Minister in June last year. Child benefit is a key part of the Government's strategy for eradicating child poverty. I assure noble Lords that it will remain an identifiable stream of income and universally available. The child tax credit builds on the foundation that is provided by universal child benefit. Universal child benefit remains the response of those without children to support those with children. The child tax credit allows a further redistribution that is targeted at those on lower incomes.
It makes sense to streamline the administration of financial support for parents. Transferring child benefit to the Inland Revenue alongside the introduction of the child tax credit will mean that the Government can deliver a joined-up service to parents, who will need to deal with only one department to get the support to which they are entitled for their children. The majority of the 7 million families who receive child benefit will also receive help through the child tax credit, so it makes sense for them both to be run by a single department. That will help to reduce hassle and red tape for families.
During the previous Parliament, we embarked on a wide-ranging programme of reform of the tax and benefits systems. We had to take action quickly, and we did so. But it is now time to take the next step forward by rationalising and modernising the support that is available to families and working households and by improving the way in which it is delivered. The introduction of the child tax credit and the working tax credit, and the transfer of child benefit to the Inland Revenue, will deliver that next stage of reform.
The new credits provide a fairer system. Awards will be based on family income for the whole of a tax year, giving a fairer picture of a family's financial position than the "snapshot" used in WFTC and treating single earner and dual earner couples alike, rather than continuing the bias in the existing children's tax credit towards dual earner couples. At the same time, however, the new system will improve work incentives for dual earner couples, for whom the fact that awards will be based on gross income will mean that they can keep more of what they earn. Treating income from savings just like any other income means that the system will also improve incentives to save, because families will not be penalised for their savings.
The new credits will also be more generous than existing systems. For example, most families with two children on income support will gain more than £9 a week from the child tax credit. One of the matters that most delights me about the child tax credit—this was not picked up very much by commentators—is that for at least this current Parliament it will be earnings linked, not price linked. A single earner couple with

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two children working full time at the national minimum wage will receive about £400 a year more from the new tax credits compared to WFTC and the existing children's tax credit.
In addition, the fact that families will continue to receive child tax credit when they start work—with no need to submit a new claim and with the credit continuing to be paid at the maximum rate until income reaches £13,000—will improve security for families as they move from welfare into work.
The Bill introduces a fairer, more generous, more responsive system, which streamlines administration, reduces red tape for families and working households, which has been welcomed by business and which improves incentives to work and save. Those are important reforms that will allow us to progress towards our goals of tackling child poverty and delivering employment opportunity for all—goals that I am sure the House shares. I commend the Bill warmly to the House.
Moved, That the Bill be now read a second time.—(Baroness Hollis of Heigham.)
3.29 p.m.
Lord Saatchi: My Lords, I thank the Minister for her introduction of the Bill to your Lordships' House. On these Benches we have often said that there is a great deal of expertise in your Lordships' House on matters of this kind. I believe that Parliament is very fortunate to have the Minister, my noble friend Lord Higgins and the noble Earl, Lord Russell—perhaps three of the greatest experts in the land on such matters— to lead on this Bill.
As an introduction, I shall try to give a Treasury perspective to your Lordships. Before doing so, I am told that, under our new rules, I must declare an interest, which I now do. I am a shareholder in a company which provides consultancy advice to the Inland Revenue and I am a director of the Centre for Policy Studies.
Baroness Hollis of Heigham: My Lords, did we accept it?
Lord Saatchi: My Lords, that has yet to be seen. We shall find out.
If Bills were persons, this Bill would be a kind and generous soul, rather like the Minister, who was kind and generous only last week in arranging a personal briefing for many of the speakers in this debate. There, I am afraid, the resemblance between the Bill and the Minister ends. While the noble Baroness is always admirably clear and straightforward, the Bill is the exact opposite: "a monstrous thing", according to the editor of the FT, of "paralysing complexity", in the words of the editor of the Economist.
As the Minister said, there is no doubt that the Bill is well intentioned. It aims to boost the income of people in low-paid jobs. That is a fine and worthy aim and we support it. But, before commenting on the Bill, perhaps I may mention the parliamentary procedure that has brought the Bill before your Lordships' House
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today. We believe that it sets a new and dangerous precedent on the balance between what Parliament determines in primary legislation and what Ministers alone can decide in secondary regulations.
In clause after clause of the Bill, periods, amounts, descriptions, definitions, rates, tests, entitlements, notifications, records and the whole paraphernalia of this system are left to regulation and to Ministers alone to decide. The fundamentals of the new tax credits scheme, some of which the Minister described today, were simply omitted from the face of the Bill as seen by another place. Who will receive how much and in what circumstances remained a mystery to the elected Chamber. Parliament was unable to judge whether the Bill's scheme would be beneficial or harmful to existing or potential recipients.
I give one example. Clause 8 deals with entitlement to child tax credit, but the elected Chamber was not told who is entitled, who is responsible for a child and which children qualify. All those fundamentals are left for regulations to provide for, or not, on whatever terms the Minister might choose. Ironically, while the elected Chamber could not scrutinise those details, we, the Chamber for whom financial Bills are famously strictly X-rated material, can do so, as we begin to do today. It is odd, is it not? We should like to see a more normal balance restored between Ministers and Parliament, and we shall bring forward amendments to try to achieve that.
I turn to the Bill itself. I would say that no Bill currently before your Lordships' House better reveals the philosophical gulf between the two Benches than this one. I should like noble Lords to consider for a moment a table in the Red Book. It is Table A1 on page 154. It is very helpful as it shows the impact of Budget changes. The first change is in lines 1 and 3: personal tax charges up £4.6 billion. The second change is on lines 18, 19 and note k: personal tax changes down £4.6 billion. The net change is nil, except for one thing.
In that pointless transaction, who benefits? The Government. What do they gain? Power. Who loses? The citizen. What does he or she lose? Independence. The Government like it that way because it puts the Government at the centre of events and centre stage. It is the Government who giveth and who taketh away. Most people believe that the tax system now takes around 39 per cent of GDP, but that is just the end result of the system. The total system collects a staggering total of 53 per cent of GDP. The citizen is then obliged to claim back 14 per cent of GDP—that is £143 billion—by navigating a mass of more than 250 complex tax allowances, reliefs, exemptions, credits, tapers, indexations, disregards and so on, to which list the Bill adds more.
Perhaps noble Lords will follow me for a moment in the strange history of the working families' tax credit. I believe that the Minister called what I am about to describe "sea changes". The Chancellor announced hits intention to introduce that credit in his March 1998 Budget, to take effect on 6th April 2000. But before the first tax credit was paid by employers, the Chancellor

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announced in his March 2000 Budget that it was to be abolished and replaced by the employment tax credit for working households.
The working families' tax credit had a longer life than the employment tax credit because the latter never even made it to the statute book, let alone into the pay packet. In his Pre-Budget Statement, the Chancellor announced that the employment tax credit was to become the working tax credit. But that was a model of consistency compared to the history of the child tax credit. In the 1998 Budget, the Chancellor announced the introduction of the children's tax credit. That was to begin in April 2001, but it never made it. In his March 2000 Budget Statement, the Chancellor announced that the children's tax credit was to be replaced by the integrated child credit. Therefore, the children's tax credit had the distinction of being abolished before it was even introduced. But sadly, since then, the integrated child credit has itself disintegrated, and we are now left with only the child credit.
Perhaps I may tell your Lordships a little tale about the Bill before us. Under this Government, family credit, which had existed since 1988, has so far been replaced by the working families' tax credit, the employment tax credit, the working tax credit, the children's tax credit, the integrated children's tax credit and the child tax credit. To look at it another way, the average life of a tax credit is six months.
The result is that almost half the increase in government administration costs over the next few years—I am talking about £4 billion—is allocated to the collection of tax or the distribution of benefits. There are 140,000 government employees involved in the process. Yet billions of pounds of benefits and credits go unclaimed by millions of citizens who cannot fathom how to claim them.
The problem of take-up is endemic to the system that we are examining in the Bill. Many cities have a high level of social mobility and high population turnover. For many people in houses of multiple occupation, getting the post is a nightmare. Readership of local newspapers is low compared with that in other areas. The multiplicity of media outlets may be exciting but it means that it is difficult to get a message through to people. In addition, 130 languages are spoken in many cities. Thus, it is especially difficult to reach minority communities, which are among the poorest.
Therefore, the working families' tax credit's take-up has been estimated at 62 per cent. Only 72 per cent of entitled families with children had claimed the children's tax credit by December 2001. This year, following the introduction of the children's tax credit and the pensions credit, it is estimated that a further £2.6 billion of budgeted expenditure on tax credits will go unclaimed. Where is all this money? Who has it? We should very much like to know.
We all know about stealth tax. It is a tax charge unknown or incomprehensible to its victim. The Bill introduces us to a new concept in public finance—the
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stealth credit. That is a tax relief unknown or incomprehensible to its beneficiary. But there is one crucial difference between a stealth tax and a stealth credit. The stealth tax is unerring in its reach. It achieves 100 per cent of what we call "take up". The stealth credit, on the other hand, reaches only 60 per cent of its beneficiaries. In other words, returning to my table in the Red Book, the £4.6 billion of tax rise from NICs, about which we heard in the Budget, will be paid to the Government, but the £4.6 billion of tax credit will not be paid by the Government.
In a debate in Committee in another place, the Financial Secretary said that the Bill would give us a tax system like a television set; so complicated that no one would understand it. But she said that that did not matter as all people had to do was to turn on the switch. What nonsense. How many of us have to fill in a 16-page application form to turn on our TV? All this complexity might be well and good if it worked in achieving some sort of basic objective of the kind the Minister described in her opening speech. Perhaps that might be some form of redistribution from rich to poor, which would be fair enough, but sadly not. We already know that the Government did not achieve what they claimed they had; that is, taking 1.2 million children out of poverty. According to the latest figures the Government achieved taking out only 300,000 of 2.4 million children officially in poverty.
However, that is only the beginning of the awesome injustice of this system. Let us consider this. The Government regard a child as being in poverty if he or she lives in a household which has an income below 60 per cent of the median. Yet the poorest 10 per cent of people now pay a record rate of between 50 per cent and 63 per cent of their income in tax. The least well off pay the highest rate. It is a mad world with the poor paying higher taxes than the rich. According to Inland Revenue statistics for 2000–01, a total of £3 billion was received from 8 million taxpayers with annual gross incomes below £10,000. Incredibly, the Budget last week adds to the tax burden on those people. On page 12 we find that the poorest people will now pay £1.65 per week more in tax. Is it not outrageous that 3.6 million people, who earn less than half the national average and are officially defined as "in poverty", should pay any tax at all? They suffer not just because their incomes are too low but because even people on low incomes have their already low income further reduced by tax.
At present the Government first tax people on low incomes. They then means test their income; offer them benefits and credits such as these to restore their income back to where it was before they paid the tax; and then finally tax some of the benefits, with the poorest people bearing the heaviest tax burden. Meanwhile, the upper half of income earners, who should have nothing to do with the benefit/credit system, receive 30 per cent of all benefit expenditure. Now, with the Bill, if I have correctly understood it, households on £60,000 per year—that is three times average earnings—can claim a credit.

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In the dependency culture at the root of the Bill, almost a quarter of the households in Britain are already means tested for benefits. The Bill and associated measures will increase that proportion to nearly 40 per cent in the next two years for everyone and to between 50 per cent and 65 per cent for pensioners. In a nation of dependent benefit claimants, only 10 per cent of families now fail to qualify for some sort of state hand-out. The Government have bizarrely devised a means-tested system not for the poor but for 90 per cent of families in the country.
As I said, the Bill shows the philosophical gulf between the two Front Benches. In a remarkable essay Immanuel Kant declared that
"to be civilised is to be grown-up".
To be grown up, he wrote, is not to abdicate one's responsibilities to others; not to permit oneself to be treated as a child or barter away one's freedom for the sake of security and comfort. He said that a paternalist government based on,
"the benevolence of a ruler who treats his subjects as dependent children … is the greatest conceivable despotism and destroys all freedom".
He said that unless a creature can determine itself, it is not a moral being. Kant was absolutely definite on this point: autonomy was the basis of all morality. His writings were celebrated models of liberal rationalism. He is a symbol of the enlightenment of the 18th century, yet I would say that his teaching is an appropriate starting point for the examination of the Bill in your Lordships' House today.
Like Locke, Rousseau, Jefferson and most of the champions of liberal democracy, Kant placed immense stress on independence, inner directness and self-determination. He wanted a free man to be able to say, "I am the captain of my soul". This Government want the exact opposite: the people as dependent children; themselves the master, the Bill the instrument of their power.
3.45 P.m.
Lord Rix: My Lords, those who were present at the extremely helpful meeting in the Moses Room last week, conducted so courteously by the Minister, will be all too aware that in discussing the Bill I shall focus my attention on childcare in the home and the effectiveness of the new working tax credit in supporting people with a learning disability who wish to work. It is slightly unusual for me to be debating Treasury matters. I usually find myself in fiscal rather than political exchanges with the Inland Revenue.
I thank the Minister for her explanation of the Bill and the thinking that lies behind it. I am delighted that after effective campaigning by Mencap—of which I have the honour to be president—and other voluntarily organisations, parents of disabled children will now gain tax credits for childcare which has to be undertaken in the home. It is gratifying to know that the Government have listened to the call for change, a welcome benefit to many parents of severely disabled children across the country.
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I also welcome the main thrust of the proposals to create a working tax credit which gives additional financial support to people on lower incomes, with special provision for people with disabilities. My concern about the working tax credit, though, is about the continuing lack of employment opportunities for many people with a learning disability. That situation may be improved by greater flexibility in the tax credit regime, but I must remind your Lordships how pitifully few people with a learning disability are afforded paid employment.
Research by Mencap suggests that many people with a learning disability would benefit from financial assistance in employment. The Government's mantra on welfare to work seems to refer only to full-time paid work. That is borne out in the rules for the tax credit system known as the 16-hour rule. That means that people working fewer than 16 hours per week will not be able to access the new tax credit and will not receive any extra money to top up low-paid employment.
But for many people with a learning disability part-time work is a more realistic possibility. Part-time work can also be a source of extremely important training or experience and can develop the self-confidence of a person with a learning disability, a large proportion of whom work at the lower end of the earnings scale and never come close to boardroom salaries. Sometimes that can be as a result of discrimination or lack of support, but in many cases it can be attributed to the limitations of the individual's disability.
A phased entry into the tax credit would enable claimants to gain a foothold in the labour market by working fewer than 16 hours per week for a limited period. Working out a formula to phase in entry into the tax credit system is no mean feat. Certainly, it would defeat me. Mencap understands the complexities of such a solution. I said that I do not support over-complication of the tax and benefit system; to over-complicate is to lose the main thrust of the welcome proposals. However, I am all too aware that the 16-hour rule may well be set in governmental quick-drying cement.
Therefore, an alternative which may be preferred by the Government is to increase the income support disregard up to, say, £35, rather than its current limit of £20. People with a learning disability may do a limited amount of part-time work under what is known as the income support disregard. That allows them to work for up to four hours at the minimum wage without losing any income support. The £20 disregard was an advance on the previous £15, but did not restore the real-terms value of the disregard 20 years ago. A figure of £35 a week would enable disabled people to work part-time, up to eight hours, without being penalised and provide a fairer and a more progressive entry into full-time employment. If the Minister is not persuaded by the argument for a phased tax credit, perhaps she will give this alternative proposal some consideration. Having benefited from the Minister's understanding and help in the battle for the SERPS inherited rights, I can but live in hope.

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In conclusion, I believe that the new tax credits will improve the situation of some low-paid workers and parents with disabled children, but there is a danger of missed opportunity for those who do not conform to the standard picture of working and family life. I look forward to the Minister's response and to the assurance that people with a learning disability will have the employment opportunities which the rest of us take for granted.
3.50 p.m.
Lord Howe of Aberavon: My Lords, I follow the noble Lord with respect for his expertise in the area of this topic. I am all the more conscious of my own current lack of expertise. The Minister and I happened to meet each other yesterday. She expressed a certain degree of surprise at my appearance on the List of Speakers for this occasion.
Baroness Hollis of Heigham: My Lords, I hope that the noble and learned Lord appreciated that it was delighted warmth.
Lord Howe of Aberavon: My Lords, it was not unwelcoming, but I detected a degree of surprise. That was understandable because it is probably almost 20 years since my days in the Treasury when I last grappled with anything as complicated as this issue.
If one goes 21 years further back to November 1964 and to my maiden speech in the other place—here the battle on these issues was joined between Lord Joseph and Lord Houghton, alas both deceased—I asked for a solution to the problem with which we are grappling. I look back with affectionate naivety at the sentences:
"The solution … must be one of which all in need can take advantage. It must be … simple".—[Official Report, Commons, 12/11/64; Col 1239.]
During the time I grappled with these matters, I worked alongside much greater experts than myself who are still around. My noble friend Lord Cockfield—alas not with us at the moment—has forgotten more about this than the rest of us have ever known. He still remembers more than we shall ever know. My noble friend Lord Higgins is another in that category. I therefore touch upon the subject with some diffidence.
I began by asking myself where the money is coming from and how will it be raised to finance this and other munificent matters. In rather an old-fashioned way, I sought a copy of the Budget speech from the Printed Paper Office. I found it a remarkably unrevealing document in all the crucial matters with which we are here concerned. A strange feature is that in its 30 printed pages the symbol for the pound does not appear. It is spelt out in some strange fashion as an Anglo-Saxon word—a "pound". I wondered whether that meant that the Chancellor's word processors do not have the "£" symbol on them. Are they perhaps already equipped with the euro, or even the dollar since his glance is more often in that direction? One would like to know why.
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If one looks at the more serious details one finds that the only figure given of the yield, the burden or the net figure of what is produced for any of the tax changes is a single figure for the net yield of all the changes. It is a figure of between £6 billion this year and £8.3 billion in 2005. But the cost, the burden or the changes imposed by particular tax changes are never to be found. One has to go therefore to the Red Book. That has changed a good deal since I last had a little Red Book in my hand. In my last two years in office the two that I produced were 48 and 44 pages in length. They cost just under £5. The volumes produced by the Chancellor this time, on pages twice as large and multi-coloured, are 500 pages in total at a cost of £50. I do not believe that the intelligence available reflects the increase in activity and expenditure.
One of the more notable discoveries is the hugely important part played in raising the revenues for these changes by the scarcely disclosed burden of the 1 per cent payable on national insurance contributions by the employer, the employee and the self-employed. Of the £8 billion raised by that, £4 billion—this is the important point on the revenue-raising side—comes from the employers' payroll tax. I seem to be almost alone in reacting to that by saying, "Haven't I seen that somewhere before?" Indeed, one finds that one has seen it somewhere before. Way back in 1976 when the noble Lord, Lord Healey, was under pressure from the International Monetary Fund, lo and behold he introduced a 2 per cent national insurance surcharge which was payable by the employers. In 1978, still under pressure from the IMF, that was increased by a further 2.5 per cent, as he intended. But the Liberals rode to the rescue and the Lib/Lab pact had the effect of reducing that 2.5 per cent to 1.5 per cent. So we ended up with a 3.5 per cent national insurance surcharge, known as "Healey's tax on jobs". That is what we are now revisiting in this particular burden. I am very anxious that that idea does not spread, if it is not already deeply rooted in the Chancellor's mind. It is 1 per cent this year; it reached 3.5 per cent when they were last at it.
Between 1982 and 1984 in the Budgets introduced by my noble friend Lord Lawson and myself, we got rid of that. It is very important to understand the potential danger of this burden on employers and, above all, on jobs, which is the engine that is driving the generosity to which my noble friend Lord Saatchi has referred.
That is how the money will be raised, but how will it be distributed, and with what side effects? The Minister has talked quite often about an integrated system. Integration is the flavour of her speech if not of the substance which she has been describing. As my noble friend Lord Saatchi has pointed out, the regulations to be made under the Bill set about defining a whole range of "elements", as they are called, defining a married couple, defining what kind of unmarried couple can be benefited as though they are a married couple and defining "relevant" incomes with at least nine different "relevant factors", with power to prescribe a great deal more. All those features are to be prepared in a separate code of regulations, as

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my noble friend points out, unscrutinised by either House of Parliament but quite separate and distinct from those already in operation for pay-as-you-earn under the income tax legislation.
Speaking quite personally as chairman of the steering committee of the tax law rewrite project, this year we want to rewrite in a more intelligible form all the primary legislation which deals with PAYE. The secondary legislation on that topic is itself so unintelligible that that is also being rewritten, not by ourselves but by the revenue authorities. So at the same time we are rewriting in simpler terms legislation on these very topics dating back to early in World War II. Alongside that, under the legislation now before us power is being given for a completely separate code which addresses the same question: who is entitled, in what way, and to what amount? All the methods of enforcement, discovery, revision and appeal are to be set out in regulations.
However, I cannot believe my eyes because we are now generating two completely separate distinct codes addressing essentially the same elements. I ask myself: how disintegrated can an integrated system become?
The other feature which has already been pointed out by my noble friend Lord Saatchi is the very simple point that this network of claimable benefits will be available to those earning up to £58,000 per year. Only 10 per cent of families will fail to qualify for the examination of claiming or not claiming the benefits available under these provisions. They will be paying marginal rates of 48 per cent in the band between £50,000 and £58,000. It will cover of course childless couples as well and pensioners with a special credit. In saying that, one does not object to the attempt to direct benefits in that way, but it really is an extraordinary jungle. I mentioned possible side-effects, and there are two in particular. The first is the effective abolition of the independent taxation of married women—even if they are not actually married, as it happens, because unmarried couples can qualify in the same way.
In 1968, I was a member of a committee that produced a booklet with the bizarre, patronising title, "Fair share for the fair sex". It was a long time ago and a bit old-fashioned, but the objective was the same. One of the many objectives that we set out was independent taxation for women. In my second Budget in 1980, I produced a Green Paper on the subject. My noble friend Lord Lawson in due course—by 1990— implemented it. That was one occasion on which both my noble friend and I could bask for a moment in the admiration—if your Lordships can imagine—of our spouses and others for having done the right thing.
The introduction of the proposed system, applying to nine families in 10, will require married couples when considering whether or not to apply for such grants to aggregate not only their income but their working hours. All will be revealed. The concept of independent taxation will disappear altogether.
Secondly, what is almost recreated is what was at the heart of Nye Bevan's case on behalf of all people with experience of its impact in South Wales between the
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wars—the case against the household means test. That is in effect being reintroduced across the canvas—not only will there no longer be single taxable units but there will be a single means test. That is much to be regretted.
Towards the end of the Minister's peroration following her helpful description, she said that as a result of the changes, the Government can deliver a joined-up system. There is a huge inaccuracy at the heart of that. The Government cannot deliver anything; the system will be administered by employers through the pay-as-you-earn system. That is at the heart of the idea of an integrated system. If it is to be done, it needs to be done with much more sensitivity. The Government will not be delivering it: employers will struggle to deliver it; a random sample of people will struggle to claim it; and it will fail to achieve the objectives that we all share.
The noble Baroness may ask me to explain how I would set about achieving those objectives in a different way. We should return to focusing the system on much narrower targets, not spread out the target across the entire income range of the population. We should concentrate on simple objectives—as my noble friend Lord Saatchi often suggests: raising the tax threshold.
The Budget also freezes the threshold for income tax and national insurance. By that very act, a large number of people are brought back into the tax system. Alongside the reduced rate band, that means that still more people are in the tax system than if the threshold were raised.
I must stop reminiscing and draw to a close. In my second Budget I was able to scrap the reduced rate band—the 25 per cent band—introduced by the noble Lord, Lord Healey, and substantially raise thresholds. The reduced rate band is of almost no value at all in helping those in poverty. It is a tranche of lower tax income available to everyone and, by its very existence, it lowers the tax threshold. By that one simple change, I reduced the number of people at the Inland Revenue by 1,300, with a corresponding reduction in the private sector.
So that is my approach: narrow the targets; restore something like the standard benefits available under the simpler system; and make the system manageable, instead of proceeding down this fluctuating path in which any objective that is fulfilled is rapidly swept away.
I say all that with great regret because, as I said at the outset, the objectives are ones that we all want to achieve. The fact that we have all struggled with them for so long shows how difficult it is to achieve them, but the way in which the proposals have been introduced means that in several respects we shall be moving in the wrong direction. I say that with much regret.
4.4 p.m.
Baroness Noakes: My Lords, it is, of course, extremely difficult to follow a speech such as that of my noble and learned friend Lord Howe of Aberavon,

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whose huge experience and expertise as a former Chancellor and current commitment to the tax rewrite project make him especially well-qualified to comment on the Bill. However, from my much lower base of expertise, I hope to be able to contribute to the debate.
Let me say at the outset that I have no problem in principle with bringing together the tax and benefits systems. But that approval in principle is subject to several important provisos. First, the Government should not pretend that benefits are anything other than benefits. They like to score benefits as if they were negative taxation—thereby fiddling the figures. I am aware that accounting conventions are rather dull material and not normally the stuff of our consideration as Bills pass through the House, but I hope that we can make an exception for the Bill. It is time that the Government stopped cooking the books.
My second proviso is that it is logical to merge the administration functions only if the concepts and basic approaches to measurement and coverage are the same. Here the Bill fails almost completely. The Bill takes the existing social security approach to benefits and sticks it alongside an entirely different approach in the Inland Revenue. The social security and tax elements will come together only in payment of the benefit—where the Inland Revenue will again use businesses as its unpaid tax administrators to shoulder most of the burden.
We should be in no doubt that the systems are quite different. For example, the Inland Revenue deals with taxpayers as individuals. Each submits a return and they are genuinely treated as individuals. My noble and learned friend Lord Howe told us of his contribution to the creation of independent taxation. Obviously, there are some instances in which marriage is relevant—for example, capital gains tax treatment of transfers of assets between spouses—but that does not result in individuals being treated other than as individuals in their own right.
The benefits approach contained in the tax credit system is quite different. In the social security system, the concept of a household unit reigns. If a person is married, he or she loses his or her individual identity for tax credit purposes. Even worse, the household unit also applies to unmarried couples—although illogically not to same sex couples. So the Inland Revenue will deal with individuals as such for tax purposes but as household units for tax credit purposes. It will have to enquire not only into marital status but also the status of relationships which are not the result of marriage.
Perhaps I may give your Lordships another example of a huge difference between the two systems. The tax system taxes income according to a series of statutory provisions laid out in Acts of Parliament. There is a system of schedules and cases for income with clear rules attaching to them. Of course, from time to time, it is necessary for Finance Acts to introduce new rules to ensure that all sources of income are brought into charge. But the system is statutorily based and hence receives detailed scrutiny before it is enacted.
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The tax credit system, rooted as it is in the social security system, does not do that. Entitlement to credits is based on a concept of "current year income", but that has no firm statutory base. Rather, as we have heard, it rests on regulations. For example, the regulations under Clause 7 can do several things. They can prescribe income to be treated or not treated as being income for a particular tax year. They can prescribe that a person has income that he does not have or does not have income that he in fact has. The Inland Revenue has no equivalent provision for tax purposes except some specific provisions—usually for anti-avoidance purposes—that are clearly spelled out in Finance Acts.
So a tax credit system might make sense if it took the existing tax basis and fitted social security benefits within it. Or, it might make sense if a more complex synthesis of the tax and social security systems had been attempted. In either case, the taxpayer or benefit recipient would be approached in the same way. The Bill does not do that, and we are left with a real puzzle as to why the Government are bothering to transfer benefits to the Inland Revenue.
One reason may be that the Inland Revenue is more efficient than the Department for Work and Pensions. Certainly, the Inland Revenue has a better track record of introducing new computer systems. Given the department's unimpressive attempts to introduce the new child support system, one might well conclude that it might be beneficial to call that a tax credit and transfer it the Inland Revenue. The regulatory impact assessment makes no claims for greater efficiency; it just says that the Inland Revenue's costs will go up now and costs for the Department for Work and Pensions will go down. It does not comment on the relationship between them. Another reason might be the cosmetic desire to pretend that tax credits are negative tax. Nobody is really fooled by that.
I have come to the conclusion that the real reason is territorial aggrandisement by the Chancellor. The Board of Inland Revenue is his department. The chairman of the board reports to the Chancellor. The tax credit system enables the Chancellor to spread his control way beyond the traditional boundaries of the Treasury. It is classic Treasury power play. As a former secondee to the Treasury and as someone who has worked with the Treasury for many years, I am aware that the prevailing culture and belief is one of superiority over every other department. The combination of that mindset with the ambitions of the current Chancellor is a dangerous one constitutionally. I have concluded that we are not considering the Tax Credit Bill for any sound reason. The right course would be to reject it.
If we do not reject it, we must consider its provisions carefully. As my noble friend Lord Saatchi has already said, there is a big difference in the use of regulations between this Bill and tax legislation. Of course the Inland Revenue uses regulations, but it does so less frequently. PAYE regulations are one example, but others are few and far between. This Bill, however, has 44 clauses in Part 1, 20 of which create regulation-making powers. Virtually the whole of Part 2 transfers

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a load more regulation powers to the Treasury or the Inland Revenue. Regulations made under the Bill are subject only to the negative resolution procedure. I am sure that we will want to consider that carefully in Committee.
It is fundamentally unsound to conduct virtually the whole of the tax credit system by way of regulation. In addition to reduced parliamentary scrutiny, it results in a system that is inaccessible to the people affected and their advisers. The tax credit system is complicated, and the use of regulations makes it more so. We know that the practice is to issue regulations and, if they are wrong or need to be improved, to issue more regulations amending the earlier regulations and so on. I remind the Minister of the child support order that we debated on 11th April. That order had nine substantive regulations, amending nine different orders, derived from powers in two Acts, one of which had amended a previous Act. Ordinary people and their advisers do not stand a snowflake's chance in hell of coping with that degree of complexity.
The Minister will not expect me to pass up an opportunity to refer to burdens on business. Tax credits are such a burden, especially for smaller businesses. The regulatory impact assessment says that businesses will save £11 million. However, with 300,000 employers, that works out at £37 each, excluding the cost to those businesses of upgrading their payroll system. Even that, however, misses the real point. The tax credit systems are already a huge burden on employers. Whether or not the Government fund the cash-flow implications of the tax credit system, the operation of the system is the real imposition. In its recent paper, The Red Tape Menace, the Institute of Directors called for the Government, rather than small and medium-sized enterprises, to pay tax credits. I3usinesses the length and breadth of this land will say, "Amen" to that.
4.15 p.m.
Baroness Andrews: My Lords, it gives me great pleasure to speak in the Second Reading debate on the Bill, although that pleasure is tempered by the triangulation of expertise on the Front Benches and the fact that I follow a distinguished speech from the noble and learned Lord, Lord Howe of Aberavon. It is a historic Bill, and it would not be so radical or so inclusive had it not been for our Minister in this House, who champions the cause of poor families inside and outside the House.
I am disappointed by the scepticism that has been expressed on the Benches opposite. I heard from another group of experts yesterday in the All-Party Children Group. They represented the whole poverty lobby that has worked closely with the Government to prepare the Bill. First, they spoke, without equivocation, of their appreciation of the way in which their concerns and their expert views about the delivery mechanism and the changeover to tax credits had been listened to during the consultation process. They expressed delight that the Government had gone further—in some respects—than they had anticipated to put money in more accessible places. They
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expressed their conviction that the abolition of poverty—notwithstanding the debate about numbers—is a non-negotiable part of government policy and said that they were happy to support that. They were confident that the Budget would make "a real difference" to the poorest families.
I have sat through many anti-poverty strategy meetings in the past 20 years. I have never heard such an unprecedented vote of confidence in a government. We have not heard much about families today, but I want the House to reflect on what it means to be in poverty in the opening years of the 21st century. The Family Welfare Association has calculated that, once household costs and bills are paid, the poorest families have £3 a day on which to feed and clothe every child and provide them with the sort of extras that families always want to provide. The Bill is central to any attempt to improve that situation.
Poverty is seamless in its impact. It feels the same whether one is in or out of work. That is why we should have a seamless policy in response. Seamlessness has been elusive; no one knows that better than the noble and learned Lord, Lord Howe of Aberavon. I remember when the Supplementary Benefits Commission was being wound up in 1979, after the failure of negative tax credits. The structure of supplementary benefits was then described as a once-noble strategy that had become surrounded by ramshackle sheds and outhouses that were in danger of bringing it down. We have not made a great deal of progress, but we have responded to some of the things for which the poverty lobby has been asking for a long time.
The strength of the Bill lies in its reliance on evidence and expertise. It is not a technical Bill in the sense that it is incomprehensible. It does not simply re-define the definition of poverty. It deals with some of the historic barriers that keep people in poverty. For years, the poverty lobby begged the Government not only to recognise that all poor families are poor in the same way but to provide a kinder and more responsive system, with simpler assessment and wider access and in which payments are paid to the responsible carer. That will provide greater security and greater dignity.
The noble Lord, Lord Saatchi, had a great deal of fun with evolution and abortion of different forms of credit and their titles. With the best of intentions, there has come greater complexity. Family lives are extremely complicated. There are four separate routes for child payments: universal child benefit; child additions attached to income support and JSA for people out of work; child credits attached to working families' tax credit; and a children's tax credit for people in work. Yes, there are four different credits each applied for separately, each assessed separately, each awarded separately and each award going to make a similar difference in a similar way. The Bill takes a bulldozer to that undergrowth and complexity and it creates a broad highway out of poverty.
The crucial test will be take up. I believe that it will be increased for the following reasons. First, the separation of work credit and child support is long

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overdue. It puts an equal value and dignity on both. One cannot underestimate the value of symbolism in social security. It is extremely important for people to be treated with dignity.
In terms of the child tax credit, we are moving towards a new definition of "universalism". The great strength of child benefit has been that it goes to every family. It creates a contract of interest in the welfare of the child. Creating a single tax credit with the same level of credit for all children signals the value and the needs of all children. I do not believe that that is a reflection of dependency and I greatly doubt whether many families do so. The decision to uprate the child elements of the child tax credit in line with earnings extends that contract. It means that all families now have a vital share in a growing economy.
Supporting all families, but giving greater help to those who need it through an inclusive test of income and not a means test, which stigmatised the claimant —and I entirely with what the noble and learned Lord, Lord Howe, said about the means test—will encourage take up.
Secondly, I warmly welcome the decision to pay the child tax credit to the carer. It will usually be the mother. The childcare tax credit will also go to the carer. I do not see anything stealthy about that. I can think of systems which are less stealthy than the mother caring for the child and receiving the benefit. I am sorry that the noble Baroness, Lady Castle, is not in her place today because she fought and won that battle in 1975 and she would have some warm words to say about the way the change is being made. It will simplify and encourage take up.
Moreover, unlike the other place which struggled with a fog of assumptions—not knowing how the benefits will kick in and what will be the interrelationship between them—we now know how generous the Chancellor has been. A child credit of £54.25 a week for the first child in families with incomes of less than £13,000 will have a real impact on the family food and clothing bill. And there is something else to rejoice about: the disregard on maintenance has already been shown to have a positive effect on work incentives for mothers eligible for working families' tax credit and the disabled person's tax credit. It goes along with common sense and flexibility, which I believe is written through the paper that accompanied the Budget, and with the equally welcome decision to fence off the capital cliff edge so that people are not suddenly shoved over the edge when they hit the capital barriers.
I turn to the decision to pay credits in retrospect on an annual basis. I, too, believe that that will bring enormous benefits to family management. Trying to stretch a budget across a week is an art form. Trying to stretch it across an unpredictable year is a fine art which few families can manage. Moving on to an annual entitlement will reduce the burdens on families, the crippling unpredictability of income and the burden on the awarding agencies.
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That change, above all, is at the heart of the Bill. It will require immense and scrupulous care in terms of the transition process. It will mean providing quality of and access to information and extensive training of new staff. It will mean that we must have the best IT system. It is extremely difficult for any social security system to strike the right balance between simplifying the system and taking into account the chaotic circumstances of family life.
What cheers me is that in the papers I have seen there is a clear determination to minimise the risk at point of transition. The Government have got it about right. Disregarding small losses of income while allowing for rises of less than £2,500 is a good and sensible way to act. It is practical. I am also pleased to see that the preferred method of dealing with overpayments will not be to issue one-off demands. We do not want to fall into the trap which the Australians fell into.
However, there is a major challenge to families in collecting information in new ways. They will need help to do that. It means a change of habit and culture. That was explored at some length in Committee in another place. There is no doubt that it will be much more successfully managed if we do what the Minister in the other place suggested; that is, recognise what real life is all about. Families will need contact and support from groups which are used to providing information and help. The transition process is crucial. I am rather sceptical about the emphasis placed on online applications and would welcome the Minister's views on that and on the process of publicising and supporting the transition.
In conclusion, I want briefly to comment on two aspects of the Bill. I am delighted that by separating out work credits from child credits it is finally possible to help students and student nurses with their childcare costs. I notice that the General Secretary of the RCN warmly welcomed that. She said that nurses are being forced out of nursing because they cannot afford their childcare costs. What a time for nurses to be forced out of a profession that is longing to recruit more nurses and when we have so many mature students entering higher education. We need their skills and we must provide such help.
Secondly, I am delighted that people in work and on low incomes but without children will be brought into the tax credit system, especially young people. The uncertainty and difficulty in getting a first job, acquiring crucial skills and being unable to obtain support on very low incomes is a major issue. Providing an extra £30 a week for couples earning less than £10,000 will make a huge difference.
Finally, I have some questions for the Minister on issues opened up by the Bill. Like the noble Lord, Lord Rix, I greatly welcome the decision to extend childcare tax relief to families using their own homes. I wonder whether this is the time to grasp the nettle and whether the Minister, as only she can, will try to charm the Chancellor into making this the first move in provision for all informal childcare. That will have a profound effect on lone parents in work.

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To extend the metaphor, the other nettle is the disproportionate number of large families in poverty. Is it not time to see whether something more sensible can be done for those people and their families? Finally, given the reliance of families in poverty upon passported benefits—a question that was left hanging in the other place—has progress been made on the attachment mechanism to the new important benefits?
I think that we have a historic Bill which raises the prospect of achieving what everyone wants to see; that is, a reduction in the number of families living in poverty and a more effective and appropriate system for doing that. The process is the challenge and it needs to match the principle. But, given the consultation and the way in which it has worked so far, I am more confident that it can be achieved.
4.28 p.m.
Lord Freeman: My Lords, it is a pleasure to follow the noble Baroness, Lady Andrews, because I find myself in agreement with a great deal of what she said. She has tremendous experience in the field. One of the key points she made at the outset of her speech was the value in and the need for a kinder and more responsive system. Members on these Benches would agree with the noble Baroness that it is not a question of why; it is a question of whether: whether what is proposed will deliver what the Government correctly and legitimately want in terms of improved care for those on low incomes but in work and those who have children.
I declare an interest as an adviser to PricewaterhouseCoopers, part of the wider accounting profession which each year has to deal with what seems to be a geometric progression in tax legislation. It is rather like an Irish tide with a strong westerly gale; one is always ho ping the tide will recede but somehow it never does. I thank the Minister for her courtesy in providing a briefing before Second Reading—something devoutly to be wished would apply to other departments. It is greatly helpful to debate on a common platform of facts.
The Minister asked noble Lords, particularly Back-Benchers, to write to her. I shall do so, in the hope that her answers to specific points will illuminate the Committee stage.
My noble friend Lady Noakes and others have already made clear that the Government have embarked on a process of drawing together tax and part of the social benefits administration and cash flows, which are increasingly to be managed by the Inland Revenue. We ought to be clear that we are not entering or re-entering—as the noble Baroness, Lady Andrews, implied—an integration of the tax and benefit systems, to replicate previous experiments with a positive and negative tax system. That is not being offered. However, it does beg the question of what further tax credits are planned. What other aspects of the social benefits system are to be marshalled together with the tax system? There are fundamental differences between them still.
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The noble Baroness, Lady Noakes, correctly said that the income tax system is based on a retrospective assessment of people's income that is annually assessed. PAYE is a clever mechanism for extracting payments on account but fundamentally the system is retrospective. The social benefits system of which tax credits are a part is a prospective application of assistance. It can be adjusted during the year, but many of us involved in the practical administration are delighted that we are dealing with the provision of tax credits on the basis of an annual estimate of income. It is either retrospective in certain cases, when adjustment comes within the year, or is an estimate of income for payment during the course of the year.
My noble and learned friend Lord Howe and others pointed out an even more fundamental difference—that since 1990, thank heaven, tax is based on individual assessment. My noble and learned friend's seminal pamphlet published by the Bow Group in 1968 almost doubled overnight the number of young, thrusting professional women joining the Bow Group. His was an important seminal thought that eventually became law in 1990.
A number of anomalies are created because the tax credits system is based on the family unit. When two systems are run in parallel, a number of complications arise. I will not deal with the vexed problem of varying marginal rates of withdrawal of benefit or increases in tax—which is inevitable when two systems are run in parallel.
I want briefly to flag up some of the administrative complications that have, under similar reforms in the past, led to lower take-up. Heavens above‡ A 62 per cent take-up for the working families' tax credit is no credit at all. Three areas need to be addressed early. I have always thought it anomalous that your Lordships' House and another place examine the principles of legislation but do not seem to devote the same time to looking a t how the processes are introduced and the results. We have Select Committees but there are lessons to be learnt from other legislatures—particularly across the Atlantic.
The areas I want to touch on are application forms; the sufficiency of the resources devoted to the reforms by the Inland Revenue; and the transitional arrangements and start date. When the Minister winds up, perhaps she will say whether draft regulations can be made available before the Committee stage. I dare say that is possible. It would immensely assist the progress of the Bill through your Lordships' House if we can see the entire shape of the reforms. Tribute is due to the Minister's Department and to the Inland Revenue on a great improvement in the quality of the consultations on the introduction of the two new tax credits with lobby groups, the accountancy profession and employers—compared with the experience of 1998, 1999 and 2000 in relation to the working families' tax credit.
First, application forms must be easily understandable. The noble Baroness, Lady Andrews, rightly referred to families who are literally in a state of chaos. It is difficult for them to understand forms as

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easily as your Lordships. Clear English is needed for the regulations, leaflets, forms, code of practice, and the setting out of claimants' rights and obligations. The Bill is already a step forward. I am sure that my noble and learned friend agrees that the text is much clearer than in the past, which goes for both administrations.
Secondly, I am suspicious of the resources being devoted by the Inland Revenue. There will need to be excellent linkage between the Inland Revenue, job centres, local authorities and pension schemes. I am doubtful that the software, hardware or procedures are in place to ensure that that happens. Citizens ought to be offered so-called "better off" calculations. If someone claims for either of the two tax credits in the Bill, will they be better off? I refer to the perverse influence of the marginal rates in certain cases. Personal counselling and help should be provided to applicants. We should learn by experience. The Government should not be too proud to return the legislation to Parliament after three, six or nine months to amend and simplify the procedures.
I share the scepticism expressed by my noble friend Lady Noakes about IT. Sophisticated IT will be needed. I give your Lordships a specific example. When someone comes out of work, he or she will have to apply for income support. The Inland Revenue needs to get that information automatically transferred, probably electronically, so that child tax credit can be changed. There must be a linkage also to local authorities, in the provision of housing and council tax benefits. The mind boggles at the complications.
Finally, 6 million households will move to the new tax credits system by and on 7th April 2003. While your Lordships may welcome the fact that there is to be no overlap between the payment of working families tax credit and working tax credit for employers—that would be a complication—unless the administrative complexities are mastered and we can be assured of a more successful take-up rate, I hope that the Government will consider postponing the implementation of the reforms until the system is working correctly. As we draw closer to the target date currently set, I trust that the Minister will provide the House with information on how successful plans that have been laid for some months now have proved in implementing the new measures.
4.39 p.m.
Lord Haskel: My Lords, I have little expertise in this area, so your Lordships will be pleased to hear that I do not have a lot to say. I particularly wanted to speak in this Second Reading debate because the Bill has something that is rarely seen in legislation that comes before your Lordships. The Bill has vision. It seeks to continue the work of creating a fairer society by helping people to climb out of poverty and get into work. And few would argue with that vision. It even has the support of the noble Lord, Lord Saatchi.
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When this Bill was debated in another place, MPs lacked the numbers and tapers without which the Bill was perhaps somewhat academic, but the principles were absolutely clear. Now that we have the numbers after last week's Budget, we can see that guaranteed minimum incomes really will enable people and families to do what the Bill will encourage them to do. I am most grateful to my noble friend the Minister for giving us the numbers in such great detail. Perhaps they were a little indigestible, but none the less they will make interesting reading.
As my noble friend Lady Hollis explained, the whole purpose of tax credits is to eliminate the old poverty and employment trap, where it did not pay people on benefits to move into low-paid work. We have already seen that tax credits do this. My noble friend reminded us that, in a way, this Bill is a development and refinement of what is already in place, but with one important new element. The child tax credit and the working tax credit are entirely separate.
The child tax credit supports families with children, whether the parents are in or out of work. The working tax credit supports low-paid families, whether or not they have children. Like my noble friend Lady Andrews, I think that this is yet another move towards greater freedom and less dependence rather than more dependence, as suggested by the noble Lord, Lord Saatchi.
The children's tax credit and the working tax credit top up the incomes of families and the working poor. In effect, the bottom 40 per cent are gainers while, to a varying degree, the top 60 per cent are losers. Yes, this is an element of redistribution, but it should not be taken in isolation from the education and skills training schemes designed to make the working poor into the working better off, and to help employers fill those skilled vacancies, which seem to be blocking our economic growth.
It is conceivable that the working tax credit on its own would simply subsidise low pay and gain nothing for the economy but, taken together with the minimum wage, this legislation will provide a pathway to work and a whole culture of moving into higher skills and higher pay. Furthermore, it does so in a dignified and unpatronising way.
I make that point because some noble Lords, including the noble Baroness, Lady Noakes, have complained that the working tax credit is an additional burden on employers. Most businessmen are not whingers; they look at these things as a whole. Certainly the burden is minimised by allowances made to small companies for clerical work and annual assessments to reduce the numbers of changes. But businessmen know, too, that they can benefit. Recent surveys have shown that the biggest barrier to growth is no longer the strength of the pound, but the skills shortage. By participating in this whole group of schemes, businesses have the opportunity of attracting new employees who perhaps are not working, and turning them into valuable and skilled members of staff, with all the costs of doing that heavily subsidised by the Government. Surely that is worth a bit of extra administration.

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This initiative may well have come at the right time. I think that many businessmen do care. Businesses realise that they need to go further than simply showing social responsibility. Corporate philanthropy is not enough. Now, most companies think that there should be some social purpose to what they do. What more important social purpose could they fulfil than by turning the unskilled poor into the skilled better off? So all businessmen do not just complain about costs; they take a much broader and far more entrepreneurial view. I wish that noble Lords would give them the benefit of that doubt.
The working tax credit will also include an element for the costs of childcare, either in or out of the home. This, too, will help businesses, as it will help low-paid parents who have to work irregular or unsocial hours and so cannot use nurseries or childminders. The credit will be paid directly to the main carer to make it more likely that the money will be spent on the children, which I think is very good.
However, there is one matter in the legislation which does appear to me to be regressive. The noble and learned Lord, Lord Howe, referred to this point. To receive the working tax credit or the child credit, a claim form has to be completed. The income used to calculate the entitlement is the total family income, not the income of an individual. Of course the noble and learned Lord, Lord Howe, pointed out that joint taxation is not new. Only 10 years ago, tax was based on the joint income of all married couples unless one specifically opted out. However, the tax system has been moving steadily in the direction of independent taxation for spouses. Family tax credits seem to reverse that trend and I am not sure that that is something which will be helpful to family relationships. In the modern world, some spouses want to keep their tax affairs separate and private. A way should he found to facilitate that.
In spite of that small point, I welcome the Bill. I welcome it because it is unashamedly progressive and an important part of the overall scheme to move yet more families and children out of poverty. However, it is also a step further along the process of remoulding society into one where fairness and enterprise sit together.
4.47 p.m.
Lord Northbrook: My Lords, one of the Chancellor's major ideas since 1997 has been the integration of tax and benefits. The result of that philosophy has been a whirlwind of activity which has enormously complicated the system of welfare benefits. Noble Lords should cast their minds back to 1997 when, in the area we are discussing, we had the simple concepts of the married couple's allowance, family credit and the disability working allowance. Since then, it has been "all change".
At this point in my remarks I was going to run through all the changes to the regime that have taken place since 1997, but as my noble friend Lord Saatchi has done that already, I shall not bore the House. Instead, like other speakers, I should like to emphasise
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the complexity of the Government's welfare payments changes since 1997. Since October 1999, the Government have introduced five new tax credits for families, scrapped four of them, and then introduced two further new ones for April 2003. As stated by my noble friend Lord Saatchi, that represents a new tax credit for families every six months.
I should also like to ask the Minister how many more members of staff will be required by the Inland Revenue to administer the new credits. I ask that question in the light of the comment made by my noble friend Lord Freeman to the effect that 6 million new families will be eligible to claim them. I should also like to emphasise the burden to be put on business, as has been done by my noble friend Lady Noakes, in administering the new tax credits.
Like my noble and learned friend Lord Howe of Aberavon, I should like to ask the Minister whether it would not be better to raise tax thresholds than to increase the benefits population. I agree with my noble friend Lady Noakes that to conduct taxation by way of regulation is a bad trend.
I want to concentrate on three areas of the Bill. First, the basis of claim; secondly, concerns about fraud and, thirdly, the treatment in government accounts. First, looking at the basis of claim, as other speakers have noted, the record of WTFC is not encouraging as a pointer to the future. According to the Chartered Institute of Taxation, only one in 10 tax inspectors could fill in the relevant application form successfully. The introduction of the new tax credits will serve only to highlight the already existing complexity. The Institute of Fiscal Studies has the following to say about the new system:
"Claimants should find the new system very different from existing means-tested benefits, with the Government hoping that an annual system will be easier to understand and administer, and less obtrusive for claimants. But the conflicting aim of targeting the credits effectively has forced the Government to compromise on simplicity and predictability for families whose composition or income changes significantly during a year".
Many families will surely find themselves in this position, particularly when they have by good fortune a sudden increase in salary or a good bonus because of a company's good results for the year. The need for claimants to monitor their annual income, average hours of work and, if appropriate, childcare costs means that the Government's desire to provide a flexible and well-targeted system may be increasing the risk of non-compliance.
During its investigation of the new child tax credit the Social Security Committee stated:
"There is still a considerable way to go to create a tax credit and benefit system which is easy to understand and to use from the recipient's perspective".
As many speakers have said, tax experts have warned that many families will fail to claim the new tax credits because they are too complex. David Gibbs, a tax partner at Grant Thornton, said they are extremely difficult to work out. For the average person it will be next to impossible to understand how they work and whether they are due anything and then fill in what promises to be a complex form.

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Under the working families' tax credit only 1.3 million out of 1.5 million have claimed it in the two years since it came into being. With the child tax credit and working tax credit, the complexity of the means test will mean that fewer people will take it up. The new credits will mean that the proportion of families in receipt of means-tested benefits will grow, as has been stated by other speakers, from 24 per cent in 1998–99 to 38 per cent in 2003–04. The Prime Minister himself has highlighted the problems of means testing. In 1998 he said on "Breakfast with Frost":
"There are problems if you move to too much means testing as you can see with pensioners who do not take up income support".
Moving on to concerns about fraud, when the working families' tax credit and the disabled person's tax credit were introduced, questions were asked about the scope that they presented for fraudulent claims. The Social Security Select Committee stated in 1999 concern that the potential for fraud in the tax credit system could increase if priority was placed on prompt payment rather than on rigorous checking of eligibility. Frank Field also highlighted the scope for fraud in 1998.
Other tax credit schemes abroad have had the problem of fraud. The working income supplement in Canada saw such problems of fraud that the department is now moving back to a benefits-based system. The US-based earned income tax credit—the EITC system—also saw extensive, fraudulent over-claiming.
The Government have determined that the tax credits are administered through the payroll and therefore they are not subject to the Social Security Fraud Act 2001, which aims to reduce the costs of welfare fraud. A letter from Dawn Primarolo, placed in the House of Commons Library in April 2001, stated that there had been approximately 29,000 WFTC and DPTC investigations. In the region of 300 penalties were imposed. I ask the Minister how that compares with the family credit regime and how much has been recovered by way of over-payment and penalties.
One problem of the current system which has been highlighted is where people have booked places with existing childcare providers. Once they have received sufficient proof of the cost of the childcare, they cut all contact with the childcare provider and pocket the WFTC cash for the next six months. That example is quoted by David Willets and Nicholas Hillman in their booklet Tax Credits-Do They Add Up? It seems strange that the money cannot be paid direct to the childcare provider.
Furthermore, under the new system there will be the further weakness that claimants will not have to provide the Inland Revenue with written confirmation of the childcare costs as they currently have to do, as I understand it, and neither will they have to provide documentary proof of their childcare costs or earnings in contrast to the current WFTC system.
The complexity of the new regime will make it easier for fraud to enter it. Claimants will need to provide detailed information on changes to their annual
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income, on their average hours of work and on their childcare costs, which could increase the scope for fraud.
Finally, I wish to move on to discuss the treatment of the tax credits in the government accounts. As mentioned by other speakers, in the past family credit was counted as part of social security spending, but now the Treasury counts its current replacement, the WFTC, as a £6 billion tax cut. If all benefits were replaced with tax credits in that way, all benefit expenditure would miraculously disappear from the government accounts. I ask the Minister whether there is a possibility that the new benefits could be categorised as government spending by an amendment to the Bill which would make their overall costs much clearer?
In summary, I have a mixed view of the Bill. I welcome the fact that there are no capital limits, that the tax credit is extended to support about 100,000 families who are currently excluded, including students and student nurses, and that it will support families with young children who are in full-time education up to the age of 19. I am pleased also to note that the child credit will end the unfair treatment of single-earner families.
However, my approval is balanced by criticism, first, of the expansion of means testing, which encourages further dependency and, secondly, of the potential of fraud due to the complexity of the new benefits. My final criticism is of the treatment in the government accounts of the benefit as a tax cut rather than a benefit. I am sure that we shall return to these issues at Committee stage.
4.56 p.m.
Baroness Byford: My Lords, I join with other noble Lords and thank the Minister for setting out the principles of this Bill drawing together the tax and benefits system. If I understand correctly, the main purpose of this Bill is to make up the income of anyone entitled to a payment under it to a higher level than would otherwise be the case. Until the Budget I had thought that that entitlement would accrue mainly to the financially disadvantaged in our society. Indeed, I follow other noble Lords who have reflected that only in fact 10 per cent of families will not qualify for some form of tax credit, which should be of concern to us all.
Those who will receive payment through the good offices of an employer will presumably receive the credit in the same fashion as their pay; in other words, if through bank automated clearing services, then through that system; if by cheque, then by cheque; and if in cash, then in cash. The Bill does not actually specify that and I am surprised that it does not.
I am also surprised that there does not appear to be any form of compensation for the extra work and the bureaucratic hassle that employers will doubtless have to endure in the running of this negative tax collection system for the Government. Will the Minister assure us that employer responsibility will not include any involvement in sorting out problems between employees and the Inland Revenue?

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How will the credit be paid to those who do not have handy employers to bear the onus? It will be due to the self-employed, those who have more than one employment and those who have a series of part-time jobs who come in when needed, and those who are temporarily out of work. Will the Minister explain the mechanisms envisaged to ensure that this time the credits are claimed and paid?
Will she also comment on the progress in respect of the doubts expressed by the social security committee in its second report, when it queried whether the IT and the administrative systems would be ready for 2003? Is Alistair Darling's recent announcement of the delay in paying the child tax credit related to these doubts and an acknowledgement that the committee was in fact right and it will not be ready?
Baroness Hollis of Heigham: My Lords, does the noble Baroness mean not so much the child tax credit as child support reform?
Baroness Byford: My Lords, I believe that I do. I apologise. Perhaps I may clarify that later when I have had a chance to look at the papers to which the report refers.
Can the Minister explain the meaning of Clause 23(8) on page 16, which seems to indicate that if anyone claiming a tax credit cannot have a bank account, he or she will lose the credit. It states:
"If the regulations make provision for payments of a tax credit, or any element of a tax credit, to be made by the Board by way of a credit to a bank account or other account notified to the Board, the regulations may provide that entitlement to the tax credit or element is dependent on an account having been notified to the Board in accordance with the regulations".
Can the Minister also clarify the consequences of subparagraphs 9(1), (2) and (3) of Schedule 5, which would seem to allow personal information relating to anyone entitled to tax credit, child benefit or guardian's allowance to be passed quite freely between certain government departments and agencies? Can she explain why that provision has been included in the Bill and, in particular, why it refers to a guardian, who frequently may have no blood relationship to the person for whom the credit is paid?
As the Minister knows, the business of payment has exercised my imagination for many years. I have spoken in debates and raised questions in the House on this issue, and I intend to raise it again. How will some recipients receive their payments? In a nutshell, the Government have decided to save themselves something in the region of £400 million a year by ceasing to pay sub-post offices for the continued payment of pensions and child benefits in cash or by giro cheques to those who urgently need it to be paid in that way. As a result, more than 3,000 sub-post offices have closed and it is rumoured that another 3,000 are due to go.
A sub-post office is a franchise, and the franchisee pays for the privilege of holding that franchise. When the business is rendered non-viable, he or she receives no compensation, no redundancy, and the business cannot be sold because there is nothing of value left to
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offer. The sub-postmaster goes to the wall and his customers have to travel further to receive their state entitlements. In less than two years from now, they will be unable to draw their benefits except through a bank account.
It sounds simple—"Get yourself a bank account so that we can pay your benefits into it and save the state some money"—and yet the National Association of Citizens' Advice Bureaux still reports monthly that many of its clients are refused bank accounts or are having insurmountable obstacles to opening them placed in their way.
I have asked before and I ask again today, how will entitlement benefits pass from the Treasury to the pockets of the poor? How will that happen? Can we produce a simple diagram or flow chart which shows the process from the collection of tax to the disbursement of benefit for every class and subdivision of our population?
The poorest of our population are under the greatest threat. Even now, many of them pay out a great proportion of their benefits and entitlements in order to get to their sub-post offices to collect the amounts due to them. In this country, if you pay your bills on time, save up for what you want until you have enough money to pay for it and eschew the finance houses, you will find yourself refused credit should you ever need it. Similarly, a credit reference is an essential part of the clearance process for a bank account. Under all the systems of which I have so far heard, no credit history is almost as bad as a lousy record. Those who are reasonably expert in this field calculate that up to 2 million people will not qualify for a bank account. In her response today, will the Minister make a definite statement about the method of payment of these benefits?
What restrictions will be placed on the passporting of other benefits? In the past, for example, entitlement to family credit automatically opened the door to benefits related to NHS costs and to help with certain travel costs—for instance, for visiting relations in prison. Will the Minister confirm that restrictions are intended? Will she spell out what those restrictions may be?
Can the Minister also explain how and why a net family income of £11,250 has been chosen? It seems a little low in the light of the Chancellor's generosity over the child tax credit limits.
In conjunction with the Budget Statement, the Bi11 seems to open state aid to many families earning rather large joint incomes. At the same time it does not appear to grant proportionately more benefit to the less well off and those lower down the income scale, a matter to which other Lords have referred.
I am, as always, concerned for those for whom accessibility is a problem. As I have mentioned, it can be a problem because of distance; because of a lack of transport or the cost of transport; because of the complexity of the changes for those less well equipped to understand and insist on their true entitlement; and, to a certain extent, because of the lack of detail and clarity on the face of the Bill.

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Many noble Lords have referred to the low take-up of the working families' tax credit—62 per cent only. I, too, wish to pick up the point raised by the noble and learned Lord, Lord Howe of Aberavon, on the question of independent taxation for women and moving towards a joint payment to the family. If they prefer it, will a family be able to have the child benefit paid directly to the carer through a separate account rather than having it paid into a joint account over which the other partner may have greater control? We have fought for many years to ensure, particularly with child benefit payments as they were, that benefits go to the carer in an unthreatened way. My concern is that making payments in the way envisaged by the Government could jeopardise that freedom, which has been gained at some cost.
Will the Minister comment on what the Government consider will be the cost of introducing this new legislation? In 1992–93, the Government spent some £4.2 million to promote the take-up of benefits; by 2001–02, that had risen to –26.5 million. That is a huge increase in spending on advertising to encourage take-up, and yet we know that take-up is low, with many families not taking up their entitlement. As to unclaimed benefit, some –2.55 million was spent in 1998–99, which had risen to more than £3 million by 1999–2000.
I welcome parts of the Bill but I am concerned about the costs. The Minister will know—I have raised the issue with her many times before—that I am extremely concerned that those on lower incomes should not be put in double jeopardy by having to spend a high proportion of their benefits on getting to a post office to claim them.
5.9 p.m.
Earl Russell: My Lords, in some ways the Bill is a little like a hedgehog. One very hot summer night I woke up and came downstairs without any slippers—and rashly trod on one. Underneath the rebarbative exterior, I found a very small, very soft, very pink and very innocent object concealed in a welter of ladders and half-empty paint pots and all the other objects one has around the fringe of a house. The Bill is not nearly as bad as it looks.
People say that the Bill is difficult. Yes, it is—but that is mainly because the concepts, the terminology and the way of thinking are in many ways unfamiliar to us. For those of us who have experience of the United States' tax system, it is considerably more familiar. The basic distinction between a tax credit and a tax allowance is that for a tax allowance you get back the 40 per cent or whatever the percentage is; for a tax credit you get back the whole thing.
One of the skills one learns in opposition is that of seeing all hell in a grain of sand. I do not think that the Minister would entirely acquit me of having any of that skill. However, since I have been working on the Bill, between last Saturday night and now, I have been able to see rather fewer grains of hell than I could previously. That is an unusual experience when
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dealing with a Bill. In that context, I congratulate the noble Baroness, Lady Andrews, on the determination with which she stuck to evidence in the face of a House whose general mood was at the time rather hostile.
The other speech of the day has been that of the noble and learned Lord, Lord Howe of Aberavon—which might well have been subtitled,
"Look on my works, ye Mighty, and despair!".
The noble and learned Lord made a perfectly rational case for that view. But if we had all despaired every time it was rational for us to do so, none of us would be here now.
I am talking of circularity. I cannot help remembering the noble and learned Lord's first Budget, when he offered us income tax cuts in order to pay our VAT bills. That was a circular transaction. What we have here is not a pure circle; it is a spiral. It is the transfer of money from the childless to the childed. That is an approach in which one can see a purpose. The whole of the funding of the education system is that. A House which has in the past been wholly hereditary cannot with great ease condemn that principle totally. So the fact that there is an element of circularity is not fatal.
The noble and learned Lord complained, perhaps with more justice, about a tax on jobs. But you cannot have, at one and the same time, a total ban on a tax on jobs and a total ban on any increase in tax on income. We on these Benches believe that income is the fairer and more sensible place to put the tax. But you must be able sometimes, as a point of principle, to increase revenue. If you are to be banned from doing it in one place, you must be free to do it in the other.
In the course of tackling some very real problems, we run into some of the thorniest problems in the social security system. We did not create them; nor did our predecessors. Many are in the nature of the case. If we do not get it right first time, I do not find that particularly surprising. The noble Lord, Lord Saatchi, criticised the Government heavily for changing their mind and changing their policy—as indeed they have done on some points with some rapidity. But we cannot have this both ways. Either we criticise them for refusing to learn from experience, or we criticise them for changing their mind. What do we want? Both are mistakes; but I would rather they made the mistake of changing their mind rapidly than of not learning from experience. If there is any criticism to which the Bill is liable in that area, it is the second.
The general idea, as the Minister put it, is to make work pay. I have noticed that most of the fiercest critics of the Bill—notably the noble Lord, Lord Saatchi, and the noble Baroness, Lady Noakes—were not Members of this House during the Parliament of 1992–97. The Minister will remember the debates we had in that Parliament on poverty traps and the constant refrain of the people who were worse off because they were working. I should like to think that during those debates we were of some assistance to each other.

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It is that thinking that has helped to produce the Bill. That is why there is such long tapers. The Minister always used to warn me that we could not make this approach work unless we made the tapers long enough to make it very expensive. She was right, but it is on the whole better that people should be better off by working than by not working.
I remember an interesting conversation with my noble friend Lady Williams of Crosby in the spring of 1997, shortly before this Government came to office for the first time. She said that they had become very interested in the principle of the tax credit—about which, from her American and Harvard experience, she knew a good deal. She said that it was a good principle, and that I should view it with a cautious sympathy. She said that it would be necessary to ensure that. in their enthusiasm for the principle, the Government did not neglect the interest of those who were unable to obtain work.
In the Bill—the first of the tax credit Bills of which I have been able to say this—that point has been taken, and I am very glad to see it. The Chancellor has brought together two basic principles. One is all the various forms of support for children which people receive whether or not they are in work; the other is the support for low-paid work—which encourages work. So he answers the point made by Roy Hattersley on "Any Questions?" two weeks ago; namely, that the Government had done a great deal for the poor in work but practically nothing for the poor out of work. I should not like to think that this is the Government's last word on the subject. I very much hope that it is not. However, it is a word that I am extremely glad to hear.
The problem of poverty traps is not the whole story of the benefits system. I should not wish the Government to become obsessive about it. However, I shall not dwell on the other matters that I should like them to be thinking about. The Minister knows perfectly well what they are.
I am glad, like my honourable friend Mr Webb, about the decision to pay the benefit to the main carer rather than through the payroll packet. The decision to pay such benefits through the payroll packet was in order to teach people the importance of work. I do not believe t hat that needed doing. The importance of work, if you have been out of it for a long time, is social as well as financial. It is a lonely job being stuck at home all day, especially if your only company is that of children too young for conversation. Such a decision was unnecessary. Also, it was proving a considerable difficulty between employer and employee.
The National Association of Citizens Advice Bureaux reports several recent cases of employees being dismissed because they were claiming the working families' tax credit. That really will not do. The association has produced a proposal for a fair employment commission which seems very reasonable.
We hear a good deal about burdens on business. There are burdens on everyone who has responsibility—some welcome, some unwelcome.
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They should in all cases he kept down when possible. But one cannot live in society without carrying burdens. Employers have to accept that as much or as little as the rest of us.
It does not seem that the system of payment through the payroll has been ideal. It has been suggested that we deal with the matter by leaving out Clause 21(4). That is one possible way of amending the Bill, but there will be others.
I was also interested in what the noble and learned Lord, Lord Howe of Abe rayon, said about thresholds. Exactly the same point was made in another place by my honourable friend Mr Webb. The answer to the problem of how to work it out without an excessive burden is by increasing the tax burden on those at the top of the scale. We would do it by an extra tax on those earning more than £100,000 a year, who I hope will not plead poverty. It can be achieved so that the effect on people in the middle of the scale is pretty well tax neutral. If the complications of the scheme prove greater than we fear, the Minister might want to think again about the suggestions of my honourable friend Mr Webb. They were kindly met and are worth considering.
When she abandons the principle of payment through the payroll or creates an alternative, the Minister will find that there is some problem about who the main carer is. I recall one large happy family featuring two couples who had swapped spouses. They spent the summer together in a large country house, all looking after each other as they ran into each other. The primary carer was the person who happened to be nearest when the boy fell over and cut his knee. The Minister would have some trouble working out who the primary carer was in that situation. I am not asking her for an answer now. We shall have to consider the issue in Committee. However, I should like at least an assurance that she is thinking about it and that she knows that it is a difficulty. There is not always one single person with primary care for the children. The way family law is moving now, we do not feel it right that there should be. After a divorce or separation there should, when possible—which is not always—be a continuing responsibility resting on both parents.
A great deal of the rest of the comment on the Bill comes under the heading that I have put clown confusingly in my notes as "thorns and roses"—opposite in their effect, but closely associated in their appearance and therefore confusing to decide how to handle. Change of circumstance is one issue under that heading. There is no right way of handling it. admire the way in which the Government have tried to tackle it. I do not know how it will work out. I ask the Minister only to continue to keep the issue under review and to keep in touch with my honourable friend Mr Webb, who has done a great deal of constructive thinking about it.
I also ask the Minister to bear in mind the problems raised by my honourable friend about the burden of keeping records. I recently found myself in the process of doing my annual tax return, but discovering where among the litter of parliamentary Bills and White

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Papers all my various old cheque stubs are is not quite as easy as I would wish. If I had a large number of young children present as well, it could be well nigh insuperable, but that would not be evidence of any fraud on my part. We should think about the burden of record keeping that we are putting on people.
I agree with the noble Baroness, Lady Andrews, about passporting. We also need to think about passporting for medical equipment. My mother in law, who is 92 and has angina, relies on a nebuliser. She is not on benefit, but if she were she would find it very difficult to afford, because it is an expensive piece of equipment.
I am tempted to imagine that I see the hand of the Minister in the provisions for the disregard of maintenance as income. If so, I ask her to accept my hypothetical congratulations.
I share the concerns of the noble Baroness, Lady Byford, about the commencement date, mainly because I am not at all certain that the universal bank will be up and running in April 2003. I agree with the noble Baroness about the closure of sub-post offices, which is becoming a disaster. If the system were running with neither sub-post offices nor the universal bank, we could have a very nasty situation. If I were a Minister, I would have a contingency plan. I dare say the Minister does. I am not sure that she is going to share it with us, but I should be awfully glad to know that she has one. The more you have contingency plans, the less you need them—they are like umbrellas.
We may also have to think through leaving out Clause 24(2) about a small business exemption. This comes back to the problem of the payroll and burdens on business. I hope the Minister will also consider leaving out Clause 38. After all, that would only be following the example of JSA, which can hardly be regarded as quite such a wild and radical example. That is one case in which the point made by the noble Lord, Lord Saatchi, about the regulation-making power is clear. Entitlement can be changed at a stroke of the Le Pen, if noble Lords will forgive the phrase.
There are two sections of tax credit. The credit for children is justified by need and the credit for work is justified because earned. Leaving either of those out would be a potential injustice. I hope the Government will not lead their successors into that sort of temptation.
I also hope that people will think about the point that has been made by several noble Lords about housing benefit taper. There is also a problem with requiring different information to be notified for tax credit and for housing benefit. The complication of preparing two sorts of record for the two sorts of submission makes one worry. However, I have no answers to the problem. If the Minister, any other noble Lord or any outside body does, I shall listen with great interest.
I hope that the Social Security Advisory Committee will apply, as it has done to other matters that have been transferred to the Treasury.
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The noble Lord, Lord Rix, is right. I hope that the Minister will listen to him. I do not know whether she can do it in this Bill or whether we shall have to do it in another. One keeps hoping for finality, but in this life it does not happen, alas.
I welcome the Bill. There is a great deal of work to do on it. The problems will not be over when we have done it, but we are attempting something that is well worth attempting.
5.28 p.m.
Lord Higgins: My Lords, this has been a fine debate. However long one has been involved in these matters, one cannot wind it up without feeling that some diffidence is appropriate. When I first saw the title of the Bill, I had a strong sense of déjà vu. As long ago as 1972, the then Chancellor of the Exchequer, Mr Anthony Barber, as he then was, put forward proposals for a tax credit scheme. They were followed by a Green Paper on the subject later that year, which was devised by the noble Lord, Lord Cockfield, as he now is, who was with us earlier this afternoon. It was then examined by a Select Committee whose most prominent members were the noble Lords, Lord Barnett and Lord Sheldon, and the noble Baroness, Lady Castle, as they now are.
Alas, despite that Select Committee report, the incoming Labour government dropped the whole idea. Now, many years later, we find ourselves again with a Tax Credits Bill, although one must stress, as my noble friend Lord Freeman did, that whereas the previous scheme was a genuine negative income tax or tax credit scheme, the proposals in this Bill are not. It does, however, reflect the Chancellor's obsession with the idea of tax credits. It has also been combined with his vacillation.
I shall not repeat the long list of changes we will have experienced over the four years. My noble friend Lord Saatchi has spelled them out, and my honourable friend Mr Willetts—in a fine pamphlet dealing with this matter—has listed them. Indeed, the changes are to be found in Clause 1. Nevertheless, to introduce five new tax credits, abolish four of them and introduce another two does not exactly show the firm hand of government. That brings me to two other points.
First, the vacillation has been an extraordinary waste of legislative time. Although not all the proposals have been dealt with in legislation, much of what the Minister and I have debated in recent years has now been overtaken by this scheme. It is not—as the noble Earl, Lord Russell, has suggested—a matter of the Chancellor learning from experience and then changing his mind. The proposals have not been given a sufficiently long run to enable one to learn from experience.
The second effect of the Chancellor's changes of mind is an increase in the burden on small businesses, which find that the problems they have to deal with are constantly changing. The Bill will place a very considerable burden on business because of the proposal that these tax credits—I prefer to call them benefits-should be paid through the payroll. As my

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noble friend Lady Byford pointed out, there are real difficulties in that, particularly in relation to opening bank accounts and the problems with credit rating agencies which I myself raised with the Minister just a short time ago. There is a very considerable burden on business.
There is also some obscurity about the administrative cost of the proposals to the Government. Page 39 of the Explanatory Notes states that,
"The annual administration costs in relation to tax credits cannot be determined until the rates of the new tax credits are set".
They have now been set. Can the Minister please tell us what those administrative costs are expected to be?
The Bill is one of great complexity. My noble friend Lord Saatchi has advocated that we should deal much more in this House with financial matters. My own feeling is that this Bill is actually a Money Bill in the strict sense of the term. Regardless, it is fortunate that we are dealing with it. Because of the way in which the Government have handled the matter in another place, whole chunks of the Bill have received no consideration there at all. Perhaps the Minister will confirm that the whole of Part 2 did not receive any scrutiny in another place because of the way in which the Bill itself was—I use the euphemistic term employed by the Government—"programmed". We shall have a considerable task in scrutinising the Bill, but we shall have to examine it very carefully.
As a number of noble Lords—particularly my noble friend Lady Noakes—have pointed out, the Bill itself is bedevilled with regulations. A great deal of what is to happen will appear in regulations. The Select Committee on Delegated Powers and Regulatory Reform seemed to have been somewhat placated by the fact that the regulations in the first instance will be subject to affirmative resolution, although the subsequent ones will not. However, I feel bound to say that I do not think that that is the same as having them in advance. .I very much hope that, as the noble Lord, Lord Freeman, said, we will have them in advance of the Committee stage, when we can debate and if possible seek to amend them. Simply having a yes-no vote, even on an affirmative resolution, does not enable the House to ensure that the initial set-up is appropriate.
As I said, the Bill is greatly complex. Inevitably, that will result in a number of consequences. As many noble Lords have pointed out, the first consequence is the problem of low take-up—which is a very serious problem indeed. Reference has been made to what is happening in relation to the working families tax credit. Perhaps the Minister can confirm whether the quoted figure of, I think, 62 per cent is correct. There is also a very real problem in estimating the proposals' overall operation cost, which I understand is estimated at about £2.7 billion. As that estimate must have been based on assumptions about take-up, will the Minister tell us what assumptions have been made about take-up of the Bill's two major benefits?
The other problem is fraud, a matter to which another place did give considerable attention. As my noble friend Lord Northbrook pointed out, of about
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29,000 investigations, there have been only about 300 prosecutions. It is a real problem because the complexity and the payment-payroll link will allow considerable scope for fraud. Consequently, however, the Bill provides for the imposition of pretty severe penalties.
I am sure that the noble Baroness, Lady Andrews, will be aware that there is concern in the Child Poverty Action Group and elsewhere at the increase in penalties accompanying the change from a work and pensions regime to a tax regime in which the penalties are clearly much more severe. As the Child Poverty Action Group rightly points out, although we must all be against fraud, one must take account of the fact that there is a distinction between a tax imposition which is determined as against a benefit which is to be claimed. They are not the same, and I am glad to see that the noble Baroness agrees with us on that. We shall have to pursue the issue in Committee.
One point which has come out very clearly in the debate is the great extent to which Government intervention in individuals' affairs has been increased. Until now, we have had a social security system that works on a set basis and a tax system that operates at the higher income levels. However, there is a pretty large group in between who do not fill in self-assessment forms and are not involved with the benefits system. The size of that group will now be very significantly reduced. Perhaps the Minister can give us some idea of how many extra people will—I hesitate to use such a pejorative phrase—fall into the clutches of the Inland Revenue? There will be very considerable government intervention in individuals' lives, requiring individuals to respond in a very complex situation.
There is no doubt at all that the Bill provides for a substantial increase in means-testing. The Minister invariably objects to my using the term means-testing and prefers use of the word targeting. The reality, however, is that people will be "targeted", to use her word, up to an income of £58,000 annually. That is some targeting. It is also a very real problem.
As this scheme is designed to accompany improvements in health expenditure and so on over 20 years or more, I should perhaps take a slightly longer view. At some stage—given the overall crisis in pensions and so many people on means-tested benefits, and if we are to continue with the type of tax imposition announced in the most recent Budget—we shall have to ask who is going to pay for all this. As a longer term view, that is an interesting proposition. My noble and learned friend Lord Howe of Aberavon asked who would pay for the measure. That is a matter which we shall need to consider carefully.
If one looks at it in broad terms, I suppose one can say of the Budget that the whole of the health expenditure will probably be funded by the increase in taxation on companies and the rest of the increase in taxation—a high percentage of it—will pay for the costs incurred by the Bill's provisions. In some ways one may say that is a good thing when one has regard to the effect of those provisions on child poverty. The

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noble Baroness, Lady Andrews, referred to that matter, as did the noble Lord, Lord Rix. I hope that the Minister will comment on the 16-hour rule and related matters.
On many occasions recently we have debated the whole question of child poverty. The noble Baroness, Lady Andrews, was hopeful that the Government's measures in the Bill would have an effect on child poverty. Clearly they will have some effect. However, if one considers the Government's record on that matter, that is a different issue. At the previous election the Labour Party's manifesto stated,
"Over one million children have been taken out of poverty".
We debated that matter on many occasions. It is not the case, partly because the estimate was reached by various outsiders on an academic basis but also because it was based on the number of people who might have fallen into poverty if the Government had not done anything. Indeed, the latest information from various outside bodies shows that the figure was probably less than half that which the Government stated in their manifesto had already been achieved. Therefore, the Government's record as regards cutting child poverty is open to considerable doubt. However, we shall have to see how the measure works out in practice despite the substantial costs involved and the imposition on taxation, in particular national insurance contributions.
I hope that the Minister can clarify one further point. I refer to a matter of constant contention between the two sides of another place and this Chamber; namely, as regards treating these matters as increases in public expenditure, not as reductions in taxation. It is therefore interesting to note a change in the Government's attitude on page 216 of what once upon a time used to be called the Red Book. The relevant wording is an incredible example of weasel words. The document states:
"The Government has consistently argued that tax credits paid through the pay packet should be classified as negative taxation".
However, what they actually do is to go part of the way towards the argument which we on this side of the House have put forward and closer to the OECD definition of what constitutes public expenditure and what constitutes a tax reduction. The Government now propose to count as public expenditure a benefit which is paid out, a tax credit, which is not deducted from tax because the individual concerned does not pay tax, whereas if it is a deduction from an individual's tax, they will count that as a tax deduction. What percentage of the total involved in this operation does the Minister believe will constitute a genuine tax credit in the sense that it is deducted from tax as opposed to being simply a benefit which is paid out?
In many ways the Bill has admirable objectives. It is always difficult to oppose a measure whereby people receive taxpayers' money. One is looking at one side of the equation in the Bill and not at the other. My noble and learned friend Lord Howe of Aberavon was right to ask where the money is to come from. I am a little
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confused to the extent that the money coming in looks as though it will all go into the National Insurance Fund, which is devoted either to the health service or to pensions. I am not at all clear how it is suddenly switched into the credits. However, I noticed with interest that a few days ago the Leader of the House in another place said that there was to be a national insurance Bill which, apparently, is related to the Bill we are discussing. Perhaps the noble Baroness will tell us what is likely to be in that national insurance Bill and whether it is related to the Bill we are discussing.
In his opening remarks my noble friend Lord Saatchi set out clearly our objections to the Bill. They are fundamental but we must at least hope that the Government are now creating a framework which will remain stable for a reasonable length of time. There is, none the less, much scope for improving the Bill which is before us. We shall do our very best in the course of the Grand Committee—I must say that it is rather strange to deal with such a major Bill in Grand Committee—to ensure that it fulfils its admirable objectives as far as possible but also to ensure that many of the disadvantages which have been pointed out in the course of the debate are taken into account and that the Bill is suitably amended.
5.46 p.m.
Baroness Hollis of Heigham: My Lords, I am delighted that we have had such an interesting and in some senses unusual debate. I particularly welcome—I am sure that the noble Lord, Lord Higgins, and the noble Earl, Lord Russell, will agree—hearing the voices of the noble and learned Lord, Lord Howe of Aberavon, and others who do not usually contribute to more conventional social security debates. It is refreshing to hear different perspectives.
In winding up the debate, I state the usual proviso that so many questions were asked that I simply cannot answer them all in the time available without sending your Lordships to sleep even earlier than would otherwise be the case. I shall write to those noble Lords whose questions I cannot answer tonight. Apart from making some general comments that I cannot resist, I should like, first, to pick up the points about Treasury issues, tax, social security, integration and national insurance, then, secondly, to go on to questions about the particular form of tax credit we are discussing, particularly as regards means-testing and take-up, which your Lordships pursued. I want to address the implications for disabled people. I then want to look at issues of accessibility in terms of the online payment methods that the noble Baroness, Lady Byford, has gallantly fought to ensure are available. I then want to discuss a favourite topic of your Lordships' House—I refer to burdens on employers—before picking up the point about fraud which one could perhaps have anticipated and some structural points before making some final comments. I hope that your Lordships will accept that I shall try as best I can to pick up as much as I can within that general framework.

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I am particularly glad that the noble Earl, Lord Russell, welcomed so much of the Bill. I am delighted that the more work he did on it, the more supportive he became. That is not always the history of social security legislation. Therefore, I am particularly grateful for his warm remarks.
I refer now to the speech of the noble Lord, Lord Saatchi. I was intrigued by the amount of time he devoted to Kant. He made the point that Kant argued that moral adulthood meant no means testing, as far as I recall from my reading of Kant. But, of course, Kant wrote before the introduction of income tax which was introduced in the Napoleonic Wars by a Tory as I recall and, when scrapped by the Whigs—Liberals—was reintroduced by another Tory, Robert Peel. I wonder, therefore, whether the noble Lord will be quite as keen to quote Kant in the light of the experience and history of income tax which I am sure Kant would also have deplored.
I turn to the comments made by the noble and learned Lord, Lord Howe. I believe that he identified some of the same issues in his maiden speech back in November 1964 when he tested the possibility of whether a negative income tax might allow for the problem of selectivity without stigma, as I believe it would be termed today. I believe that in 1964 he called on all Members of the House not to condemn proposals simply because they involved a test of means. He argued that we should respond to differing needs as well as to differing means and that, as a result, the package should ultimately have a real flavour of humanity. I am happy to commend the Bill to the noble and learned Lord on precisely those tests. I hope that he agrees with my argument.
I was intrigued to see how extensively the Politeia pamphlet. by David Willetts was quoted. I am sure that Mr Willetts would be delighted that it was read so widely by the people who mattered; that is, those on his own side. That, of course, is not always the case.
I turn to the first substantive point, which involves the interaction between the social security and income tax systems and which raises questions of tax. The noble Lord, Lord Saatchi, said that the tax burden was falling on the poorest. No, my Lords: those earning below the personal allowance have not been affected by the Budget changes to NICs and income tax. The tax credits system means that even after allowing for the Budget's changes to NICs, a single-earner family on medium earnings with two children will be £3.90 a week better off. A single person aged over 25 working 35 hours at the minimum wage will be more than £20 a week better off.
We have to operate in that way because, as the noble and learned Lord, Lord Howe, identified—and as the noble Earl, Lord Russell, confirmed—the matter is nominally complicated in the Bill because one is trying to bring together the financial consequences of the tax and national insurance systems when we know that earnings and wages do not reflect family size and that income tax is disaggregated but that tax credits seek to attend to family needs and family means. Therefore, one is integrating earnings and wages—which bear no
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resemblance to needs or means—an income tax system that is disaggregated and a social security system that is based on households. That is why, as the noble Earl, Lord Russell, rightly identified, we have to deal with the situation as we are doing. It is worth reminding ourselves that since 1997 the poorest fifth of our citizens have received an income gain of about £2,400 on average. We should be proud of that.
The noble and learned Lord, Lord Howe, supported by the noble Baroness, Lady Noakes, inquired about unmarried couples. He will not need me to remind him that that arrangement has been in place since the additional personal allowance was introduced in 1988 and is therefore not new in the Bill.
The issue about same-sex couples may or may not come up in subsequent legislation or in a proposed Bill that will be introduced by, I believe, the noble Lord, Lord Lester. Tax credits in that regard follow the social security and tax systems, and a same-sex couple is not at the moment recognised as a household.
The noble Baroness went on to make slightly more rebarbative comments—she said that tax credits fiddle—
Earl Russell: My Lords, the Minister said that a same-sex couple is not at the moment recognised as a household. I believe that the judgment of the Appellate Committee in this House in the Fitzpatrick case is to the contrary.
Baroness Hollis of Heigham: My Lords, in social security terms and, so far as I am aware, within the tax system, a single-sex couple is not regarded as a household. For tax purposes, that does not matter because the incomes are obviously disaggregated. However, I assure the noble Earl that for social security purposes, they are not.
I return to the point made by the noble Baroness, Lady Noakes, about tax credits fiddling the figures by scoring as negative income tax. Not alt all: box C2 in the Red Book described the Government's preferred method, which is that the system is now aligned with OECD guidelines and follows best international practice. The Red Book also reports fiscal aggregates for a national accounts basis, as determined by the ONS. We discussed that at our pre-meeting. If there are any particular concerns about accountancy., I should be happy to follow them up in correspondence. I seek the maximum transparency on this.
Lord Higgins: My Lords, what proportion of the total is deducted from taxation and what proportion of the total is simply a straight handout and has nothing to do with taxation?
Baroness Hollis of Heigham: My Lords, the system does not work like that; a sum would not be deducted from tax in that sense for any individual because he would continue to have tax payments. I am trying to find the relevant tables. There is information in the Red Book about the relative gainers and losers under the new system, which may answer the noble Lord's

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question. I refer to chart 3.3 on gains for families; chart 3.2 may also be relevant. There is further information, but I cannot find the tables. I shall write to the noble Lord—we have printed information about the gainers on tax credits and losers on tax NICs and how they correlate.
Lord Higgins: My Lords, I should be happy if the Minister would write to me about that. I am rather surprised by what she has just said. As I understand it, some tax credits may be paid to someone who is outside the tax system because he is not paying tax. However, so far as others are concerned, I thought that the amount would be deducted from someone's tax bill and that his or her tax would be correspondingly reduced. Is that so?
Baroness Hollis of Heigham: My Lords, I believe that the noble Lord and I are misunderstanding each other. Tax credits are made up of two chunks. The first is the working tax credit, which goes to adults, including adults without children when their incomes are sufficiently low. That is paid through the wage packet. There may be some overlap—I should have to check the statistics—but there will be relatively little overlap because that sum goes to the very low earners. The other chunk involves the much broader band of the children's tax credit, which is paid to the main carer. That is made up of three elements. Leaving aside childcare, they are: the children's element, which provides support for individual children; the second element is the family premium, which was formerly the children's tax allowance; and below that is the child benefit. Those three elements represent the children's block of support. They will be transported from out-of-work benefits to into-work benefits.
The tapers will work in the following way. The taper will come down in relation to children's tax credit; one will start losing it right through up to about —20,000, when one will he on the bottom two strands, which are the family premium–the old children's tax credit of about £500 a year—plus the children's benefit. That will taper out again at about £50,000 to £58,000. In other words, the taper comes down, based on the working tax credit and the children's element. It then flattens between £20,000 and £50,000 and it comes down again in relation to the child benefit allowance. I do not know whether that answers the noble Lord's point.
Lord Higgins: My Lords, I am grateful to the Minister for explaining how simple the system is! Is it not the case that when the tax credit is paid through the payroll—leaving the child credit on one side—the amount of credit will be deducted from the tax bill?
Baroness Hollis of Heigham: My Lords, in a mechanical sense, the individual will get a take-home pay that includes tax and national insurance and this arrangement. In terms of the aggregation for families,
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there is not a trade-off in the sense of an integrated tax and benefits system because there cannot be. Is that okay?
Lord Higgins: No, my Lords.
Baroness Hollis of Heigham: My Lords, I shall not pursue the matter further.
The noble Lord, Lord Higgins, also asked about the national insurance Bill. The primary rates for national insurance are bedded in primary legislation and therefore need to be altered by primary legislation. There is nothing more to it than that.
On the Bill's objectives, the crucial difference is that, under the working families' tax credit system and under previous legislation, there was a system of benefits that was based on being out of work or in work. We are now slicing that horizontally so that one has work-related support and children's support. That goes back to the explanation that I recently offered. It will help to make work pay and to tackle child poverty.
That brings me to the second range of questions, which were raised by the noble Lords, Lord Saatchi, Lord Freeman, Lord Northbrook, Lord Higgins, and others. Those questions were about means-testing, take-up and how effective the arrangement is likely to be. Noble Lords will recall that the old FIS—family income supplement—had a take-up of about 30 to 40 per cent. When family credit was introduced in 1993, it had a take-up of 50 per cent, which rose to about 72 per cent in terms of case numbers and to 80 to 85 per cent in terms of cash expenditure.
With regard to the working families' tax credit, the statistics of the IFS, which were quoted earlier, were based on the position of the WFTC 10 months after it had been introduced and therefore they had been considerably overtaken by events. At the time that the IFS did its work, it was, indeed, a fact that the figures were 62 per cent in terms of case load and 76 per cent in terms of cash because the people not claiming were those who had least to claim. We now believe that those figures are almost certainly 76 per cent in terms of case load and therefore, well over 80 per cent, or perhaps 85 per cent, in terms of cash.
We also know that, of those eligible but not entitled to family credit, one-third went on to claim WFTC. Half of all lone parents who were entitled to claim family credit but who did not do so did claim WFTC. One-third of those who were entitled to claim but did not do so could name the benefit. I am expecting that under ITC, as the momentum grows, we shall do even better than that primarily because people will be porting their children's tax credit from out of work into work. Therefore, there is an element of automaticity which, over time, should build into a much higher take-up. I cannot give more precise figures than that because, for the first time, we shall be introducing 300,000 or so people who have no children and who will be eligible to claim. We do not yet know how effective that take-up reach will be.
The noble and learned Lord, Lord Howe, suggested that the payments should be carried by other benefits. Perhaps he had in mind, for example, increasing child

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benefit. I do not know whether he was considering that. If we did so, the money available would allow us to increase child benefit by £20 per child but at the cost of taking almost £20 a week from lower-income families while giving £10 to £20 extra for children in better-off families. Therefore, it would not have the redistributive effects that we wanted to achieve.
With regard to the more general point in relation to tapers and MDRs, as the noble Earl, Lord Russell, said, it is possible for a real conflict to arise. A sharp taper would reduce the number of people caught by targeting. In that case, there would be very high marginal deduction rates because one would be coming off the system very quickly. On the other hand, a slow, low and gentle taper, which is what we have been encouraged to introduce, would bring about a low marginal deduction rate but, as a result, it would go much further up the income scale. There is no way of reconciling those two.
The noble Earl, Lord Russell, raised the question of shared care and asked that we consider the matter. We are considering it, especially in the light of the Chester case and the read-across, if any, from child benefit to issues such as child tax credit. Obviously, it is different when one is dealing with child support because payment goes between partners as opposed to a payment from the state to the individual primary carer. However, I assure the noble Earl that that matter will be kept under review and it is currently under discussion.
The noble Lord, Lord Rix, asked about disability payments. He asked whether, if we were unable to reduce the threshold below £69, we could increase the disregard. I am perfectly willing to look at this matter, but I do not suggest that noble Lords should take comfort from that statement. We have recently reviewed, for example, the therapeutic work rules— the permitted work rules for people on IB—and that may be a better way forward for the constituency for which the noble Lord speaks than going for an increased disregard.
My noble friend Lady Andrews talked about informal childcare and asked whether there was any movement on that front. It is, indeed, the case that lone parents often favour informal rather than formal childcare because they trust it more and find it more convenient. I hope that she will agree that childcare in the home, which the Bill supports, is a useful step forward in meeting the needs of lone parents. Again, we shall keep under review whether we need to do more than that.
The issue of passporting was raised by both my noble friend and the noble Baroness, Lady Byford. The passporting of benefits, including free school meals, will be aligned to a large extent in line with the current benefit structure.
The question was raised of the system being inaccessible and I was asked about IT links with DWP. The Inland Revenue will provide support in a number of ways, including extensive guidance on claim forms being tested for suitability, the telephone help line, and face-to-face support at job centres and Inland Revenue
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centres. We are having IT links. We want people to have access on-line if they wish. We shall also issue claim forms to existing recipients of children's tax credit, WFTC, DPTC, and so on. Rather than going into an extensive description of how we seek to reach people, if noble Lords would prefer me to do so, I shall be very happy to write a general letter on the subject and circulate it to your Lordships. I hope that, as a result, people will believe that we shall reach those whom we need to help.
The noble Baroness also returned to an issue for which she has fought so gallantly; that is, the question of post offices and methods of payment. It must be said that the primary reason that post offices are not surviving is that they are no longer being used by the communities they seek to serve. I gave the noble Baroness a statistic which I shall now share with the House. I was rather startled to find that last year 50 per cent of the rural post offices that closed had fewer than 70 customers a week. I believe that the line there is, "Use it or lose it".
In future, the methods of payment available to carers who do not receive their benefit through the wage packet will be as follows. The first method will be via a bank. More than 50 per cent of those who claim benefits now have those payments made directly into their bank account. The second method will be via the new direct banks, access to which will be available at post offices. That method is funded jointly by the Government and the banks—I believe that it is what used to be called the "universal bank". The third method will be by card account at post offices. With that system, people gain access with a card number. Therefore, there will be two or three means, including ATMs, by which people can obtain cash from the post office with greater convenience, greater security and less fraud than occurs at present.
Earl Russell: My Lords, can the Minister give me the assurance, for which I asked, that a contingency plan is in place in case the universal bank is not ready in lime?
Baroness Hollis of Heigham: My Lords, not only is there direct access into people' own banks, as is now the case; there is also direct banking and the card account. Clearly, there is no way that ration books will be withdrawn until other appropriate and convenient ways of paying benefits to people are in place. That would be inconceivable. However, we have no reason to think that the universal bank will not be ready in time. I am happy to give the noble Earl that assurance.
Baroness Byford: My Lords, perhaps I may raise a matter to which we shall return. If only 70 people use their local post office, where will those 70 people go if that post office is not there?
Baroness Hollis of Heigham: My Lords, I understand that 80 per cent of all villages where there is a post office have another post office within about one-and-a-half miles.
Noble Lords: Oh!
Baroness Hollis of Heigham: My Lords, that is my understanding. In any event, I believe that post offices

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will survive ultimately only if they are used by their communities. From my experience of living in rural Norfolk, too often I find that people are happy to use a post office as an occasional convenience but, when it comes to buying goods in order to move revenue from post office payments into the local postmaster's income, they choose instead to go to Sainsbury's. One cannot have it both ways.
A noble Lord: An excellent choice!
Baroness Hollis of Heigham: My Lords, I am sure that the reason they go to Sainsbury's is because of the very high quality of goods that it offers.
I move to the issue of burdens on business. The noble Earl, Lord Russell, asked about discrimination as in cases reported from NACAB. It is an offence to discriminate. We have had very little evidence of it but obviously NACAB has picked up some cases. We shall be happy to take that further in order to safeguard employees. If employers act in such a way, they are committing an offence.
With regard to the matter of burdens on business, I would say only that the new system has been widely welcomed by business. For example, the CBI,
"support and welcome the attempts made by the government to simplify the rules for tax credits. In particular … [the] abolition of the need for employers to provide a proof of earning certificate … simplification of the notice periods … [and] automatic funding".
It also supports,
"the principle of moving from a fixed 6 month payment of tax credits to a rolling 12-month period".
That system has received a welcome from the CBI, the Institute of Payroll and Pensions Management, the IOD, the Association of Convenience Stores and the like. We believe that these reforms will save compliance costs of approximately £11 million which currently fall on employers. Therefore, I hope that the noble Baroness will accept that, while, so far as I can tell, all employers would like to operate in a regulation-free regime, that system has been widely welcomed as an improvement on the existing system.
With regard to childcare checking and fraud, perhaps I may write to noble Lords as I shall be able to do so in detail.
In the time left to me, I believe it is important that I address a point raised by the noble Lords, Lord Saatchi and Lord Freeman. Key draft regulations will be available for the Committee stage of the Bill. I hope that that will be helpful to the House. I accept that it is the case that social security Bills are framework Bills by definition. It would be absurd to have £16.20 enshrined in primary legislation and then to have to come back with primary legislation to turn £16.20 into £16.25. That is why all of this is done by way of regulation. It is equally important that those regulations are scrutinised so that your Lordships can read across from one to the other. I am happy to give that assurance.
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In the light of that, we have also had a clean bill of health, as your Lordships will know, from the Delegated Powers and Regulatory Reform Committee. I shall seek to make some negative resolutions affirmative, which I am sure your Lordships will welcome. However, as I said, the Bill has been given a clean bill of health from the affirmative powers committee. I have been pressed on administrative costs. I cannot yet give a precise answer. However, we are working on updating the regulatory impact assessment which will carry the figures required.
Finally, I want to come back to a word, which—I do not want to sound disparaging—apart from the noble Earl, Lord Russell, was used by only my noble friends Lord Haskel and Lady Andrews; that is, poverty. The noble Lord, Lord Higgins, pressed me on whether the Government have, indeed, taken children out of poverty according to their manifesto. I have been trying to find the Households Below Average Income (HBAI) statistics to give him the page references. However, I shall follow this up in writing. If the noble Lord were to look at the after-housing cost figures for children based on the 1996–97 baseline, which is when we came into government, he would find that the latest HBAI statistics show that since 1996–97, 1.4 million children have been lifted out of poverty. It is in the book; read it. That is the key point.
It is certainly true that the relative figures as a median of current income have not been as successful as we had hoped. I am afraid that that is because the Chancellor has managed the economy so successfully. Possibly, had the Chancellor managed it less successfully, we would have been able more effectively to hit the relative child poverty targets because the economy would have shrunk. It is a statement of the growth of income that we have not been able to hit the relative targets. However, as regards the targets compared to the baseline of 1996–97, we have exceeded what we sought to do.
I return to the issue of poverty. As my noble friend Lady Andrews said, we are addressing those who are at the bottom of the income distribution. Currently price-linking the FBU figures, a lone parent with two children under 11 would need an income of £138 per week. The HBAI figures suggest that the latest 60 per cent median figure is £147 per week. Under our tax credits, that figure will indeed be –147. We are hitting those poverty targets with the new reforms. In addition, student nurses and dual-earner couples will all gain. As a result, we are seeing not only a shift of support from those without children to those with children but also a generous shift of support from those who are better off to those who are poorest off, both to support children in poverty and to ensure that entry wages, which are relatively low and worsening relative to median wages, still make attractive the opportunity to work.
If we put that together, we have this Bill. As we explore it in Committee, I hope that your Lordships

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will become even more aware, as the noble Earl, Lord Russell has found, that its obvious merits will make its support compelling.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Energy Supply: EUC Report
6.14 p.m.
Lord Brooke of Alverthorperose to move, That this House takes note of the report of the European Union Committee on Energy Supply: how secure are we? (14th Report, HL Paper 82).
The noble Lord said: My Lords, this is a timely report. Energy is again high on the political agenda. I thank all those who contributed to the inquiry and to the production of our report. If I can be forgiven for being selective, in particular I thank our specialist adviser, Malcolm Keay. We could not have wished for better advice or assistance from an adviser. He seemed to know the answers to all our questions even before we had concluded asking them. As ever, our thanks go to Patrick Wogan, our worthy clerk. Finally, I thank our industrious and enthusiastic secretary, Kate Denhard, who was undertaking her first European Union inquiry with us.
I am grateful to the Minister for having responded so quickly to the recommendations in our report. I am pleased to see that the Government appear to have accepted the validity of our arguments in almost every case. I do not intend to address the recommendations one by one but rather to highlight what I think are the major themes of the report.
First, why supply and not demand? The European Commission's Green Paper, the Cabinet Office PIU review and the recent House of Commons trade and industry report all deal with energy policy in a comprehensive way; that is to say, they combine an examination of supply-side policies, demand-side policies and the application of energy to transportation. We deliberately chose not to follow that path Demand-side policies are important because they lead to a more cost-effective use of assets; in particular, non-renewable fossil fuels. There are compelling arguments for every government to apply themselves to getting right these policies. However, in our view there is not a causal link between supply-side policies and demand-side policies, though the two may interact.
The Commission's Green Paper was prompted by the fear that the decline of fossil fuels and the threat of interruption might erode the continuing level of energy supply needed to feed Europe's growing economies. We thought it right, therefore, to concentrate on that and to determine whether or not Europe and the UK in particular should be concerned. We asked the question: is supply secure? We came to the conclusion that we do need to be worried.
We heard evidence which ranged between those who pointed out that not only were fossil fuels limited but that we had or were about to pass the peak in the
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global exploitation of oil and gas. That was a view put to us forcefully by the Oil Depletion Analysis Centre. Most of our witnesses, however, suggested that, while the ultimate decline of such resources was not in question, there were differences about how much time we had left. Whether oil and gas resources last 50 years or 100 years is an important consideration in the medium-term. But given the need for massive cultural and industrial adjustment to a world without a plentiful supply of affordable fossil fuel, it is not too early for all of us to begin to think the unthinkable.
The first question we addressed was: how should we respond to the growing threat to security of supply? Should we seek to be self-sufficient or seek to manage risk? We doubt whether it would be practicable for Europe to try to achieve self-sufficiency. In any case it would be prohibitively expensive. We shall inevitably be reliant on world markets, but world energy trade is beneficial to producers and consumers alike and should be welcomed, not feared. Such reliance, however, is not risk-free. The aim of energy security policy should be to understand, reduce and mitigate such risk. In our opinion, the way to do that is to go for diversity, flexibility and back-up. Diversity and flexibility are characteristics of competitive markets.
As regards oil, in the European and increasingly the United Kingdom perspective, the supply of oil is conditioned primarily by a global market that up to now has delivered and is confident it can go on delivering in the medium-term. There are standby arrangements administered by the International Energy Agency but, like most contingency reserves, the problem is always deciding when they might be used and what impact they might have on markets. Because the oil market is a global market, we concluded that it was not subject to a specific security threat, although undoubtedly regional political problems could impact upon that. We have seen recently, in relation to events in the Middle East, both Iraq and Libya announce short-term suspension of deliveries. That affected prices for a short period but the balance of supply and demand has remained stable.
I turn to gas. Although the gas market is becoming more of a global market, it is still dependent upon a costly and relatively inflexible infrastructure which tends to inhibit the growth of a flexible global market that would provide our best security. In the United Kingdom we have been shielded because of the proximity of oil and gas fields in the North Sea. But the North Sea is in decline and we are rapidly moving towards a position where the United Kingdom will become a net importer of gas, probably as early as 2006. This is not a problem in itself, although there are problems which flow from it—physical delivery via an infrastructure that has not yet caught up with the market; and the organisation of gas deliveries into Europe via very long-term contracts from a limited number of suppliers.
Our gas infrastructure is not at the moment capable of rapid expansion which would allow us to import large quantities of gas from the continental system. Gas enters the United Kingdom at two points—

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St Fergus and Bacton through the compressor in Zeebrugge in Belgium. Both facilities, it is true, are being upgraded, but there is a period until 2005 when we shall be sailing very close indeed to the wind. We heard evidence that on one or two occasions over the past year the gas distribution companies in the United Kingdom were a step away from real trouble. We note with satisfaction that the Government are now looking into that issue. Can the Minister tell us when we can expect to hear results from the working group which was established to try to ensure that we do not encounter problems in that arena?
As regards longer-term gas contracts, gas for the European Union comes primarily from Russia and Algeria. At first sight, both sources might give cause for concern. Both have had severe economic and political problems. However, the historical record demonstrates that neither Russia nor Algeria have ever failed to deliver to contract.
Those deliveries have been underwritten largely by long-term "pay-or-take" contracts, usually between 25 and 30 years. We heard evidence from Gazprom of Russia, from Ruhrgas and from EdF and others that they consider these long-term contracts to be essential because they provide the necessary comfort to the financial institutions that underwrite the enormous investment required in bringing gas into Europe. There is much to be said for those arguments. Long-term contracts will no doubt continue to play a part in the provision of energy for Europe. But there is no doubt that long-term contracts impede the development of a flexible market and thus reduce our options.
We were also worried about the Russian ability to fulfil those long-term contracts. Shortly after the inquiry finished, I had occasion to meet the former Russian Deputy Prime Minister, Boris Federov, who is now a director of Gazprom. He was worried about the need to find the enormous sums of money necessary to pay for the new Russian infrastructure—after all the system was laid down 40 years ago—but also to meet the increasing domestic demand. The Russian economy is coming out of the chaos that followed the collapse of communism. Domestic demand there is growing rapidly. The Russian energy suppliers will not be able to ignore domestic demand in order to earn hard currency through exports, as they used to.
So what we are looking at is not only a requirement for Russia to replace and renew existing infrastructure to enable it to maintain its existing contractual obligations to European companies, but increasingly we shall see the need for even greater investment to meet rising domestic demand. Under those circumstances, it is difficult to share the confidence of Ruhrgas and Gazprom that the long-term "pay-or-take" contract brings any real security to Europe in 20, 25 or 30 years' time.
We have already seen, too, what happens when a flexible market meets a semi-rigid market. Gas prices in the United Kingdom over the past year have shot up not because we are any less efficient, but simply
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because we have no choice but to import the far more expensive gas from the continent to make up our shortfalls. This gas is expensive largely because of the way in which it has been paid for. We therefore concluded that it was important for the European Community to find ways to increase the flexibility of the energy markets.
I turn to liberalisation. That leads me to the main conclusion we drew about the question of security of supply. Here I am talking about long-term security of supply, as opposed to short-term threats to the security of supply, with which I shall deal later. The European Commission is wedded to liberal markets. We heard evidence from the Commissioner herself. We were heartened by the importance that she attaches to persuading all member states to move towards more fully liberalised markets. Fully liberalised markets would not only sweat existing assets more efficiently and thus be better value for money for European consumers, but would also lead to greater security of supply. The Commission has brought forward directives governing both electricity and gas, but these do not of themselves require member states to liberalise completely. The French were fully prepared to liberalise commercial and industrial markets, but not to go all the way to the domestic consumer. In the view of the French authorities, the French domestic consumer needed the protection of the state. Barcelona has not really changed that position.
German witnesses, on the other hand, claimed that Germany had achieved 100 per cent liberalisation. But it is an odd sort of liberalisation where the market is dominated by three major German integrated groups and where there is no regulator other than the suppliers themselves to determine how the market should operate.
There are other member states similar to the UK which have already moved to fully liberalised markets. Their consumers have already seen the benefits of efficient and flexible markets. We hope very much that all European consumers will see that it is in their interests that constraints on the markets should be removed. But flexible markets also need regulation to prevent monopolies from restricting competition. Can the Minister tell us when we can expect to see regulators introduced throughout the whole of Europe, and certainly when we can expect to see regulators introduced in Germany?
During the course of our inquiry we witnessed the outrages of 11th September. The question of security threats to the existing energy infrastructures has since been taken very seriously after those tragic events. From the evidence we received, however, attacks on the energy infrastructure, although possibly devastating in a particular locality, would by and large not seriously affect the overall supply of energy to Europe and to the United Kingdom. We have no doubt that all stakeholders in the energy industries have revised their contingency plans and that the range of possible threats to be considered has been greatly widened as a result of the events of 11th September.

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As to nuclear power—and other committee members will speak more about the role of renewables and the role of nuclear power—we came to the conclusion that for the United Kingdom in particular, and possibly for the EU collectively, it was difficult to see how the 30 per cent of energy currently supplied by nuclear power could be easily replaced from other sources without an unacceptable increase in carbon dioxide emissions.
In the short term, however, we believe very strongly that the Government can no longer delay decisions on the future of the UK nuclear industry, any more than the EU collectively can wish it away. We talk about a global village. There is not much point in giving up something in one's own garden if one's neighbour is doing exactly the opposite in his. The French nuclear industry is likely to remain the major generator of power in France. We buy their power already. Parts of the United Kingdom lie close to the French nuclear power stations. Nuclear-free parishes are unreal in a global village.
I turn to coal. Already in the United Kingdom the high price of continental gas has caused some power generators to bring back coal-fired power stations and to mothball the cleaner gas-fired power stations. We are not surprised: coal remains the most secure and competitive of all energy sources throughout the world. It is found all over the world and global resources can be measured in centuries in the future. Its drawback is the high level of CO2 emissions. If we accept the current fashionable assumption that the increase in CO2 emissions is the trigger for climate change, then clearly we must do something to make coal more socially and politically acceptable. But that is not impossible—or even especially difficult—to achieve. It requires us to divert resources to clean coal technologies and to measures such as CO2 sequestration.
On renewables, the committee examined the case for renewable energy in its 12th report in 1999 and concluded that aspiration and delivery were far apart. We then expressed scepticism whether the UK and EU would be able to meet their Kyoto targets. We have seen little to change that view, although we fully accept the importance that renewables may play in helping to reduce our dependence on fossil fuels and in limiting CO2 emissions.
To sum up, there is increasing risk to the security of supply of energy in the UK and the EU. We should learn to manage that risk, not pursue dreams of self-sufficiency. Fully liberalised European markets operating within a global energy market are the best way to achieve security of supply.
We urge the Government and the European Commission to persevere in persuading our European partners of the validity of those assumptions. European consumers are currently paying more than they need because not all markets are operating as they should. The Government and the EU need to be realistic about the role of the nuclear industry. It currently supplies 30 per cent of the EU's energy needs. In our view, it cannot rapidly be replaced by any
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combination of windmills, tidal barrages or biomass. Hard decisions are needed now. Nor should we forget the important role that coal will continue to play as we collectively learn to manage the long-term decline of oil and gas.
Moved, That this House takes note of the report of the European Union Committee on Energy Supply: how secure are we? (14th Report. IIL Paper 82).—(Lord Brooke of Alverthorpe.)
6.31 p.m.
Lord Ezra: My Lords, I wish first to declare that for many years I have been actively involved in the energy sector and am currently chairman of Micropower, which seeks to promote the small-scale generation of electricity. I pay tribute to the committee for its wide-ranging report and to the noble Lord, Lord Brooke of Alverthorpe, for so clearly identifying the issues that it considered. I am sure that that will lead to a constructive debate.
As the noble Lord said, a spate of reports has recently been issued on the subject—not only the European Commission's Green Paper, which is the subject of the Select Committee report, but the Select Committee on Trade and Industry in another place and the wide-ranging Performance and Innovation Unit energy review issued in February. There have been a number of other reports. They all demonstrate the importance now attached to the issue of energy security.
Hitherto, the environment has been regarded as the most important aspect of energy. It remains important, but security of supply—both short-term and long-term73x2014;is now equally if not more important. Of course, we cannot be sure when or how short-term risk will arise—whether motivated by politics or terrorism—but we must ensure that we are fully prepared for such risks. However, in the case of longer-term risk, we are in a better position to act because we are fairly clear what is likely to happen: namely, increased dependence on imports.
The EU is at present 40 per cent dependent on imports. It is estimated that on current trends that is likely to rise to at least 70 per cent by 2020. In Britain, we shall in all likelihood move from total self-sufficiency to net import dependency from 2005–06 onwards, leading to substantial import dependency in gas by 2020. So we share a common problem with the rest of the EU and I am glad that we are jointly considering the issue. The committee clearly recognises the problem—the noble Lord has just told us of the importance that it attaches to it and has given us a clear analysis of its findings.
I should like to refer to the emphasis placed by the report and the noble Lord on what is described as "risk management" to deal with the problem of increasing import dependence. That term was used by the Department of Trade and Industry in its evidence to the committee in October It implies that we should wait for problems to arise and then deal with them, whereas I should have thought that as it is clear that we shall become increasingly dependent on imports, more

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specific action could be suggested. A system of risk management appears to mean that we prepare ourselves for possible eventualities.
The problem is that, especially in the case of gas, we shall become dependent on increasingly distant supplies and will be at the end of the European pipeline, with all the risks that that implies—a point mentioned by the noble Lord, Lord Haslam, in his evidence to the committee last December. I should have thought it desirable that, while preparing to deal with possible future risks, we should be more clear how we intend to mitigate the problem. For the first time in our long industrial history, we shall face the prospect of largely importing our main source of energy. We had coal from the start of the industrial revolution—gradually supplanted by gas and oil, which in recent years has been supplied from the North Sea. All that will substantially change.
So we should seriously consider alternative energy sources in a determined manner. Indeed, the report and the noble Lord's speech referred to those alternatives. Perhaps I may speak about some of them.
Concerning oil—of which we shall once again become a net importer—more determined efforts need to be made to substitute other forms of energy in the transport sector. While much encouragement is being given to research and development, more decisive action is needed. For example, there are now well-tried alternatives to the use of petroleum products in motor transport. Why could we not make a start by converting all public transport to one or other of those alternatives and providing fiscal incentives, similar to those offered for unleaded petrol, to the private motorist? That would at least be a positive start.
In the case of gas, as the noble Lord said, the main alternative energy sources are nuclear power, coal and renewables. In the case of nuclear energy, the committee is right to state that the three main issues that must be resolved before present nuclear plant can be replaced are its economic viability, perceived safety and waste disposal. On the last matter, there has been a long delay in reaching conclusions. There has been a whole succession of reports and consultations but no conclusions. Until we reach a decision on waste disposal, it will be difficult to reach a conclusion on any replacement nuclear plant.
The committee is also right—as was the noble Lord—to criticise the EU report for being too dismissive about coal. The EU and the UK have abundant coal reserves and skills to develop them. As the noble Lord rightly pointed out, although coal presents environmental difficulties when burnt conventionally, there is now the clear prospect of developing clean coal technology—as it has been in other parts of the world, where plant is working—to overcome that problem. Unfortunately, at present, there is no working plant in the UK. If we develop clean coal technology associated with carbon sequestration, we can make coal thoroughly environmentally acceptable.
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As the noble Lord said, much reliance has been placed on renewables. However, expectations have always been somewhat in advance of achievement. Although it is important to develop renewable sources, we must accept that it will be a long time before a major contribution will come from that source. So, we must consider other possibilities, some of which could be provided by developing the small-scale generation of electricity—distributed generation, as it is now called. I have already declared my interest in the subject.
In this country, much of the energy that we lose is from the waste heat from conventional power stations. If that waste heat could be productively used, we could substantially reduce our overall energy requirement. Electricity generated on a smaller scale can make use of the waste heat that large-scale generators cannot. The prospects for small-scale generation making full use of the waste heat are well advanced and could make a big contribution to the energy security problem if the present regulatory obstacles were removed.
In the present system of electricity generation in Britain, the electricity moves only one way: from the major power stations, through the distributive systems to the ultimate consumer. By introducing small-scale generation, we can have electricity that moves two ways. That will mean changes in the regulatory system and in the way in which the distribution system works, particularly at local level. Those issues must be resolved quickly, if we are to take advantage of such prospects.
I wish to raise two issues arising from the operation of the new electricity trading arrangement (NETA). The first is the pressure for wholesale electricity prices to be reduced to the point that plant is now being taken out of production. That raises the important issue of the margin of security of electricity supply. In the old days, it was clear who was responsible for making sure that there was an adequate margin for the security of electricity supply—the CEGB. Now, it is not entirely clear who is responsible. It does not appear to be Ofgem, which seems to regard it as its main task to reduce the price of electricity through the operation of market forces. That is a laudable objective, as long as it does not lead, on the other hand, to a threat to longterm supply and capacity. That matter should be carefully examined.
My second point relates to NETA's adverse impact on the supply of small-scale generators with variable outputs. That is a well known issue and has frequently been mentioned in debates in the House. The settlements procedure under NETA means that small generators with variable output—in particular, renewables and CHP plants—suffer. The Government wish to encourage the development of those plants, but that aspect of the new electricity arrangement operates against them.
In the recent Budget, the Government gave added support to combined heat and power by exempting it entirely from the climate change levy. That is highly welcome and desirable. They have also done it for

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electricity generation from coalmine methane. Those are important steps in the right direction, but there is more to be done.
A great deal of energy is wasted in the domestic sector. One reason for that is that there have been abundant supplies of energy, in whatever form, and downward pressure on prices. The PIU report correctly draws attention to the need to stimulate greater efficiency in that market. I was a little disappointed in the view expressed in the Select Committee's report about the effect of energy efficiency. The committee concluded that,
"the European Union should continue to promote energy efficiency but without assuming that it will lead to greater security of supply"
I found that a surprising statement. There is no doubt in my mind that greater energy efficiency can substantially lessen the need for imports if directed in the right way. A strong fiscal incentive in the domestic sector could lead to much energy saving that could, combined with a move towards small-scale electricity generation, substantially diminish overall energy needs.
To conclude, my Lords, the Select Committee on the European Union was right to examine the important Green Paper prepared by the European Commission. Security of supply is an issue of major importance not only to the EU as a whole but, increasingly, to the UK. The defect that I have found in many reports on the subject is that they recite options without recommending specific action. Short-term terrorist or political threats cannot be forecast, so a general state of preparedness is required. However, the longer-term trend towards growing dependence on imports is more predictable. We do not need more reports or consultation periods: we need clearly defined action to diversify energy sources and reduce energy demand through greater efficiency.
6.47 p.m.
Lord Wilson of Tillyorn: My Lords, it is a great pleasure to follow the noble Lord, Lord Ezra, who has such long experience of energy matters. He gave powerful evidence to the committee when the report was in preparation. It was also a great pleasure to serve on Sub-Committee B, which worked on the report under the benign chairmanship of the noble Lord, Lord Brooke of Alverthorpe. As the noble Lord said, the report covered a huge amount of ground. It was instructive to be involved in the work of the committee.
I shall concentrate, if I may, on the role of renewable sources of energy, with particular reference to the experience that we have had in the United Kingdom. That is one part of the subject with which the committee dealt. The report used one of those splendid, sonorous committee phrases to refer to renewable energy, saying that it was,
"important not to let a justifiable enthusiasm … lead to an unrealistic expectation".
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There is an even more powerful expression in Chinese that, roughly translated, describes someone as behaving as though their "eyes were eating ice cream"; in other words, they are looking at some delectable object and getting slightly over-enthusiastic about it.
During the committee's work, it became clear that there was a great deal of justified enthusiasm for renewable sources of energy and many high expectations for it—possibly, even probably, too high. The European Commission has set a target for all energy of 12 per cent from renewable sources by 2010. That doubles a previous target. It was clear from the evidence given to the committee that many people were pressing for higher targets. In the UK, expectations are also high. A target of 10 per cent by 2010 has been set for electricity from renewable sources.
That implies building new sources of electricity generation at a rate of four to five times the rate they have been built during the past decade. That is a substantial increase. The latest energy review by the Cabinet Office, the PIU, talks of the need to double that target by 2010, to 20 per cent of all electricity used in the UK. That is a high target. The evidence which came before the committee from most, but by no means all, of the witnesses suggested that the targets were unrealistic. People tended to use the nicer phrase, "over optimistic".
Before going further with the subject, perhaps should declare an expired interest, if one is meant to do that. Until some 18 months ago, I was chairman of an energy company which produces the largest amount of electricity from renewable sources in this country. Partly as a result of that experience, but both before and since, I have felt a passionate attachment to the whole history of the development of renewable energy particularly from hydro-electric sources in the UK.
I also feel a huge respect for people such as the great Torn Johnston, the Labour Secretary of State for Scotland in the war-time coalition government and then Secretary of State again after the war, who during that period did a huge amount to develop hydro electricity in Scotland against deep-rooted opposition. I hope that all this will not be seen as unduly' colouring my approach to the issues.
I believe that, as suggested in the committee's report, we must be realistic and practical. We must recognise, first, that new generation from renewable sources is expensive. For instance, I am told that, on rough calculation, the cost of generation from a modern gas-fired power station is roughly £21 per megawatt hour, or just over 2p per kilowatt hour. The average cost of generation from a wind farm is about £34 per megawatt hour; that is nearly 3.5p per kilowatt hour. It is very expensive.
I suggest that it is good to encourage the use of renewables; but we need to be aware of the additional cost. Furthermore, we need to ensure that those who consume the electricity and who pay the bills are also aware of the additional cost. After all, if the Government state that X amount of electricity must come from a new renewable source—for instance,

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wind turbines—and that this must be bought in by the electricity suppliers at an inflated price, that is, in effect, a tax. It would seem right that the people who pay that tax—the consumers of electricity—should know what they are paying. In other words, on a bill you should be able to see that X is the additional amount you are paying because the electricity is coming from a new renewable source. Everyone will then be clear about what is being done.
Then there is the question of what kind of renewable energy one should try to use and develop. Sadly, we have lagged behind on the development of wind turbines. Perhaps that is because everyone concerned was all too well aware of the fact that, although the wind blows strongly, it does not blow all the time. I remember visiting an experimental wind generator in Shetland. I arrived one evening when the plane could hardly land because the wind was blowing a gale. The wind generator had had to be furled so that it would not be blown over. The next morning, when I visited the site, there was no wind and the wind generator was not working. Even in the Shetland Islands, the wind does not blow all the time; it is spasmodic.
However, we in the UK have growing experience of wave generation. It is probably correct to say that we are at the forefront of that. Whereas we buy our new wind turbines essentially from Denmark and Germany, in wave generation the picture is rather different. For example, I remember visiting the island of Islay off the west coast of Scotland where there was being developed a small wave generation power station by a company called Wavegen. As one approached it, one saw nothing—only level ground. Only when one was right on top of it could one see that anything was happening. The wave power is, unlike wind power, constant. One might say that we in the UK have some of the best waves in Europe. Perhaps we should use them more because we are at the forefront of that development.
Moreover, if we are to make full and proper use of renewable sources of energy, we need to ensure that the various parts of the official machinery get together. The noble Lord, Lord Ezra, referred to the new energy trading arrangements (NETA), which are being put out by the regulator, Ofgen. They discriminate against small generators such as wind generators. They also discriminate against generation which is distant from the source of use. But the reality is that, in the UK, the renewable sources of generation tend to be in the North and North West, whereas the major users tend to be in the South or in the Midlands. The NETA arrangements tend to discriminate against bringing power from a distant point and therefore potentially against renewable sources of generation.
If we are to capitalise on our potential renewable generation such as wave and wind power, we need a good North/South link. That will not come cheaply. I have seen an estimate showing that, in order to fulfil the Government's commitment to the use of renewable energy in the UK, it will cost approximately £1 billion in establishing a transmission network. One would hope that those costs would not fall on the area or the
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consumers where the renewable energy is being generated but throughout the whole of the UK where the energy is to be used.
Finally on that point, one needs to ensure that, as we develop renewable generation, the pricing structure from a system such as NETA does not so operate that it encourages the use of, say, an old coal-fired power station (not one of the clean coal technologies to which the noble Lord, Lord Ezra, referred), thus encouraging the use of that kind of power station at the expense of more efficient but more distant power stations, either more modern or those using renewable sources of energy. The trouble with all this, as the noble Lord, Lord Ezra, implied, is that the remit of the regulator, Ofgem, does not run in that kind of direction. It runs entirely in the direction of cost effectiveness. There is no joined-up government.
If we are to use our renewable sources properly, I suggest that we make full use of our substantial sources of hydro electricity. It amounts to about 50 per cent of all the renewables we have in this country. At one point, the Government ruled out existing large-scale hydro stations from qualifying under their various schemes to encourage the use of renewable energy. Happily, that policy has now changed and present government policy allows hydro electricity, even if it has existed for some time, to be counted for the so-called "green ticket" and for the new Renewables Obligation, provided that it is the result of recent refurbishment and only up to a limit of 20 megawatts.
Many may feel that the 20-megawatt limit is somewhat parsimonious, given that a large hydro station—for instance, Sloy power station on Loch Lomond—is 160 megawatts. Clunie power station, near Pitlochry, is 62 megawatts. If we are really to make use of all our renewable sources of energy, it would seem sensible that government policy should join up and should encourage the use of that energy too.
I have deliberately concentrated on experience in the United Kingdom because that is an area in which we can do something. It is also part of our contribution to what is done throughout the whole of the European Union towards diversity and security of supply. In making use of our own renewable energy resources, we need to be realistic. We should neither expect more, nor set targets for more, than can realistically be achieved. We need to recognise the true cost and to have overall policies that enable renewables to play their full role in diversity, security of supply and being environmentally friendly. If we act in those ways, renewables will take their proper place in the pantheon of energy providers.
7 p.m.
Baroness Cohen of Pimlico: My Lords, I am a member of Sub-Committee B of the Select Committee on the European Union and had a hand in writing the report under the guidance of its excellent chairman, my noble friend Lord Brooke of Alverthorpe. I want to address the issue of nuclear power generation, which currently provides 25 per cent of the United Kingdom's needs.

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The UK has 16 nuclear power stations—6 Magnox operated by British Nuclear Fuels and 10 of other designs owned and operated by British Energy plc. The last nuclear power station built in the UK was Sizewell B, which came on stream in 1994. The bulk of those plants are ageing. The Magnox stations will all reach their 40th anniversary within the next 10 to 15 years. Calder Hall, which is still in operation, dates from 1956. The majority of the 10 British Energy plants will reach 40 years of age in the next 15 to 20 years, leaving the UK with limited generating capacity by 2020.
Those nuclear plants provide some 25 per cent of the UK's generating capacity and about 10 per cent of that of the European Union. By 2020 they will be providing less than 3 per cent of UK capacity and about 1 per cent of Europe's—assuming that Electricité de France continues to produce about 70 per cent of the power consumed by France using nuclear sources.
We all assume that the fall in nuclear generation will be made up by increased gas and, to a lesser extent, oil generation. My noble friend Lord Brooke spoke about the potential limitations of gas and oil generation. The noble Lord, Lord Wilson, referred to the contribution to be made by renewable resources; and the noble Lord, Lord Ezra, to that which coal could make. Whichever way you slice it, the implication is that by 2020, Europe will be hugely dependent on geographically distant sources of gas and oil, transported by an ageing distribution network that may still be inadequately financed.
The UK, being at the wrong end of that network, could be particularly adversely affected. Even if those problems did not exist—if gas supplies were closer and distribution more reliable—using carbon sources so heavily undermines the ability of Europe and the UK individually to meet the environmental targets agreed at Kyoto. We agreed to a major reduction of carbon emissions by 2010. So did our European colleagues. It is practically impossible to see how those targets can be reached unless the UK retains something like its current nuclear capacity. The report is primarily about security of supply rather than environmental matters, it is clear that environmental concern contributed to the final, somewhat limp recommendation that
"the nuclear option must be kept open".
I was strongly reminded of the observation in Kipling's poem that
"gardens are not made
By singing:—'Oh, how beautiful!'
And sitting in the shade".
By the same token, the nuclear power option cannot be kept open by people seriously saying that it should be. Active steps must be taken to make those words approach reality. I welcome the PIU, which at least recommends that the Government take positive steps to keep the nuclear option open.
Members of Sub-Committee B, being conscientious people, discussed those steps in detail. All are difficult but all need tackling now. I put the priorities in reverse order to the noble Lord, Lord Ezra. For me, the first step is dealing with radioactive waste. A report from the Select Committee on Technology in 2001 observed that if we never build another nuclear power station, the problem would still he with us. Defence uses nuclear
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power. All our submarines are powered by nuclear reactors because that is the only form of propulsion that enables a submarine to operate undetected. Waste is already accumulated from existing stations and decommissioning will add more. The problem will not go away and solutions must be found. We all hope that work will gain impetus when the liabilities management authority is established and operational.
Secondly, it is clear that the industry needs government decisions on the planning and siting of replacement plants. That cannot he left to the normal planning processes, as if we were talking about supermarkets. They are considerations of national importance. Clear policy, unambiguously stated, is required. We should accept the solution urged by British Energy—that planning consent should be available for replacement plants on existing sites. Neither British Energy nor anyone else involved in the UK debate is suggesting that we do more than replace existing capacity. That can be done with fewer and much smaller modern plants, so not all existing sites would necessarily be used.
Thirdly, and critically, the public need the opportunity and the information necessary to enable them to think about nuclear power generation and to form a balanced view. The debate about security of supply has not surfaced since the mid-1980s and is not well understood—not surprising in view of the past 15 years, which have seen cheap and abundant supplies of carbon-based generation.
Nuclear generation has received an undeservedly bad press. For far too long—and in the teeth of the laws of physics, as well as the UK's admirable safety record—public perception has been that a nuclear generating plant remains intrinsically dangerous. There are valid arguments, some of them new, about the dangers of terrorism but the construction of new plants would take such issues into account. They could be rendered reasonably safe with a combination of physical defences and the ability to shut down quickly. There is a lack of logic also in objections. Elements of the public oppose new nuclear generation in any area that is close to them geographically, yet ignore the presence of nuclear plants closer still, in France. All those aspects need addressing to gain public consent for a nuclear plant building programme, which will not be easy.
Fourthly, there is considerable dispute and uncertainty as to the real costs of nuclear power. Some figures suggest that it is not much more expensive than current prices for gas. Figures given to the committee suggested that nuclear power could be generated at 2.2 pence per kilowatt hour. Because the private sector will not build a new power station without assurances about the prices at which its output could be sold, consideration may have to be given to some form of carbon tax—which would also enable the UK to meet the terms of the Kyoto agreement. However, that is by no means clear and the real costs need further exploration.
I hope to see a real sense of urgency in the nuclear debate. The response of Ministers so far to the PIU and to our report has not been unencouraging—just not very dynamic. There is a strand of feeling that it will be

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all right on the night; that either a way will be found to extract more fuel from somewhere or that some wondrous invention just around the corner will save all our bets. I do not doubt that the private sector will display its usual resource in sweating assets and exploiting to the full world reserves of oil and gas. But what then of our obligations to Kyoto? In my 40-year working life, only one new invention capable of saving all our bets in this field has emerged. It is called nuclear power.
Ministers have promised to take the first steps towards ensuring that the option is kept alive with a White Paper to be published "later in the year". I would be most grateful if, when he comes to respond to the debate, my noble friend on the Front Bench could tell us how much later in the year. Similarly, the setting up of a liabilities management authority has been announced, but primary legislation will be required to fund it and make it operational. Again, I hope that my noble friend will be able to give the House some assurance that the relevant legislation will be brought forward during the next Session to bring this much-needed authority into operation.
Time closes all options. To paraphrase the well-known saying, all that is required for the death of nuclear generation in this country is for Ministers to do not a great deal rather slowly. If we do not take the critical steps towards enabling a programme of replacement for our existing nuclear power plants soon, then we shall lose finally the necessary lead times and the skills of the people needed to build and operate them. Without nuclear generation capacity and the means to renew it, I believe that we shall be putting at risk the ability of the United Kingdom to provide secure generating power for the economic and domestic needs of our citizens in the not too distant future.
7.11 p.m.
The Earl of Mar and Kellie: My Lords, following the noble Baroness, Lady Cohen of Pimlico, reminds me that in Scotland, some 44 per cent of our electricity is generated by nuclear power. Furthermore, two out of our three nuclear power stations are due to close in the medium term. Clearly, in Scotland, we shall have to decide what to do about power generation when we reach that point of replacement.
I intervene in this debate at a slight tangent because I have an increasing interest in new forms of energy, in particular the use of non-fossil road fuels and the re-use of waste as road fuels. I note that the report considers renewables to be an agreeable and morally virtuous side-show which may have potential in the future, but on which we should not rely in the near or medium term. I fully accept that many of the renewables are still in the development phase and that they represent only a tiny percentage of the volume of energy required across the United Kingdom.
I wish to declare the following minor interests. I own woodlands in Clackmannanshire and as a consequence sell timber and firewood. I also have to
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clear up a great deal of rubbish resulting from fly-tipping. I resent that task less when the rubbish is combustible in the stoves at home, thus heating our water. I shall be speaking about alternative road fuels, but I have no interests to declare in that industry, except perhaps to say that at home I have two diesel road vehicles, a Peugeot 306 and Ford Ranger pick-up.
We have an embryonic alternative fuels industry in the United Kingdom which is in need of greater fiscal breaks than those recently offered in the Budget. The road fuels to which I refer are diesel fuels derived from oilseed rape and waste cooking oil. The former is an organic fuel, planted in the spring, harvested in the autumn, processed and used within the year. It is thus a highly renewable fuel. The limited tonnage of oilseed rape diesel fuel could be increased by allowing the crop to be grown during agricultural set-aside or, indeed, as an alternative to set-aside.
The second fuel to take my fancy is diesel fuel derived from waste cooking oil. This is a green fuel, but it is not a renewable one. It is of course a sustainable waste product, which might be seen as being even more virtuous. The source of such waste derives mostly from chip shops, which generally have a problem with regard to its disposal. Recently it has been used as an additive in animal feed, but that is supposed to have come to an end. Where waste cooking oil is so collected, the chip shops change their oil more often, which benefits their chips. That is in itself a useful consequence beyond the use of the old oil as a road fuel.
These industries must develop themselves. The Government could help, but they are not doing so at present. Recently the Chancellor announced fuel duty rebates of 20p per litre on the 46p duty for so-called biodiesel. This will help the producers of biodiesel, which has a small bioderived content and is largely fossil-derived diesel. That barely qualifies it as a renewable or organic fuel.
The duty derogation needs to be increased above the level of 20p in order to bring pure biodiesel and diesel fuel derived from waste on to the forecourts at a competitive price. Their production processes do cost more, in particular in the earlier stages of their development. The Chancellor could help here by introducing a further duty derogation.
Then there is the problem, for which the Government are not responsible, of vehicle warranties. Most manufacturers will allow the use of only fossil-derived diesel fuels, or an owner faces invalidating the warranty. This morning I contacted the agents for both of the vehicles I mentioned earlier in my remarks. Both agents confirmed that the use of non-fossil-derived diesel fuels was out of the question. That is largely a matter of conservatism on the part of the motor engineering industry.
It is a perverse fact that the Chancellor's much-favoured ultra low sulphur diesel fuel may well be causing increased engine wear as it may not be a good upper cylinder lubricant and could be wearing out injector pumps. But then the Chancellor seems to be more interested in acting on vehicle emission reduction than on reducing the use of fossil-derived road fuels.

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He is right to be interested in reducing greenhouse gases, but he should take a greater interest in promoting the use of non-fossil fuels. They are largely carbon neutral and in the main are presently an untapped source of energy.
I wish to make two further points. First, I believe that the duty on non-fossil fuels is a case of mistaken interpretation of the EU rules. Germany does not impose any duty on biofuels; nor does Poland. Poland is an EU accession country and it will be interesting to see whether the Poles are required to impose a duty on their non-fossil-derived diesel fuel as a part of the accession process.
In a Written Answer published yesterday, the noble Lord, Lord McIntosh of Haringey, stated that when non-fossil fuels are used as road fuels, they require to be taxed at the same rate as the fuel for which they have been substituted. Perhaps it is only raw government policy rat her than a misinterpretation. I suspect that the policy could he changed at will.
My second and final point concerns the apparent inability to sell non-fossil fuels as "red diesel". One supplier in North Wales has told me that the local Customs and Excise officials insist that all his non-fossil fuel is subject to the full duty of 46p, even if that fuel is then used in vehicles which qualify for red diesel. There are organisations which would like to use a green diesel in the red diesel context, but that seems to be impossible at present Will any action be taken to remedy that?
I conclude with the belief that these domestically produced embryonic fuels can contribute to the security of fuel supplies in future, albeit in a small way. That is especially so if their development can he unshackled by fiscal measures.
7.20 p.m.
Lord Cooke of Islandreagh: My Lords, I must congratulate the Select Committee on its report. I found it unusually good bedtime reading. It kept me awake much longer than anything else. I believed that the noble Lord, Lord Brooke of Alverthorpe, and others, would discuss and debate the main issues of the report. I have picked up a few things which might he described as "sidelines".
I was surprised, but not too surprised, to find that European countries have clone little to improve security by interconnecting and co-ordinating their electrical power networks and pipelines. Perhaps they do not have the inter-country trust that is needed. But it means that we cannot depend on gas supplies via continental pipelines to the extent we might have expected.
The Select Committee's executive report sets out all the main issues very well. I found myself in agreement with the recommendations on each, particularly the last urging government to maintain nuclear power generation to at least 20 per cent of the total. I believe that it is vital that we keep in touch with nuclear power development and waste disposal. I entirely agree with the noble Baroness, Lady Cohen of Pimlico, that we must not let time pass, but get to the matter now and move things on quickly otherwise it will be too late.
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I found the submissions to the Select Committee and the examination of witnesses to be of particular interest. They were very relevant and gave real body to the report. I wish to comment on some of them. I heard Dr Dieter Helm, one of the witnesses, speak at a recent meeting. I noted that he had a thorough grasp of all the issues. His evidence includes his thoughts about an energy agency comprising knowledgeable people with relevant expertise who would advise government, but be independent.
Unfortunately, the Government have declared the intention to use the ministerial sub-committee on energy policy to carry out that work. Their reports will have a political slant which is inappropriate for a report of this nature. We are moving into a new world of problems which will require expertise which is scarce at present in the view of Dr Helm: I agree. I believe that his proposal is an important one and should be supported so that we could separate technical advice from politics.
The Select Committee interviewed many interesting witnesses including, of course, the noble Lord, Lord Ezra. From his written submission I took particular note of his request that,
"the emphasis on increased competition and reduced prices needs to be replaced with emphasis on energy conservation and efficiency".
I believe that we are paying too much attention to price alone.
The new electricity trading arrangements have not made for efficient operation of the power stations. The noble Lord pointed out that very cheap electrical power did not encourage either manufacturers or householders to save energy. In the comments of the noble Lord, Lord Ezra, and in many other interviews, there was more good sense shown about energy matters than much of what I have read in official sources recently. The PIU submission, The Energy Review, published in February, is a good example of the latter. There are nine pages listing the names of those consulted. Unfortunately, the benefit of their advice is not obvious. For instance, the review sets up arbitrary targets and proposes that there should be an examination later on how to achieve them. That seems an odd way to deal with the matter. Does it make sense?
One of the many recommendations in the report is that,
"Government should set up a cross-cutting unit to oversee the future direction of energy policy; to implement the findings of the PIU review and to provide an enhanced analytical capability".
That made me wonder whether the members of the unit will be given chain saws to enhance their analytical capability.
The noble Lord, Lord Ezra, spoke with feeling on the reduction of energy in buildings, a matter which has not been attended to by the authorities. I simply do not understand why. It is also a subject which is close to my heart. I must declare a past interest. For many years I was involved in the promotion and building of low-energy houses and other buildings. They cost one-half or less to heat than houses built to the building regulations of the time. Building was faster and the

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cost less than 10 per cent more than ordinary houses. To the best of my knowledge, we had no complaints. We have never had any complaints from the owners or tenants of very comfortable houses.
I cannot resist mentioning the evidence given by Mr Andrew Warren of EuroACE. He believed that if we concentrated on the insulation of the existing housing stock we could reduce the energy required by 30 per cent or 40 per cent, which amounts to about 12 per cent of the national demand for energy. But the building trade does not like fiddling around with work which requires care and judgment. It charges very high prices for such work. It prefers to build houses quickly with bricks and blocks. I am afraid that vested interests would resist change in building materials or methods.
I believe that we should be working nationally to reduce the energy used in existing houses. It has been achieved. We should look to Denmark which has achieved much in a similar climate. I wonder whether the Select Committee would like to move on to study how the demand for energy, particularly for housing, could be reduced. If it is feeling energetic it might include industry and other buildings.
I finish by congratulating the members of the Select Committee of the European Union on their painstaking work. I hope that it will receive widespread attention.
7.28 p.m.
Lord Shutt of Greetland: My Lords, I also rise as a Member of Sub-Committee B. Until yesterday I thought I would come along and take note. I now find that it is a double act of both speaking and winding up. It is my first experience of being on a committee, preparing a substantial report and being thoroughly involved. I endeavoured to attend most of the meetings.
It has been somewhat difficult to get used to some of the language that was used, but I believe that ultimately we coped. Three matters really stuck in my mind as regards the report. The first point struck me six months ago yesterday at one of our earliest meetings. In response to the noble Baroness, Lady O'Cathain, one of our witnesses, Professor Paul Stevens, stated at page 23 of the evidence:
"In the countries of the Middle East for a long time now there has been a growing disconnect between the rulers and the ruled. The ruled, by and large, regard their ruling elite as incompetent, corrupt, un-Islamic and propped up by the United States".
That remark has stayed with me. It is very important because it suggests that many of the issues surrounding the security of supply concern politics and diplomacy. We must not forget that.
My second point relates to the many discussions that there have been about renewables. The suggestion that 12 per cent of our energy will come from renewables by 2010 arises more from hope than expectation. I wonder whether there should be more encouragement across Europe for renewable sources of energy.
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The third point to stay with me relates to the nuclear option and the concerns about safety and nuclear waste should that come very much into the reckoning. Those issues will have to be considered thoroughly.
So those are the three areas that one should keep in mind—the security of supply of oil, renewables and, if the nuclear option has to be looked at, safety and nuclear waste.
I, too, pay tribute to the noble Lord, Lord Brooke of Alverthorpe, for giving a full account and a clear summary of the report. It is interesting that, with the exception of my noble friend Lord Ezra, who referred particularly to coal and energy efficiency, most noble Lords homed in on two issues. The noble Baroness, Lady Cohen of Pimlico, made a vibrant case for the nuclear option to be kept open, a matter also referred to by the noble Lord, Lord Cooke; and the noble Lord, Lord Wilson, and my noble friend Lord Mar and Kellie referred to renewables. It is obvious from the debate that your Lordships believe that, however difficult it may be, the renewable option needs to be encouraged and pursued to ensure security of supply.
7.34 p.m.
Baroness Miller of Hendon: My Lords, I, too, congratulate the noble Lord, Lord Brooke of Alverthorpe, and his committee on their excellent work. I also thank him for securing the time for this important debate. It is important but it is not novel because, in one way or another, we have debated energy supply and its future at frequent intervals without, as far as I can see, any solutions appearing even on the distant horizon. It is important also because the Government have not yet provided the time for a debate on the review in both Houses, as was promised in European Standing Committee C by the Minister for Industry and Energy last year.
It is right that the House should continue to raise the matter in order to concentrate the Government's mind—and, it is to be hoped, the minds of other governments, especially those in the EU and the United States—on the need for action now, rather than to leave matters until severe damage is done not only to our economy and the lives of our citizens, but to the rest of the world as well.
There are several sources of energy available to the United Kingdom, but different problems attach to each—problems which, in the case of a loss or restriction of the supply of each of them, could cause severe disruption to the lives of our citizens and the whole of our industry, and which would certainly compromise our security as regards our energy supply.
The Select Committee stated that,
"the focus should be on risk management and … the main tools should be diversity, flexibility and the availability back up".
Thus far I entirely agree with the committee; but the sentence concludes, "not… self sufficiency".
Safety in any field of supply of goods or services is greatest when one does not have to depend on the performance or good will of others—in this case, foreign governments who may have political axes to grind or even local problems to solve. One has to look

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only at the various attempts at oil embargoes or the virtual absence of a free and open market in the price of oil, which is manipulated by a supranational cartel, to see what I mean. As for local problems, can it be said that the former Soviet Union, with its massive resources of oil and gas, is a dependable source of supply upon which anyone could place long term reliance? The noble Lord, Lord Brooke of Alverthorpe, made a very similar point.
In its energy review, the Government's Performance and Innovation Unit stated that,
"energy security should he addressed by a variety of means … however, there appears to be no pressing problems connected with the increased dependence on gas, including gas imported from overseas".
That is short-termism. Leaving aside the fact that large parts of our supplies have to be paid for out of our foreign currency earnings, dependency on others—even in what the PIU calls the "liberalised European gas market"—still makes us vulnerable to forces over which we have no control. Proven gas reserves in the United Kingdom, Norway and the Netherlands are less than the United Kingdom's gas requirements for the next 50 years. Russia and the Middle East hold more than 60 per cent of the world's gas supplies, and geographically the United Kingdom is at the far end of a trans-European gas pipeline, as the noble Lord, Lord Ezra, pointed out.
The PIU refers to,
"continued attention to long term incentives".
In my view, "Long term" includes making sure that we have sufficient alternative supplies of energy—especially ones where we are not dependent on international factors— so that even if for the moment, "We're all right, Jack", we will not have put so many eggs into the one basket of overseas supplies of gas that our grandchildren could he in trouble half-way through this new century.
It is unnecessary for me to remind your Lordships—but I shall do so nevertheless—that the supplies of all kinds of fossil fuel, especially oil and gas, are not inexhaustible, and that while the world continues to consume them at the rate it is doing, we are bringing closer the day when future generations, starting with the one after next, will have to find some alternative forms of energy.
Gas is a clean fuel. It avoids the problems of both coal and oil and, to that extent, its use should be encouraged. It is beyond argument that burning fossil fuels causes major problems to the environment.
As I reminded your Lordships in the debate on cleaner coal last year, a United States Senate Committee on air quality reported as long ago as 1975 that every coal-burning plant produces 25 deaths and 60,000 cases of respiratory disease as a result of the pollutants it emits, and that is quite apart from the property and environmental damage that those pollutants cause.
Almost four years ago, the Minister for Science and Technology told the other place that the Government support the development of clean coal technology. But by the following year the United Kingdom's leading
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share in this technology in the world market had fallen from 12.5 per cent to 11 per cent. When the Government came to power, they said that they would provide £60 million for research into this field.
In November 2000, the Minister for Competitiveness in Europe told another place:
"We are conducting an analysis [into cleaner coal] and will do so in even more detail as we proceed with examining the technology".—[Official Report, Commons, 22/11/00; col. 405 ]
Without engaging in a similar piece of waffle, perhaps the Minister will tell us precisely what the Government are doing and what incentives they are providing for this vital project, which, if successful—and before the coal-mining industry is lost for ever—will provide a great deal of energy independence to the United Kingdom.
On the subject of abating carbon emissions, the PIU also stated in its report:
"There would be no sense for the UK to incur large abatement costs, harming its international competitiveness, if other countries were not doing the same".
If that is truly the Government's policy, it not only negates their claim of supporting cleaner coal research; it means that they cannot complain about the United States' deplorable renunciation of the Kyoto agreement.
Renewable sources of energy are a vital topic in any debate about the independence of this country's energy supplies. Unfortunately, the ability of the United Kingdom to establish these resources is severely limited, for several reasons. First, we do not have the climate to enable solar cells to be used with any degree of reliability. We do not have the physical geography that would enable us to obtain substantial supplies from hydro-electricity—such as those available to Switzerland and France. Wind, wave and tidal sources, even where technically feasible, are mostly best sited in Scotland, far from areas of dense population, which causes problems in the economics of getting the resultant supplies to the consumer. There are parts of the United Kingdom where wind farms could be sited, but, as in Scotland, Yorkshire people do not want projects like these near their home or in their local beauty spots.
Nevertheless, apart from the political and technical difficulties involved, the Government have to support the development of a substantial percentage of our energy needs from renewable sources as part of the process of achieving a degree of independence o f foreign supplies. That includes resolving the problem that, in the short term, renewable sources are more expensive and less economic than simply burning large quantities of a rapidly diminishing natural resource. The extra costs of conservation by using renewable' sources has to be regarded as an investment for the future benefit of our descendants. I was interested to see that the noble Lord, Lord Wilson of Tillyorn, majored on this particular source of energy.
Will the Minister tell the House what resources the Government are making available to encourage research and development in this vital field—in actual cash subsidies, the procurement of funds from the EC, or tax incentives?

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All I know about the Government's plans regarding renewable energy sources is what the President of the Board of Trade said to the other place on 28th June 1998. Perhaps I may quote her remarks:
"I am sure that he will be gratified to learn that we already have an application to build a suitable station, which we shall, of course, be considering with interest".—[Official Report, Commons, 25/6/98; col. 1175.]
Perhaps I have missed something amidst the snowstorm of paper that passes over my desk every day, but I should be glad if the Minister could tell us the result of that four-year exercise in consideration.
That brings me to the all-important topic of nuclear energy. I was interested to hear what the noble Baroness, Lady Cohen of Pimlico, had to say on the subject. Fuel supplies are abundant and secure. They come from Canada and Australia, which are stable and friendly countries. The volume of supplies is reliable and continuous and can be assured by the retention of strategic reserves, and only about 250 million tonnes per annum would meet an appreciable proportion of the United Kingdom's energy needs.
I accept that many people have sincere reservations about the use of nuclear fuel and nuclear power stations. With no disrespect to them, a great part of those fears are unfounded and are caused in some cases by ignorance and perhaps even by deliberate misinformation from the less responsible elements in the ecology lobby. Again, I was interested to hear the points made so well by the noble Baroness, Lady Cohen of Pimlico.
In saying that in the past, I have had two well-publicised incidents quoted at me; namely, the accidents at Three Mile Island and Chernobyl. Without going into detail, I believe that modern reactors are not prone to such disasters. Despite dramatic demonstrations by pressure groups, I believe that this type of energy is as safe as any other. I find it surprising that those who campaign against nuclear fuel are often the very same people who campaign against global warming and acid rain, both of which are caused by fossil fuels. An average coal-burning power station produces about a quarter of a tonne of ash in an hour. The waste generated by a nuclear power station in a year would easily fit under a card table and, despite propaganda to the contrary, is technically easy to contain and store safely. The cost of the necessary storage of such waste and the decommissioning of obsolete nuclear stations does add substantially to the cost of nuclear power, and that is unavoidable.
In anticipation of today's debate, the Clerk to your Lordships' Science and Technology Committee sent me a copy of the committee's report on managing radioactive waste dated last November. He highlighted three paragraphs of the report, which concluded:
"the view is often expressed that it would be irresponsible to make further commitments to nuclear power without settling the problem of waste".
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I was pleased to receive the report in the interests of presenting a balanced argument. However, I believe— I hope that I am right—that the problem of disposal could be, or is already, solvable using methods and technology currently available. But again, the question of waste has to be seen as part of the whole picture as regards nuclear energy.
The additional disposal and decommissioning cost is, of course, spread among the other sources of supply by what is called "pool pricing", which evens out the cost to the consumer irrespective of the source of the supply received.
The important fact that presses on us with ever-increasing urgency is that 50 per cent of Scottish electricity is from nuclear sources and in the rest of the United Kingdom the figure is 25 per cent. However, the existing stations will, sooner rather than later, have to close, and the lost power will have to be replaced. A decision about what types of power station are to replace the existing ones cannot be deferred much longer. It is, therefore, essential that the pros and cons on the use of nuclear energy are carefully considered and that the question of whether or not to use it is finally decided once and for all. It is difficult to see what would happen in Scotland, and what other sources of energy it would have. The Government's coyness about holding a debate on the energy review may simply be due to the fact that they have not arrived at a conclusion, and they may he concerned about their Back-Benchers in another place. However, the debate must come to a conclusion.
Our debate today does not relate directly to the ecological aspects of energy use, although the topic is inescapable. What solution is offered by the Government in their PI U report? I quote:
"The Government should create a new cost-cutting Sustainable Energy Policy Unit to draw together all dimensions of energy policy in the UK".
It seems to me that the Government are simply intending to set up yet another quango.
In conclusion, perhaps I may make five points. First, a robust consensus on energy must be taken on the facts—for example, on climate change and on reliable energy projections and forecasts. Secondly, there is a compelling importance to supporting and planning ahead the development of renewable sources, especially for the United Kingdom, in view of the potential depletion of gas and oil supplies available to the United Kingdom within the next 20 to 50 years. Thirdly, current political short-term considerations and loyalties should not cloud the necessity of planning for the long-term needs relating to climate change, biodiversity and the use of all available resources. Fourthly, the Government must do more to gain the support of the public for the needs of conservation of supplies by symbolic exercises in the use of energy-efficient public buildings. I note what the noble Lord, Lord Cooke, said about his involvement in making energy-saving houses. The use of low or zero-emission vehicles is also important. Fifthly, the issue of nuclear energy must be resolved. New power stations take time to design, build and to bring on stream. Time is marching on and a decision has to be

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made before there is a breakdown in supply and we suffer major power cuts of the sort that recently paralysed California.
The responsibility for providing resources and tax for research and development rests with the Government. The responsibility for leading the world and Europe by example rests with the Government. The responsibility for putting the United Kingdom's present and future energy needs first rests with the Government. We currently import about 50 per cent of our energy needs. As many noble Lords have pointed out, within the next 20 years that could rise to 70 per cent. I look forward to hearing from the Minister how the Government intend to meet their responsibilities and reduce the UK's potential dependence on imports.
7.51 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, the Government welcome the committee's thorough and comprehensive examination of the issues arising from the Green Paper, under the chairmanship of the noble Lord, Lord Brooke. The events of 11th September and the recent escalation of tension in the Middle East have brought the issues relating to the security of supply into sharper focus. However, the core issues remain fundamentally the same. The UK and the EU are facing increasing energy dependence. I agree with the noble Lord, Lord Brooke, that we should be concerned about that. However, there is no single simple solution or silver bullet. We need to move forward on a number of fronts if this country is to achieve the energy security that we must have.
The committee identified a wide range of important issues, on all of which the Government are broadly in agreement. I shall put my remarks in the context of six of those: liberalisation, nuclear power, coal, renewables, energy efficiency and research and development.
I very much agree with the noble Lord, Lord Brooke, that we should be concerned with risk management rather than with self-sufficiency. To respond to the noble Lord, Lord Ezra, a belief in risk management does not mean that one should not take steps for mitigation. The argument is between risk management and some kind of central planning. The most obvious aspect of the energy scene is the simple impossibility of planning for the future, because one has no idea what the sources of supply or their costs will be.
The DTI was recently considering whether we should go on supporting the world programme on fusion energy. We had a helpful contribution from the economists, who said that they could tell us the answer if we could tell them what the cost of fusion energy would be in 50 years, what the cost of the other energy sources would be and what the demand would be. We cannot make that prediction six months ahead, let alone 50 years. If we could make the prediction 50 years ahead, we would not need economists to tell us the right answer.
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Flexibility is one of the key issues in energy. That flexibility comes with a process of liberalisation, which is the most important of the issues. The UK's liberalised energy markets are widely seen as a success. We see market systems as central to future energy policy domestically and internationally.
In response to the noble Baroness, Lady Miller, the option of self-sufficiency is not a possibility in any of the scenarios. In formulating any energy policy, the three considerations of energy security, cost and environmental objectives must all be borne in mind. Self-sufficiency is not possible if you are trying to meet all three of those.
We firmly agree with the Select Committee's views on the link between a fully liberalised, integrated, competitive EU energy market and security of supply. However, I do not agree with the noble Lord, Lord Brooke, that no progress was made at Barcelona. The conclusions at the recent Barcelona summit gave a welcome push towards liberalisation of the EU's electricity and gas markets and set out the key principles needed for effective competition: network separation, published tariffs, a regulatory authority in each member state and cross-border trading mechanisms. It was also agreed that industrial and commercial customers must be able to choose their suppliers by 2004 and that agreement should be reached by spring 2003 on further measures —in other words, the opening up of the domestic sector.
However, in answer to the noble Lord, Lord Brooke, I cannot say precisely when there will be a regulatory authority in Germany. There is still much to be done on that front, but at least we are now moving in the right direction.
As the committee noted, liberalisation is not in itself sufficient for an effective single EU energy market. Key missing infrastructure links need addressing. There was progress on that, too, at Barcelona, with agreement that the revised trans-European network—TEN—energy guidelines be adopted by December 2002. By making financial assistance available for important projects where the market cannot deliver on its own, this will help the development of a well connected energy infrastructure throughout the EU.
The importance of liberalisation for security of supply applies also to countries outside the EU, particularly since, as the committee noted, the sources on which we have become dependent are uncertain. For example, the noble Baroness, Lady Miller, sees the EU's dependency on Russian gas as a cause for alarm. We do not see it that way. Russia has proved a reliable supplier and needs gas revenue as much as the EU needs her gas. Russia also needs foreign investment to realise her export potential.
At the same time, it is important that the European Commission continues to press for economic liberalisation, competitive market conditions and a stable investment climate in all supplier countries. Negotiations in the World Trade Organisation, the International Energy Agency and the Energy Charter Treaty provide the means to do so. I very much agree with the noble Lord, Lord Shutt, that diplomacy has a key part to play in that aspect.

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There are various sources of supply. Diverse sources of energy are no less important for security than diverse countries of supply. I agree with the noble Baroness, Lady Cohen, that we need to think hard about the future of nuclear power. It will clearly be very difficult to achieve our environmental goals without nuclear power. If we ran down the 25 per cent of our energy supply that comes from nuclear power, it would be very difficult to replace it with renewables. That is why the Government are launching a public consultation on the PIU recommendations, which will lead to a White Paper later this year.
It has always seemed to me that one of the great values of the PIU report was to get the facts on the table about the energy situation so that there can be a major public debate. The PIU report was essentially independent, which was one of its great values. It recommended that the Government take positive steps to keep the nuclear option open and to stimulate open and transparent debate on waste and other areas of nuclear policy. Nuclear stations will continue to contribute to the UK's energy requirements, provided they do so to the high safety and environmental standards currently observed.
The Government already support research into innovative reactor systems for the longer term which could provide competitively priced electricity supplies while addressing the public concerns of safety, waste and proliferation. The noble Lord, Lord Ezra, raised the issue of radioactive waste. The Government's September 2001 consultation paper Managing Radioactive Waste Safely seeks views on the management of radioactive waste over the longer term and ways of ensuring public confidence in the decisions to be taken. I think that the sector is also increasingly seen as a major subject for R and D. If we can apply R and D to it and come up with solutions, the overall nuclear power issue will be transformed.
In the European Union context, it is for member states to decide whether nuclear generation should be part of their fuel mix. However, we strongly support the Green Paper's assertion that nuclear energy makes a major contribution to security of supply and greenhouse gas emission reduction.
The Government agree that coal has a future in helping to secure energy supplies. Its advantages include the geopolitical diversity of supply sources, the ease with which it can be stockpiled, and the flexibility of coal-fired generation in meeting peak demand or covering for supply difficulties in other fuels. Although there are serious environmental considerations, those issues can, as the noble Lord, Lord Brooke, said, be tackled. Nevertheless, if we want to continue using significant amounts of coal in electricity generation, we must adopt technological advances to address the remaining potential environmental impacts.
The noble Lord, Lord Ezra, mentioned the need for a clean coal generation demonstration plant in the United Kingdom. Cleaner coal technologies are well established in larger plants and we do not need further
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development in that regard. However, in answer to the noble Baroness, Lady Miller, the Department of Trade and Industry is broadening its R and D programme to enable it to support small-scale cleaner-coal technology demonstration activities and to allow it to cover technical and economic studies in carbon capture and storage. The department will also encourage research and development teams to look for sources of European support for that work.
The Government believe that renewables have an important contribution to make both to energy security and to emissions reduction. At the same time, however, we recognise that contributions from other sources will be needed. Renewables will play an increasingly important role in our energy use, but their future contribution will be even harder to quantify than that for other energy forms. We have to push very hard on the issue on a number of different fronts. However, I agree with the noble Lord, Lord Wilson, that we must be realistic about what can be achieved. Nevertheless, the situation is not static and the cost of renewables is, as one would expect, declining under the impact of scale increases and the input of R and D.
I also tell the noble Lord, Lord Wilson, that the United Kingdom's slowness in developing a wind industry is in no way due to an insufficient quantity or quality of wind. The United Kingdom is actually very well placed in terms of wind. However, he was quite right in his comments. In a recent report on energy research, the Chief Scientific Adviser has highlighted wave and tidal power as critical research areas in which we can expect a step change in performance. The main point on hydro-electric power is that we are already using almost all of our capacity. Consequently, the sector will not be able to contribute a great deal more in future. The sector also contributes a very high proportion of what is described as renewable energy, in some senses making the position look more optimistic than it is.
We are putting a lot of money into renewables by means of a series of mechanisms including the Carbon Trust. We have also recently increased the money provided through the Sixth Framework Programme from 600 million euros to 810 million euros. That is a substantial sum for research.
I heard the various points on taxation issues made by the noble Earl, Lord Mar and Kellie. However, he should appreciate that, as important as those sources are, none of them—particularly waste cooking oil—will make a huge dent in this major problem. In developing renewable energy, it is necessary to focus on a few significant issues that will have an impact on the national scene.
The Government note the committee's comment that energy efficiency will not necessarily lead to greater security of supply. Nevertheless, energy efficiency does bring huge environmental benefits. It is also important to realise that energy efficiency has increased substantially in recent years. Since 1970, the UK economy has grown by more than 90 per cent, but energy consumption by only 10 per cent. We are doing quite a bit on the issue although there is more to be

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done in the domestic sector. The Government's new energy efficiency commitment started at the beginning of this month and will require energy suppliers to meet targets for improving energy efficiency by offering help and advice to domestic consumers. It will focus particularly on low-income customers.
Research and development is another key area, and the Chief Scientific Adviser has just conducted a review of all our energy R and D activity. International data show that UK government spending on energy research, development and demonstration declined dramatically from the mid-1980s to the mid-1990s such that spending in 1995 was roughly one tenth of that in 1984. We are reversing the situation, and the Chief Scientific Adviser's report suggested that we should focus on the six key spheres—sub-carbon sequestration, energy efficiency, hydrogen, nuclear, solar voltaics and wave and tidal power—in which a step change is most likely.
The noble Lord, Lord Brooke, asked about the joint committee on security of energy supplies and when its report will be available. I can confirm that the committee, working under the auspices of the DTI and Ofgem, is examining issues such as the future adequacy of our infrastructure including our gas import infrastructure. Although I cannot make a specific commitment, I hope and expect that the committee's first report will be published soon, within about the next month.
The noble Lord, Lord Ezra, drew attention to the potential contribution of small-scale electricity generation including combined heat and power. The Government have been very active in this sector. Ofgem has been considering the impact of NETA on embedded generation, and, as the noble Lord acknowledged, my right honourable friend the Chancellor proposes to exempt good-quality CHP from the climate change levy subject to EU state aids approval. The noble Lord also raised the key issue of who is responsible for ensuring a long-term electricity supply. Responsibility lies firmly with Ofgem, which is responsible for protecting the interests of consumers, including current and future consumers. That duty also includes ensuring appropriate conditions for market-related arrangements to safeguard long-term electricity and gas supplies. There was also a question about when the White Paper will be produced. I can only say that it will be produced towards the end of the year.
I have attempted to cover the key issues identified in the Committee's valuable report. We are broadly in agreement with the Committee's views and appreciate its useful contribution to what must be one of the most important debates in this country. The Committee has produced a very helpful report which will be extremely productive in furthering an informed public debate on these issues. We need such a debate so that people from all types of background can express their concerns. There are no simple solutions, but the Government welcome the debate. The United Kingdom's energy policy will have to continue to strike a balance
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between the often conflicting priorities of energy security, environmental protection and consumer interests.
8.10 p.m.
Lord Brooke of Alverthorpe: My Lords, once again we have had an interesting debate on a report of the European Union Committee. I am grateful to all noble Lords who contributed to it. I am also grateful to the Minister for what I hope everyone will agree was a full response to the points that were made. As he said at the beginning of his response, there is not that much between what we said and the Government's response.
However, I ask the Minister to reconsider our recommendation on one matter and to reconsider my remarks in opening the debate. I refer to Russia. There is no question that Russia has delivered so far and appears to be able to deliver in the near to middle term. However, we have expressed concern about the longer term, 20 to 25 years ahead, and about the dangers that we foresee may arise. I ask the Minister to reflect on our comments on that issue as his response appeared—to put it kindly—somewhat complacent.
I trust that all the contributions this evening and those in our written submission will help in the development of energy policy and the security of energy at EU level and in particular in the UK. We look forward to the debates which will take place later this year on a whole variety of topics concerning energy policy. We look forward even more to some tough decisions being taken on some of the important issues we pointed up in our report.
On Question, Motion agreed to.

European Arrest Warrant: EUC Report
8.12 p.m.
Lord Scott of Foscoterose to move, That this House takes note of the report of the European Union Committee on the European Arrest Warrant (16th Report, HL Paper 89).
The noble and learned Lord said: My Lords, your Lordships debated the European arrest warrant on 19th November last year. Since that debate took place a number of changes to the proposed framework decision produced in Brussels have been made. Some of the concerns that your Lordships voiced in the previous debate have been met but others, I am afraid, remain. On those that remain representations have been made to government in letters from my noble friend Lord Brabazon. However, I doubt whether the Select Committee can carry the scrutiny process any further. I think that we have reached the position in our correspondence with the Government where we have made clear our concerns. The Government have responded and this is, therefore, an appropriate time for your Lordships to review the position that has been reached.
I hope that I may say a little about the timetable regarding the European arrest warrant. The proposal is that, assuming all the member states have agreed to the proposal, the arrest warrant measures will become

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effective as from 1st January 2004. The Government have made clear that before that can happen primary legislation authorising the arrest warrant provisions will be necessary in this country. There are, however, three member states besides ourselves which still have scrutiny reservations regarding the proposals. They are: Denmark, the Netherlands and Sweden. In Sweden in particular, if the media reports I have seen are accurate, it appears that strong parliamentary opposition has been expressed. Since, as I have said, this is an area where unanimity is necessary, it is perhaps possible that the proposed framework decision may still be some way off having binding effect.
But it appears also that the Government have agreed with a group of member states—I believe five others—on an early introduction as between ourselves of the arrest warrant provisions. Of course, so far as that is concerned, the Government may agree on a treaty basis with other member states whatever they think it right to agree. The reports I have seen indicate that the original date proposed for this mini-implementation, so to speak, of the arrest warrant provisions was to be the beginning of 2003. But primary legislation is needed and the legislative programme is apparently congested. As I understand it, it is now not thought that the stage will be set for implementation between the United Kingdom and the other five until later in 2003. That, as I understand it, remains the position. Perhaps the Minister will be able to clarify the position for us in due course this evening. It is a matter of some comment, although not perhaps a matter to be gone into in any detail this evening, that the Government have agreed to implement the arrest warrant provisions with the five other member states in question among themselves at a time when the proposals are still held under scrutiny reserve by Parliament.
I now turn to the substance of the proposals. There are one or two matters of particular concern that I wish on this occasion to draw to your Lordships' attention. They are matters to which attention was drawn in the course of the previous debate. The first of these relates to human rights. In a number of letters to government Ministers the Select Committee has expressed concern about the absence from the arrest warrant proposals of an article that expressly allows human rights objections to extradition pursuant to an arrest warrant to be taken before the judicial authority in this country, the Bow Street magistrate. The human rights in question are likely to be Article 5 rights—the right to liberty—and Article 6 rights—the right to a fair trial. The sort of points that might engage complaints about infringement of those articles would include, for example, excessive delay before a trial could take place while the individual was held; conditions of detention pending a trial; or a perceived lack of independence of the judiciary of the country concerned in relation to the particular charge that the individual faced. There might be others. Those are simply examples.
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Throughout the discussion on the arrest warrant proposals the Government have consistently made clear that in their view if objective evidence establishing a reasonable fear that human rights infringements might take place if the extradition were to proceed were placed before the Bow Street magistrate, he would be entitled to refuse to execute the arrest warrant. That is in my respectful opinion an extremely comforting assurance. But the framework decision does not say so. The framework decision recites, in Recitals 12 and 12a, a number of human rights that might relate to an extradition decision and, in Article 1.3, states:
"This Framework Decision shall not have the effect of amending the obligation to respect fundamental rights and fundamental legal principles as enshrined in [the Convention]".
However, I respectfully suggest that this explicit reference does not go far enough. Where there is objective evidence of anticipated human rights infringements, we should not leave it to the individual concerned to litigate his or her point in the member state concerned or, in the last resort, in Strasbourg before the European Court of Human Rights. We should perhaps allow such a person to remain under the protection of our courts. I suggest that the framework decision should expressly so provide.
Then there is the issue of double criminality. As your Lordships will know, the proposed framework decision removes the requirement of double criminality from a specified list of offences. In relation to offences which are not among the specified list—there are 32 listed—the Government have power under the framework decision to waive the requirement of double criminality. That is the Government's power, not the power of the person accused.
In relation to some of the specified offences, where there is broad harmonisation and correspondence of the offence across the Union, there is, in my opinion, no real problem—I refer, for example, to murder, kidnapping and robbery. There is no need to insist on dual criminality in regard to crimes of that character. But for others there is no harmonisation and the description of the specified offence is broad. The question whether the charge against the individual who is sought to be extradited falls within the specified offence is to be answered by the law of the country that is seeking extradition. The specified offences include offences such as racism and xenophobia. Another broad description is swindling. Those are very broad descriptions of offences. We do not know what specific offences other member states might have that they would say, under their law, fitted the description in question.
Indeed, "racism and xenophobia" has very recently received a definition in yet another proposed framework decision, which the sub-committee of which I am chairman currently has under scrutiny. That framework decision is intended to require member states to introduce crimes of racism and

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xenophobia which will be common across the Union. It is therefore necessary to define racism and xenophobia. It is defined as,
"the belief in race, colour, descent, religion or belief, national or ethnic origin as a factor determining aversion to individuals or groups".
That is contained in Article 3. Article 4 sets out the offences for which the laws of each member state must provide. It defines racism and xenophobia offences as including,
"public dissemination or distribution of tracts, pictures or other material containing expressions of racism or xenophobia".
So distribution of, for example, literature containing expressions of belief in race, colour, national origin and so on as a factor determining aversion to individuals or groups would be a criminal offence, and extradition of a person accused of the offence could be sought under the European arrest warrant. The offence in question would almost certainly cover the distribution of Biggles. It would probably cover the distribution of the Old Testament as well. I do not know what the Government's reaction to that proposal will be—I imagine that it will be a mixture of horror and laughter. But my point for this evening is that if any member state creates offences on those lines—those lines are proposed by the Commission—and prescribes three years' imprisonment as a possible penalty, we in this country would be expected to extradite the accused under a European arrest warrant. I suggest that those categories of offence need to be made much more specific.
I turn to the issue of trials in absentia. In many of the continental jurisdictions—for all I know, in all of them—trials in absentia, with sentences of imprisonment, may take place, notwithstanding the fact that no notice of the trial has been received by the accused. A European arrest warrant may then be issued, in order to bring the convicted person to the member state in question to serve his sentence. On that, the framework decision in Article 5.1 says that if the person convicted has not been summoned in person or informed of the date or place of the hearing, his extradition under the warrant may be subject to a guarantee that he will have the opportunity to lodge an appeal against his conviction.
That, I suggest, is simply not good enough. First, why should there be an appeal when there has not been a proper trial at all? The person concerned should have a guarantee of a retrial, with the ability, as one has at all trials, to cross-examine witnesses. Appeal is simply not enough in such a case and, in my opinion, is inappropriate. The Government, I believe, agree that that is so but, for reasons that I am afraid I do not understand, they are apparently prepared to agree to Article 5 in its present form; that is, lacking a guarantee of a full retrial.
There is a second point regarding trials in absentia. Article 5.1 applies only to people who have not received notice of the date and place of the trial hearing. What about those who have received proper notice but, through no fault of their own, have been unable to be present? An illness, an accident or any unforeseen misfortune might have occurred. Those
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people, too, surely should be entitled to a full retrial and be able to cross-examine those who have given evidence against them, and so on.
The in absentia trial provision in Article 5.1 is, in my opinion and for both of those reasons, unacceptable. I urge the Minister to look at that provision again.
The Minister of State, Home Office (Lord Rooker): My Lords, I am reluctant to intervene because I want noble Lords to make their speeches. However, I make it clear, for the avoidance of doubt later on, that when we introduce the extradition Bill later this year, we intend to make it explicit in our domestic law that we would not surrender an individual under a European arrest warrant in a conviction in absentia case without a guarantee of a retrial with the defendant having full rights of defence.
Lord Scott of Foscote: My Lords, I am much obliged to the Minister for that very comforting reassurance. I do not see how that is entirely consistent with the terms of the framework decision. However, if we pass legislation of the sort that the Minister described, and if someone proposed that we had not honoured the framework decision, we should, I have no doubt, meet that situation head on.
There is a further problem that I wish to draw to the attention of noble Lords and which I invite the Minister to reconsider. The expressed purpose of a European arrest warrant is declared in Article 1 to be to obtain the extradition of the named person,
"for the purposes of conducting a criminal prosecution or executing a custodial sentence".
That corresponds with our notion of what extradition is for. It is not for the purpose of getting a person for interrogation or for furthering the investigation of the crime and establishing whether a case can be built up. Extradition is, of course, for the purpose of getting back an escaped convict and, so far as trials are concerned, for conducting a prosecution. But the particulars that must accompany the arrest warrant do not have to include any detail of the substance of the case against the accused person. The accused person cannot rely on the absence of any prima facie case shown against him in order to prevent being extradited. Under current—traditional—extradition procedures, a prima facie case has to be shown, but no longer within the European Union. All that will be required will be for the subject to be named, the details of the crime to be given and the "degree of participation" of the accused to be set out in the particulars.
In that regard, too, the Government have made it clear, in evidence given to Sub-Committee E, that it is not their intention that the European arrest warrant should be available to be used to extradite a believed offender in order to interrogate him and build up a case that is sufficient for trial. But under continental procedures, the dividing line between investigation of a crime and the point at which there is enough material for a prosecution is not always easy to draw. The investigation will be under the control of an investigating magistrate—a judicial figure. It is

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presumably he who authorised the issue of the arrest warrant. There seems to me to be a risk that the extradition of a suspected offender will be sought in order that the investigating magistrate may complete his investigation by interrogating, or authorising the interrogation of, the suspect, rather than for the purpose of a prosecution in respect of which he already has sufficient material to start. There is no machinery proposed for monitoring what happens to the accused in that respect after he arrives in the extraditing member state. It seems to me of some interest that the only other European member state that, like us, has an adversarial criminal justice system, as opposed to an inquisitorial one—that is, Ireland—has made a formal statement, in December, to qualify its agreement to the proposed framework directive. The statement made by Ireland is as follows:
"Ireland shall, in the implementation into domestic legislation of this framework decision, provide that the European Arrest Warrant shall only be executed for the purpose of bringing that person to trial or for the purpose of executing a custodial sentence or detention order".
That mirrors the purposes expressed in Article 1. It seems to me that if such a statement is necessary or desirable in the case of Ireland, it would be for us, too. I would welcome the Minister's reaction to the need for us to make a similar statement.
There are other problems in relation to the proposed framework decision, but I have mentioned those that seem to me to be the most pressing.
The principle underlying the framework decision is that of trust between member states—trust in their respective criminal justice systems. I understand that. There are certainly a number of member states in respect of which trust in their criminal justice systems would have no qualifications and would always be present. No doubt all member states, present and future, will have criminal justice systems which we in this country can trust at least most of the time. But the proposition must be that we can trust all the criminal justice systems of all the member states all the time in order to be content with the extradition proposals envisaged in the European arrest warrant without any further qualification.
The consequences for both the citizens and the non-citizens of this country may be serious. They are entitled to expect protection by our courts and under our laws. We should deprive them of that only if we are completely confident that they no longer need that protection. I beg to move.
Moved, That this House takes note of the Report of the European Union Committee on the European Arrest Warrant (16th Report, HL Paper 89).—(Lord Scott of Foscote.)
8.31 p.m.
Lord Lamont of Lerwick: My Lords, it is, as always, a pleasure to follow the noble and learned Lord, Lord Scott, who has in this debate, as in others, on the arrest warrant illuminated the issues with great authority and clarity. I am not a lawyer and previously have been apprehensive about intervening in debates on this
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subject but I have somehow been drawn into them successively. I justify that to myself partly on the grounds that the incomprehensions of a non-lawyer may in themselves be illuminating to the lawyers and, secondly, also that possibly the subject is too important to be left entirely to the lawyers alone.
I believe that it is very good that we are having this debate. It is, in a sense, more important than many of the other reports that we receive from EU Select Committees because we are discussing very directly legislation which is about to happen and which affects each and every citizen profoundly. Perhaps I may say that I am slightly surprised that, in the first instance, the Government resisted having this debate. Earlier, when we began to examine the arrest warrant and when matters were presented before the Select Committee, more and more issues which had not been anticipated or identified by the Government kept emerging.
Then, in addition, as the noble and learned Lord, Lord Scott, said, came the announcement by the Home Secretary in February this year that the British Government were intending the European arrest warrant to be operational in early 2003. If that is to happen, there will be very little opportunity for us to discuss the legislation which presumably will come forward in the autumn—that is, the legislation which fills in so many of the details and definitions of the different offences listed Article 2.
The arrest warrant is presented by the Government as a pragmatic development and logical progression whereby Europe will become an area of freedom, security and justice. In the words of the Home Office press release:
"We are sweeping away outdated, inefficient extradition procedures".
It is what Chairman Mao might have called "the next great modernisation".
Unfortunately, these proposals have been received in a number of different countries with strictly modified rapture. Mr Tremonti, the highly respected Italian Finance Minister, said of the European arrest warrant:
"It is a sign that, when it comes to drawing up laws, we are going back to the pre-Enlightenment age".
I believe that in a number of countries parliamentary reserves still apply. I understand that very strong opposition has been expressed in the Swedish Parliament. It would be helpful if the Minister could tell us which countries still have such reserves. My understanding is that that is the case in Sweden, Ireland and Denmark.
I should also be grateful if he could tell us precisely what the position is in relation to Austria and Italy. I understand that, although Austria is signing up to it, surprise, surprise, one looks at the small print and that country has a derogation until it can amend its constitution because its constitution forbids the extradition of nationals. I have also heard that the surrender of the Italian Government to the concept of the European arrest warrant after initial resistance is perhaps not all that it appears to be because the

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Italians, too, may have to alter their constitution. I believe it is important that we know that so that we are aware of the likelihood of all the countries ratifying.
Of course, it is true that five countries have agreed to the early operation of the European arrest warrant. But, as Stephen Jakobi of Fair Trials Abroad caustically remarked:
"With the exception of Greece, those constitute a roll call of countries that have the most problems in providing basic rights to people who have been arrested".
That was his opinion.
Very fundamental issues are raised in relation to the arrest warrant. A few weeks ago in this country, an Algerian who had been a pilot taking lessons in the United States was the subject of an extradition request from the United States authorities. The courts in this country delayed his extradition pending receipt of evidence to justify his extradition. In the end, that evidence was not provided and the courts let the Algerian go free. I took tremendous pride in the fact that the courts could make that decision despite all the pressure after 11th September. Despite all the demands that terrorists be brought to justice as quickly as possible, I took pride in the fact that, where there was no evidence, a man should go free. Of course, had that occurred several years hence and had that been a request for extradition under the European arrest warrant, the British courts would not have been able to leave that man free in this country.
One tidying up in the present draft which I welcome, and which I believe is different from earlier drafts, is in Article 4(7). That paragraph says that the state can refuse to extradite if the offence has been committed on its own territory. Therefore, I believe and assume that that takes care of the case that I raised earlier which so delighted the noble Lord, Lord Goodhart, but horrified me. It concerned the Editor of the Sun possibly being extraditable for what he might write in his newspaper here. I should be grateful if the Minister would confirm that my understanding is entirely right in that regard.
None the less, what is proposed is a gigantic step forward. I consider that it carries great risks and one is tempted to wonder whether it is entirely wise. Of course, I am all in favour of extraditing criminals, and I am all in favour of criminals elsewhere being extradited back to this country. But what also matters are the rights of the accused.
What I find so extraordinary about this document—we have pages and pages of it—is that the rights of the accused get precious little mention. The Home Office talks about outdated and inefficient extradition procedures. But the rights of the accused are not outdated; they are something for which we must have regard. There is a passing reference to the right of the accused to have the charges against him translated.
I welcome the fact that paragraph 10 of the preamble refers to the possibility that a person will not be removed to the requesting state for extradition if it is unlikely that he will receive a fair trial there. I do not know how much the declaration in the preamble is worth—possibly not very much. However, I believe
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that much more needs to be guaranteed with regard to the rights of the accused, legal representation, interpretation at all stages of the legal procedures, interpretation for witnesses and the right to bail.
There is then the question of whether there should be Europe-wide statutory limits relating to the conduct of proceedings. It was John Mortimer, QC, a supporter of New Labour, who wrote in a newspaper:
"Would you care to be arrested on the say-so of a Greek or Spanish judge and be pushed oil with no case having been made against you to face trial under a foreign system in another country?".
He pointed out that investigating magistrates—who, as the noble and learned Lord, Lord Scott, said, operate on a different basis, being investigators and prosecutors at the same time—are notorious for keeping people locked up in prison for a long time in the hope of forcing information out of them.
It was that fear which led the distinguished lawyer, the SNP Member of the European Parliament, Sir Neil MacCormick, to suggest that there should be a Europe-wide provision for an end limit to detention similar to the longstanding 110-day provision in Scottish law. But that got nowhere with the European Parliament. It is all very well to say that ultimately there is a right of appeal to Strasbourg, but that could take a long time, possibly years. It seems to me that there should also be a provision for an avenue of national appeal where someone fears that his or her removal will not be fairly judged.
The lack of clarity and certainty in the framework decision, as put forward, is particularly regrettable. The main example is precisely Article 2 where we now have a positive list of so-called offences where double criminality does not apply. As everyone understands, that is not so much a list of offences but a list of types of offences. As the noble and learned Lord, Lord Scott, said, fraud and swindling have different connotations in different jurisdictions. One might say the same also for motor vehicle crime. What on earth does that mean? Even the term "murder" is open to different interpretations, including in certain countries abortion and euthanasia.
We have the famous case of xenophobia. Like the noble and learned Lord, Lord Scott, I have been wondering about that. In Foyles the other day I came across a whole series of books called The Xenophobe's Guide to the Belgians, The Xenophobe's Guide to the French and the xenophobe's guide to this and that country. They were light-hearted books, but will they be entirely legal from now on? I know that when the legislation is put forward there will be attempts to refine what those offences are. But how shall we ensure when we examine this legislation that the way the offences are defined corresponds with how they are defined in other countries?
However, the greatest uncertainty is with the treatment of the concept of speciality. It is speciality that prevents a person from being extradited for one crime and subsequently charged for another. The concept also prevents someone being re-extradited from one country to a third country. It is a necessary protection for people against a system where

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magistrates may be both the prosecutor and the investigator. As I understood it, at one point the Government were denying that speciality was being set aside. The report clearly states that it is.
The Law Society says that the document allows for the abolition of the speciality rule. Article 22(1) allows member states to opt out of speciality for a whole range of offences, provided there has been a declaration of prior consent. The Law Society has called that "a worrying development". The Law Society, no less, said:
"There is a risk that a person will be transferred on a charge which is then used as a holding charge to allow for the investigation and the bringing of charges for other offences for which the person would not have been arrested".
Surely, that leaves the person in a state of complete uncertainty as to what charges he may face once he has surrendered. It is a denial of basic rights.
As the noble and learned Lord, Lord Scott, pointed out, there is no mechanism for the requested state to monitor the proceedings once extradition has taken place.
I have a detailed point I wish to raise with the Minister which relates to speciality. I refer to the letter which Mr Bob Ainsworth, the Parliamentary Under-Secretary of State, wrote to the noble Lord, Lord Brabazon, and which is quoted on page 10 of the Select Committee report. The paragraph dealing with speciality states that:
"The UK has … indicated that, within the structure of this agreement, we would not intend … to apply the dual criminality test to requests made to us, even where it is required of us. We therefore do not expect speciality to be applied for the prosecution of fugitives within the EU".
I have been unable to understand what that means. I have asked two distinguished lawyers who are in the House at present, and they could not tell me either. I would be grateful if the Minister could enlighten us as to precisely what that means and what is meant by saying that because we are not applying double criminality there will be no infringement of speciality. Does it mean that, because one can be extradited for almost anything under the sun, there is no real risk that one would be extradited for one thing and charged for another? If that is what it means, that is not a very good reply. I cannot believe that that is what it means.
As regards double criminality, what is also regrettably uncertain is that abolition seems to take place in different countries in different ways. It can be done with the positive list for crimes that carry a minimum sentence of three years, a positive list for crimes that carry a minimum sentence of one year, or for all offences—not just those in Article 2.2—carrying a minimum sentence of one year. So, as I understand it, there will be different ways in which double criminality is abolished in different jurisdictions.
Surely, as Justice has recommended, it would be better if there was no possibility of an opt-out of the double criminality beyond the 32 offences listed in Article 2.2. That would prevent extradition warrants
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being issued in relation to controversial issues such as abortion, euthanasia, freedom of expression or vexed issues such as blasphemy.
The central issue behind the warrant is one which is difficult to deal with, and I was pleased that it was touched on by the noble and learned Lord, Lord Scott. I refer to the question of whether we have sufficient mutual trust in the judicial systems of other member states to justify what has been proposed with the safeguards as they are at present. I am rather pessimistic about that.
Let us consider, first, applicant countries to the European Union. The other day I was in a country which is an applicant for membership of the EU. While I was there a person was arrested and charged with undermining the state because he had released on the Internet details of the Prime Minister's houses. I do not want to go into more detail than that. In many eastern European and central European countries the integrity of the system is highly questionable, to put it mildly. It is naive to think that, having signed the European Convention on Human Rights, that deals with that and naive to think that that will change quickly.
Even with existing members of the European Union one has some anxieties. To quote what Mr Chirac said about French judges or magistrates might not be regarded as convincing. However, Mr Strauss-Kahn, the respected Finance Minister, said:
"In our system [France] you are presumed innocent until declared guilty. The reality is that you are seen as guilty from the moment the judicial system is interested in you".
One may call that political. However, let us consider some other unambiguously liberal voices.
Stephen Jakobi again in Fair Trials Abroad stated that,
"Spain, France, Portugal and Belgium are notorious for holding people without evidence in the hope that some evidence may turn up".
Hugo Young lambasted the warrant in the Guardian. He condemned the "pathetic legal aid", as he called it, given in Italy, Portugal and Spain. He pointed out that in Belgium a suspected paedophile is still on remand after five years. Of course there have been other concerns about the judiciary, the police and paedophilia in Belgium. When I referred to that on one occasion, the noble and learned Lord, Lord Williams, said that it is not the judiciary; it is only the police. I do not regard that as an entirely convincing answer.
The Law Society in measured words said that the,
"Law Society believes the presumption of mutual standards of recognition and compliance with the ECHR is too strongly accepted at the European level".
Therefore, I think that this is a dangerous step. The Government are very good at drawing up paper lists of human rights. But the rights that matter are the ones that exist and have been proven. They should not be given away lightly.
8.51 p.m.
Lord Donaldson of Lymington: My Lords, in view of the opening remarks of the noble Lord, Lord Lamont,

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perhaps I should apologise for being a lawyer. But it is a fact that just as bishops are professionally against sin, lawyers are professionally against injustice and perhaps have a wider appreciation of where it might arise than those who are not involved or who have not been involved in the law.
I entirely accept the pressing need for a simpler, speedier and more effective extradition system. That is subject to an overriding need for safeguards to ensure the full preservation of the human rights of those who are potentially liable to extradition. That at once raises the question of who is responsible for formulating and enforcing those safeguards. My answer to that is the state within whose borders and subject to whose laws the potential extradite—if that is the right word—happens to be found. So, from our point of view, when other states seek to extradite people from this country—whether or not they are British subjects because they are all owed a duty by the state and they all incidentally owe duties to the state, but that is beside the point—the responsibility must rest with us.
Furthermore, it is not a duty which can be delegated to other nations. The concept that the production by a requesting state of an indication that someone is alleged to have committed a particular offence without any necessary supporting information does not discharge our obligation to safeguard the rights of people in this country.
We all know that in some countries—indeed some European countries—treaty obligations are, in circumstances in which the interests of the state arise, treated as à la carte menus rather than binding obligations. There would be a risk that in some situations that would impinge upon our duty to protect people within this country. It really is not satisfactory to say, "Well, if there is experience that Ruritania, a member of the EU, is not in fact complying with its obligations, the unfortunate person concerned can of course go to Strasbourg, should he live so long". But it would only be after a large number of cases of that kind had come to the notice of our authorities that under the system proposed they would be entitled to say, "Well, we are not satisfied that Ruritania is a safe country to which to extradite someone".
Still less can we treat the EU itself as an overriding sovereign body within whose borders and subject to whose laws we all live and thus pass responsibilities to it, the suggestion being that the right to freedom of movement—incidentally I do not think that it is a duty to move freely—puts the EU in exactly the same position as this country. If the judiciary sought to move someone from England to Wales there would be no possible objection to that course. One would assume that there was some justification for so doing, but there is no jurisdictional objection. I am not sure whether the same is true of Scotland. Scotland is always a problem on these occasions, so I let that pass.
The plain fact is that the EU is not a state. None of us here is a citizen of the EU; we are citizens of states
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which are members of the EU. That is wholly different. The Law Society in a comment said:
"The principle underlying the changes is that as the member states are part of the EU with its policy of open borders then all residents are effectively EU nationals. As EU nationals the assumption is that there can be no objection to the free movement of criminal suspects/offenders between EU states".
That needs to be rejected wholeheartedly and without any ambiguity or exception.
Then there is the question of reciprocity. I was astonished to read in the minutes of evidence that Mr Ainsworth seemed to think that it would be quite all right to extradite people from this country if in similar circumstances we could apply for the extradition of others to this country. That seems to me to be quite astonishing. On page 10 in the left-hand column, he states:
"Fundamentally we feel there are potentially substantial benefits for British people of lowering the barriers and accepting that with our EU partners, we are not talking about accession states here [EU partners], we are talking about people who are members of the European Union, fully signed up to the ECHR and hopefully increasingly in total compliance with the ECHR".
That in itself is a somewhat surprising statement—"hopefully increasingly in total compliance with the ECHR". He continued:
"There are substantial benefits in accepting that the system of justice and the implementation of justice should take place in a state within which the crime is alleged to have been committed and not double guessed at by putting a preliminary hearing of substance in front of that return".
There is something in that. However, it requires to be looked at rather carefully.
In the right-hand column on the same page he is talking about the generic list of offences. He says that,
"the warrant itself will have to be framed in terms of a specific offence. The offence will have to meet the thresholds and these thresholds will be set against the law in the issuing country. So if a British citizen goes to Germany and breaks the German law in Germany, to the extent it breaches those thresholds he will be extraditable for breaking that law".
So far, so good. But he goes on to state:
"The benefit is that the same happens in reverse, and that German people will not be able to come to this country and break our laws without suffering rapid return to face justice in our country".
That is a form of justice at which the Germans might cavil since it is quite different from their own form of justice. But let that pass. He continues:
"Surely with the numbers of people who are now travelling between us, good law-abiding people as well as the criminal elements, that is the kind of protection the British people actually want".
I very much doubt it. There cannot be many British people thirsting to have Germans extradited to this country. If the provision takes effect, many British people will object strongly to being extradited themselves.
The question of prima facie evidence has been raised. I do not think it necessary in every case, but the Bow Street magistrate ought, in an appropriate case, to be able to seek some degree of reassurance of the evidence. For instance, if identity is challenged, it is

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often possible for the Bow Street magistrate to enquire of the requesting state what evidence it has that it has named the right person in the warrant.
The Bow Street magistrate should have authority to look into other matters. It is interesting that Section 11 of the Extradition Act 1989, which is described as a statutory version of habeas corpus—although it does not go to the full length of habeas corpus—provides the following.
"Without prejudice to any jurisdiction of the High Court apart from this section, the court shall order the applicant's discharge if it appears to the court it relation to the offence, or each of the offences, in respect of which the applicant's return is sought, that—

(a) by reason of the trivial nature of the offence; or

(b) by reason of the passage of time since he is alleged to have committed it or to have become unlawfully at large, as the case may be"—

I am worried not about his being unlawfully at large but about the time elapsed since he committed the offence, which may make it vastly more difficult for him to defend himself—
"it would, having regard to all the circumstances, be unjust or oppressive to return him".
That provision should not disappear. It may be convenient to reincorporate it in a different form, but we certainly ought not to allow it to disappear.
Indeed, rights of habeas corpus should always be preserved, but this is the second occasion in 18 months when the Government have shown signs of wanting to do without them. I can understand that from their point of view, but it is most unappealing to anyone interested in justice.
There is also the question of health. As far as I can make out, it would not be open to the Bow Street magistrate, if alerted to the point, to say, "I want a medical examination. This chap is said to have Alzheimer's, in which case, if it is in an advanced state, he is not fit to stand trial. I want to know about that". At present, that will be impossible. Of course, the Irish qualification ought to be made.
I have taken too much time already, so I shall just say in conclusion that the report contains valuable contributions on many potential problems. If the Government do not heed them, they are heading for trouble on the primary legislation. For my part, if they do not heed the report, I hope that I shall find myself in a majority in voting down that legislation or amending it.
9.4 p.m.
Lord Stoddart of Swindon: My Lords, it is a great pleasure to follow the noble and learned Lord, Lord Donaldson. He does not need to apologise for being a lawyer. Lawyers, especially of his standing, give great service to this House, another place and the country generally. In any event, they rank in public esteem above journalists and politicians.
I congratulate the Sub-Committee and its chairman, the noble and learned Lord, Lord Scott, on their diligence and tenacity over the European arrest
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warrant. There is considerable concern, not only in this House but throughout the country, about exactly what will be the effect of the European arrest warrant on ordinary people. There is also worry about the rush to implement it so quickly. I am glad to hear that that process has been slowed down. It is altogether good that we should take our time over any agreement to such a warrant in the first place.
Having listened to the noble and learned Lord, Lord Scott, speak about xenophobia and racism and the European Commission's proposition that we should introduce legislation to define those offences, I am now almost frightened. If such a clause were included in a Bill, I should hope that the House of Commons would not let it pass but that, if it did, this House would certainly not allow it to pass.
It is intolerable that the powers of our courts to resist extradition of British subjects to existing EU countries—and, presumably, to applicant countries, some of which, as the noble Lord, Lord Lamont, noted, have shady human rights backgrounds that would be unacceptable here—are to be severely restricted and the final say of an elected Minister responsible to Parliament removed. Some may think that that is good, but in the matter of removing citizens from this country to another for trial, elected representatives must represent the public. I hope that that proposal can be resisted, even at this stage.
There is no need for a European arrest warrant. There is nothing in it that could not be achieved by bilateral agreement between countries. The delays could certainly be eliminated by such agreements. People in Britain who have been following the issue have yet to be convinced that the European arrest warrant will not put them in danger of being extradited for an offence that was committed not abroad but in this country. We have already heard about newspapers that are published in another country—The Sun, for example. There is no certainty that Mr Yelland, editor of The Sun, would be safe if one of his paper's headlines were to be construed as an offence under that country's laws.
What about someone who writes and publishes in Britain a book or article denying the Holocaust that is then circulated in Germany? Germany, of course, has strict laws about Holocaust denial; it is an offence punishable by a term of three years. They have that offence because they want to assuage their guilt about what happened under the Nazi regime, including the Holocaust and all the other awful things that were done. There is no reason, however, why we should suffer for that as well.
I do not know whether anybody in that category would be safe. I hope that Mr Yelland will read this debate, particularly what the noble and learned Lord, Lord Scott of Foscote, said about racism and xenophobia. He may want to say a few words about it in his newspaper. I feel sure that he would be at great risk. The presumption of innocence will be turned on its head, as the executing authorities will, under the provisions of the framework agreement, have little option but to hand the suspect over, once the European arrest warrant is presented.

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The legislation is being rushed through on the grounds of the need to combat terrorism. The listing of 32 offences in the agreement means that virtually any significant offence will be caught by the agreement. The protection of dual criminality will, as we have heard, be removed.
We have also heard a great deal about habeas corpus. The Government have given assurances, as has Mr Vitorino, the European Commissioner, to the European Parliament on 6th February, during discussion of an amendment to insert a habeas corpus provision into the agreement. Incidentally, the amendment was defeated. Mr Vitorino claimed that habeas corpus was contained in the legal system of every member state: it most certainly is not. It is not, for example, in the legal framework of Greece, where the 12 plane-spotters were incarcerated. They have now, I am glad to say, been brought to trial. Nor does habeas corpus apply in France, as I understand it. It is not absolutely certain whether or not the European Convention on Human Rights provides the protection of habeas corpus—at least, not to me—and we shall have to await experience until there is certainty.
Those of us who have observed the European scene for a long time know that the European arrest warrant is just another step along the road to a European judicial system. People do not have to believe me; I shall quote what Mr Watson, the rapporteur, said to the European Parliament on 6th February, when it was discussing the European arrest warrant and the amendment on habeas corpus:
"The European Union may allow itself a few moments of satisfaction. These measures represent a major step forward towards the creation of a European judicial space".
"Judicial space" refers to what we have been talking about for a long time; that is, corpus juris. Of course, it has been denied that there is any intention to introduce corpus juris into European law, but here we have it from the rapporteur that the European Union wants to create judicial space. He continued:
"I would like to thank the President-in-Office for reminding us that this judicial space did not start on 11 September last year, although it would be churlish not to recognise that the attacks on New York and Washington on 11 September gave a political momentum which allowed us to knock heads together and overcome certain objections".
Therefore, it admits to taking advantage of those terrible happenings in New York in order to push its idea for a European judicial space. Everyone should take note of that.
That is a telling comment about the European arrest warrant and it is yet another ratchet on the road to the creation of a harmonised judicial system and, of course, towards the European superstate so beloved of people like the German Foreign Minister, Herr Fischer, who believes that nation states should be abolished.
I was most struck by the remarks of the Minister, the noble Lord, Lord Rooker, on 19th November last. He said:
"I know that we are not completely in a federal state, but we are trying to work together with our partners".—[Official Report, 19/11/01; col. 990.]
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What did he mean by that statement:
"I know that we are not completely in a federal state"?
Did he mean that this particular measure was taking us even further towards a federal state? Perhaps he 'will tell us when he winds up the debate. As far as I can see, we are not completely there, but we are apparently getting there.
I have to tell the noble Lord, Lord Rooker, that this is not about a federal union and he should not misunderstand where we are going. That would be bad enough, but it is really about the creation of a unitary European state; a country called Europe. That is something very different because it is a state controlled from the centre. That is the path along which we are being driven, and the European arrest warrant is just another milestone along that journey. For all those reasons, the warrant should be resisted by all those who treasure individual rights and freedoms and desire democratic self-government through our own tried and tested institutions and want them to continue.
9.17 p.m.
Lord Hunt of Wirral: My Lords, I share the concerns about the European arrest warrant so clearly articulated by the noble and learned Lord, Lord Scott of Foscote. As I had the privilege of serving under his chairmanship, perhaps I may also add how strongly I and the other members of the committee support his views, so well expressed in an outstandingly good speech today.
Perhaps I may add two points. The first relates to judgments in absentia. I was pleased to hear the Minister repeat the Government's assurance that in their forthcoming extradition Bill they would make explicit that a person will not be surrendered in a conviction in absentia case without the guarantee of a retrial. It was good to hear that. However, I still believe that it is most unsatisfactory that the guarantee of a retrial is not set out in the framework decision. I hope that he will reconsider that point and realise that as a consequence there would be the risk of the creation of different standards of justice across the European Union, which would be most unsatisfactory.
Secondly, as regards fundamental rights, we on the committee feel strongly that the framework decision should not be adopted without being amended to make it clear that a national judge can hear argument that to accede to a request for transfer might lead to an infringement of the ECHR rights, particularly under Articles 5 and 6, of the individual concerned. Further, the judge would be entitled to refuse the request on such grounds. The Law Society brief clearly sets out a number of safeguards that I hope the Minister will accept. There must be provision for accepted standards of procedures and common definitions relating to arrest, bail, legal advice and representation through proceedings, disclosure of evidence, and rights of appeal and retrial where tried in absentia. There must be clarification as to the limits and procedures to arrests in pre-charge and ongoing investigations—particularly in view of the erosion of the specialty rule to safeguard ECHR Article 5 rights.

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There must be agreed the early provision of confidential legal advice and assistance, interpreting and translating services—which should be provided at the state's expense. There are no proposals for systems of accountability. There must be national mechanisms for appeal, to prevent the only accountability being through application to Strasbourg.
It must be the positive, explicit and appealable responsibility of each member state's judiciary to satisfy itself that transfer under any mechanism will not breach the individual's human rights—either because of his or her circumstances or because of ECHR breaches within the criminal justice system in the requesting state. I hope that mechanisms such as consular assistance could include a monitoring role of the implementation of agreed procedural safeguards and minimum standards.
We say all that because we want to ensure that the European arrest warrant becomes another important weapon in the fight against crime—not an opportunity to abuse the human rights of individuals under suspicion, then deny them proper protection of their rights.
9.22 p.m.
Lord Pearson of Rannoch: My Lords, I have the temerity to query something said by the noble and learned Lord, Lord Donaldson, when he commented that there is no such thing as a European citizen and that the EU is not a state at all. Under the Maastricht Treaty, we did become citizens of the European Union—although perhaps in that vague and confusing way in which European plans are always laid. I trust that the Minister agrees that there is on the stocks a plan for the intergovernmental conference in Brussels in 2004, precisely to give the European Union legal personality.
I have asked that of the Government in Written Questions but have been given the brush-off. For the noble and learned Lord, Lord Donaldson, to be right, it would be helpful if the Minister will give a firm assurance this evening that the British Government will veto any attempt to move towards the granting of legal personality to the European Union.
Lord Rooker: My Lords, for the avoidance of doubt, I have absolutely no intention of addressing that question.
Lord Pearson of Rannoch: My Lords, that must cast some doubt on the words of the noble and learned Lord, Lord Donaldson, but it must come out in the wash as we move towards the intergovernmental conference in 2004. It is unhelpful of the Minister to say that. We had from the noble Lord, Lord Stoddart—who follows these matters closely—a clear indication of how this particular arrest warrant fits with the whole European judicial ambition of corpus juris. We already have the European police force, which has immunity collectively and individually against all its actions.
We are clearly moving down that road. We look to the intergovernmental conference to set the debate in a wider context. We have the charter of fundamental
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rights, which will clearly give the European Union a constitution. We have the army on the way, common foreign and security policies and all the rest of it. For the Minister to say that he is not going to answer as to whether the Government will reveal their views on legal personality is unhelpful. Given the Government's slavish obedience to the wishes of the people in Brussels, I am not surprised.
9.25 p.m.
Lord Goodhart: My Lords, I should start by declaring my interests. I am vice-chairman of the Council of Justice and a trustee of Fair Trials Abroad, both of which organisations have, among other things, submitted evidence to the committee of the noble and learned Lord. I thank the noble and learned Lord and his committee for the report, which is valuable and important. This evening it has led to an interesting, although I have to say somewhat one-sided, debate.
I have few problems with the European arrest warrant as an ideal at which to aim. As crime becomes increasingly international and criminals find it easier to move both themselves and their assets across national borders, so it is increasingly important to make extradition procedures simple, swift and effective. Frankly, the ideal is to make it as simple to enforce in the United Kingdom an arrest warrant issued in another member state as it is to enforce in Scotland a warrant issued in England. Most of the safeguards built into existing procedures are due to lack of trust in the judicial process of other countries. They would be unnecessary if mutual confidence did in fact exist.
In looking at the European arrest warrant, therefore, I think that there are two tests. The first is whether there is anything inherently wrong with the actual framework decision, if one assumes that it is entered into by states which have full confidence in each other's judicial processes. The second is whether that confidence is justified in respect of the member states of the European Union, including the candidate states.
Where trust exists, I see no need for the required country to investigate whether a prima facie case exists. After all, that is immensely expensive and time-wasting because it involves two separate trials—or at least one-and-a-half trials. Where trust exists, I see no need for a speciality rule. Such a rule stipulates that the requiring country cannot try the defendant for any offences other than those for which the defendant has been extradited. That is necessary to protect defendants from any abuse of the extradition procedure by a country getting the defendant back and then charging him with offences for which extradition would have been refused. If we are confident that abuse would not take place, I see no need for the rule.
Where trust exists, I believe that the dual criminality rule can be greatly restricted. People have a duty to observe the laws of the place where they are for the time being, provided that those laws are properly democratic and fair. If people commit breaches of those laws, I do not see why they should be entitled to

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escape the penalty for those breaches through the refusal of extradition, even if what they have done is not criminal in the required country. If the law they have contravened is oppressive or unjust, or contrary to human rights, then of course dual criminality must he applied and it must be retained for that purpose.
However, to cite a case which has been in the news over the past two days, for myself I would not find it offensive if the law required us to extradite to the USA someone accused in that country of serious breaches of its anti-trust laws, even if a breach of anti-trust law is not a criminal offence in the United Kingdom.
On the first question of the two that I have posited, my criticisms are limited. Of course the inclusion of "racism and xenophobia" in Article 2(2) of the list has attracted a great deal of controversy. I have my doubts whether it would be appropriate to include it. But they are doubts and certainly not convictions. People who go abroad to stir up racial hatred should know what penalties they face and should not use extradition as a shield behind which to hide.
There is, of course, an English crime of incitement to racial hatred, and I believe that what we would see under the general heading of racism and xenophobia in the Article 2(2) list would be broadly the foreign equivalence of that crime. Frankly, I believe that this issue has been exaggerated and I do not entirely agree on that with the noble and learned Lord. Nor is his highly critical view fully reflected in either the first or second reports of the committee. The second report appears to ignore it and the first takes a less controversial view. It is also true that under the present law of the United Kingdom the distribution of racist literature is an offence.
But there is a very important safeguard here. Law which criminalises racist literature or speech is a restriction on freedom of speech and therefore must satisfy the criteria in Article 10 of the European convention. That means, for example, that it must be a restriction which is necessary in a democratic society. Given the form in which the restrictions in Article 10 are expressed in the convention, I do not believe that Mr David Yelland has anything very serious to fear.
However, there are a number of other serious problems with the framework decision and they have been expressed by a number of speakers, particularly by the noble Lord, Lord Hunt of Wirral, with whose comments I am in very close agreement. First, I believe that there should be express provision in the body of the framework decision that extradition can be refused on European convention grounds. The nearest we get to that is Recitals 12 and 12A, which I believe are inadequate.
Secondly, Article 5(1) does not guarantee retrial for a person convicted in absentia but merely gives a right of appeal. That is a very serious defect in the framework decision. Apparently it was the Government's intention that there should be a right of retrial but for some mysterious reason it disappeared. Thirdly, the time limit for the execution of the warrant under Article 17 is 90 days, which is inadequate to allow the appeal process which would be necessary in
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the requested country in order to provide what I agree is necessary. That is an appeal process in the requested country and not just an appeal to Strasbourg.
Fourthly, the framework decision does not provide for all states to be bound by the jurisdiction of the European Court of Justice, which is desirable in cases where I believe there is a great risk of conflicting interpretations of the framework decision by national courts.
Fifthly, it should be made clear that the European arrest warrant cannot be used to detain suspects for investigation purposes. I recognise that there are a number of very serious defects in the framework decision as it now stands.
I now turn to the second and even more difficult question. Even if one accepts, as I do, that we ought to aim at the objective of the European arrest warrant, can we have sufficient confidence in the judicial process in other member states to justify giving up the traditional safeguards in the extradition process to the extent which the framework decision requires of us? In the case of some member states the answer is yes. It would be wrong to claim that our own procedures are the best in the world. Others may be our equals and in some cases perhaps better than ours, but not all. Italy is notorious for its delays. The system of criminal administration in Belgium is so bad that it has caused a national scandal. Several countries continue to have standards for legal aid which we would regard as significantly too low.
It would have been desirable, as Justice has suggested, to have had an EU framework decision on minimum standards of criminal procedure to go along with the European arrest warrant. Minimum standards of criminal procedure should contain a right to legal representation of the defendant's choice and legal advice at all stages of the proceedings where it is needed, including, of course, the extradition proceedings.
The minimum standard should include a right to legal aid to pay for the necessary representation and advice. There should be a right to an interpreter if the defendant is not fluent in the language in which the proceedings are being conducted. Article 12(2) of the framework decision provides to some extent these rights but not necessarily adequately and it does not guarantee an adequate standard of legal aid.
We need something similar to habeas corpus to ensure that detention has legal justification and that defendants are released from custody where there has been excessive delay in bringing them to trial. An agreement on minimum standards should contain a presumption of the right to bail, an issue for which Fair Trials Abroad has been pressing for a long time. That presumption should extend to people who live outside the country where the proceedings are conducted and should be backed by a system of Euro bail providing for an automatic return of bail absconders. This would remove one of the main problems faced today, which is the tendency of national courts to refuse bail to non-residents because of the difficulty of ensuring their return to face trial

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If such a framework decision was adopted and observed, I would feel far less concerned about the European arrest warrant. As it stands, it is essential that courts in the United Kingdom which are asked to give effect to the European arrest warrant should be satisfied that standards of fair trial under Articles 5 and 6 of the European convention will be applied in the requiring state. I would not object to a presumption to that effect, but it must at least be a rebuttable presumption.
I accept that allowing courts in the required country to consider standards of procedure in the requiring country could involve significant delay and expense in enforcing the European arrest warrant, but that is a price which has to be paid for ensuring that defendants are not returned automatically to states whose standards do not match those of the European convention. It would also act as a lever in raising standards in states where standards are not yet acceptable.
The adoption of the European arrest warrant has been an example of the flaws in the legislative process of the Council of Ministers. The framework decision has gone through many variations and even now it is not clear that it is in its final version—or, indeed, that the latest version in the Library dated 10th December 2001 is the current version. This is because the process is secret and we do not know the arguments behind the changes or who pressed for them.
Paragraphs 21 to 32 of the report of the House of Commons European Select Committee on the arrest warrant show an extraordinary situation. In this country, and, indeed, almost certainly in any other member state, there would have been far more transparency if the legislation was being passed through our Parliaments. Again because this is a third pillar issue rather than a first pillar issue, the European Parliament has a relatively minor role.
When we get the new extradition Bill in the next Session, we will be faced with either adopting a European arrest warrant without the additional safeguards we believe are needed or reneging on commitments entered into by our Government. Both alternatives are deeply unsatisfactory.
9.40 p.m.
Lord Kingsland: My Lords, first, I should like to congratulate the noble and learned Lord, Lord Scott of Foscote, on a speech which was as perspicacious as it was comprehensive. Having heard the debate, I can say that it would have served equally well in winding it up.
Unlike the noble and learned Lord, I shall not make a speech which covers all the issues. Indeed, I shall address myself to only one of them—the issue which involves the Opposition's central criticism of the Government's conduct of the negotiations with regard to the framework directive. Our central criticism is that the Government failed to achieve incorporation of Articles 5 and 6 of the European Convention on Human Rights into the directive itself.
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I wonder how seriously the Government tried to do that. I have been looking at a letter printed in the 16th Report from the Select Committee on the European Union, Session 2001–02, dated 26th February 2002. The report contains a letter from Mr Bob Ainsworth MP to my noble friend Lord Brabazon of Tara, in which Mr Ainsworth says the following:
"The Government does not see the need to include in the Framework Decision explicit grounds for refusal on ECHR grounds. A Framework Decision provides a broad commitment which is to be implemented in detail in national law. It will be for the Government to consider whether UK legislation should contain an express reference to refusal on ECHR grounds. It is significant that we believe that the Framework Decision would not prohibit such a reference".
If that is so, is the Minister prepared to give a commitment to your Lordships' House tonight that the Government will include in the forthcoming Bill an explicit guarantee that our courts can apply Article 5 and Article 6 to these proceedings at Bow Street? The Minister has not responded to my question now. He may well respond affirmatively later when he replies to the debate.
Mr Ainsworth continues:
"However, it should be stated that it is not the intention that, as a matter of routine, the Bow Street District Judge should look at the motivation behind the request or the nature of the trial on return. These are extradition proceedings to a fellow EU Member State. Protection for the individual is contained in the domestic incorporation of the ECHR into the requesting state's criminal justice system, not before the District Judge at Bow Street".
So I am forced to the conclusion that the Government's heart may not really be in providing ECHR protection in the requested member state's courts.
But supposing that I am wrong about this, and that when the Bill comes along the Government do everything in their power to ensure that these protections are provided—will that work? Probably not, because somebody is bound to make a complaint to the European Court of Justice about the United Kingdom providing such additional protection to those who come before its courts. Although the framework directive has no direct effect in our legal system, it would be perfectly possible for a complainant to go to the European Commission, which could then bring infraction proceedings against the United Kingdom Government.
As a consequence of those proceedings, the European Court of Justice might well say that the practice reflected in the extradition Act, as it would then be, was illegal, because it was not provided for in the framework directive. The current wording of the framework directive makes no express reference to these ECHR protections. It refers to the EU provisions on fundamental rights, but not expressly to the ECHR protections. The noble and learned Lord, Lord Scott of Foscote, made that point very clearly.
What conclusions can we reach about this sad affair? The first is that your Lordships' House must take early steps to ensure that, in future, draft legislation at European level negotiated exclusively between governments does not get far before your Lordships' House is involved. This legislation was

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passed in three stages: first by groups of national civil servants meeting in secret; then by the permanent representatives of the European Community meeting in secret; and then by the Council of Ministers meeting in secret. It was only by accident that your Lordships discovered the true content and import of the framework directive in time to debate it.
There is perhaps an even wider issue here. I do not think that my learned friends behind me would ever accuse me of being a Euro-sceptic; but I believe that the European Union is making a serious mistake in extending the terms of the arrest warrant beyond the issue of terrorism. A nation state's criminal law goes deep into its history and traditions, reflecting individual moral values, which often differ widely between nations because the history of the member states of the European Community differ widely. To try to harmonise those matters is deeply dangerous and could provoke a strong adverse reaction from the citizens of this country and from others. I hope that I am wrong about that, but I fear that I shall be proved right.
9.48 p.m.
Lord Rooker: My Lords, I shall do my best to answer some of the questions that have been raised, but I fear that I shall disappoint many noble Lords for reasons that will become obvious. In some ways, the noble Lord, Lord Kingsland, has just given the game away. He asks me to say whether something will be in the Bill, but says that if I say yes it will not work anyway. I cannot satisfy him however I answer. He will have to wait for the Bill to find the answer.
I am very grateful to the noble and learned Lord, Lord Scott of Foscote, for the way in which he introduced the debate. It might be useful to put on the record that we are not inventing extradition. Anyone would think that it did not currently take place. I asked the other clay for the figures to update your Lordships' House since we last debated the subject in November last year. Since then there have been 26 surrenders of fugitives from the United Kingdom to other countries, of which 15 have been to our European partners. Twenty fugitives have been returned to the United Kingdom, of whom 14 were returned by our European partners.
Among those surrendered by the United Kingdom in the intervening period was a case which took almost three years from provisional arrest to the conclusion of surrender. The person in that case was not being surrendered to a third world country with a questionable human rights record but to another EU member state.. Nevertheless, I accept that it is being said explicity in the debate that some EU member states probably have third world legal systems. That was clearly the import of some noble Lords' comments.
One point not made by noble Lords—although it was raised in a question from the noble and learned Lord, Lord Donaldson—is the requirement for prima facie evidence. As I understand it, no EU state is currently required to provide prima facie evidence
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when seeking extradition from the UK, and it is not being proposed that that should be changed. In fact, no party to the European Convention on Extradition—which includes EU applicant states as well as some others—has to provide prima facie evidence. That is the current EU position.
The noble Lord, Lord Lamont, asked a question to which I think he probably knew the answer. Sometimes it is wise to ask only questions to which one knows the answer; otherwise one might be surprised. I assure him that no one will be extradited because of conduct occurring in the United Kingdom that is not contrary to UK law. I am happy to place that on the record and I hope that it reassures him.
In answering a question from the noble and learned Lord, Lord Scott, I rest on the wording of the framework document. For the avoidance of any doubt, I should add that my copy of the document is dated 10th December. In relation to people giving evidence, we rely on Article 1 of the framework decision—which, in my non-legal way, I do not believe could be clearer. In no way could anyone read Article 1 and infer that someone could be extradited for the purpose of giving evidence as part of an investigation. I do not think that anyone could interpret the article in that way. As there is no ambiguity, we see no need to make the type of statement that has been made in Ireland.
I come to the implementation date, although I shall return in a moment to future events. On 14th February my right honourable friend the Home Secretary joined Ministers from Spain, France, Belgium, Luxembourg and Portugal in announcing their wish. If possible, to operate the European arrest warrant between participating member states within the first three months of 2003. However, I can assure noble Lords that no declaration to that effect has been signed. The United Kingdom's ability to meet that objective will also be entirely dependent on agreement of the framework decision and passage of the extradition Bill by Parliament.
The noble Lord, Lord Lamont, asked which other member states still have parliamentary scrutiny reserves in place. I can confirm that he is correct in stating that, in addition to the United Kingdom, Ireland, Sweden and Denmark still have such reserves. He is also correct in noting that Austria will not be required to surrender its own nationals until at least 1st January 2009 at the latest.
I am extremely grateful for noble Lords' comments. I believe that back in November I responded to two debates on the same day. One concerned the European arrest warrant and the other concerned a matter the nature of which escapes me. In preparing for the two debates I believed that the European arrest warrant debate would be the easier debate. However, I reported back to the Home Office the next day that I had been knocked all around the Chamber. Things have changed, of course, since then, I am pleased to say. I believe that at that time we had just published the emergency anti-terrorism legislation and we intended

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to legislate on this matter in a certain way. However, we did not do so at the end of the day. That matter greatly annoyed noble Lords.
I address the issue of parliamentary scrutiny, which has been the subject of voluminous correspondence between my ministerial colleagues and the committee and, indeed, myself on occasion although in much less detail. The European arrest warrant is now inextricably tied up with the issue of the review of extradition. I hope that noble Lords will take that on board. We are not dealing with the narrow single issue here. As noble Lords know, the Government set out their thinking on a streamlined extradition system in March 2001. That review was widely circulated and consulted on. The majority who responded supported the review's proposals.
One of the main purposes of the review was a fast-track extradition system between England and the United States. That in the event was overtaken by progress on the framework decision on the European arrest warrant. So far, the Government have deposited three texts and three explanatory memorandums on the draft framework decision. Ministers have appeared before Sub-Committee E of the European Union Select Committee on two occasions and written to the Select Committee five times. We are now engaged, of course, in a second debate on the European arrest warrant. In the other place Ministers have appeared once before the European Scrutiny Committee, have written to the committee five times and have participated in a debate in Standing Committee B. However, that is not the end of the opportunities that are available. That is central to the debate today and one of the reasons I cannot answer all of the detailed questions.
We announced in February that the Government would publish a draft extradition Bill. We shall do so before the Summer Recess. It was pulled out of the programme for this year. I am not announcing anything new. The Government intended to proceed with an extradition Bill in this parliamentary Session. However, the Home Office has three Bills this Session that were not announced in the gracious Speech last year and had to drop at least one criminal justice Bill. It was thought that once the decision was taken to introduce the European arrest warrant in primary legislation, the obvious vehicle for that was the extradition Bill.
As I say, we shall publish a draft extradition Bill, complete with notes on clauses, before the Summer Recess. That in itself will involve a detailed consultation process by which Members of both Houses and those outside who watch our proceedings closely, and are affected by them, will be able to see the Government's full decisions. There are still policy decisions to be taken on these matters. I am not in a position to comment on those policy decisions. That is why I did not respond to the noble Lord, Lord Kingsland. However, all will be revealed in the draft Bill. I asked the other day whether that would be a full draft Bill, not simply a "50 per cent" draft Bill, of which the rest would be filled in later on. I was assured
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that it would be a full draft Bill, with Notes on Clauses, so that people can see exactly what is proposed. I hope that that makes for a mature debate in this country and an extremely well-informed debate in both Houses of Parliament.
Lord Mayhew of Twysden: My Lords, does the Minister accept that the terms of the extradition Bill will have to be governed by the terms of the framework decision when they are finalised? That is the immediacy of the issue that the committee and noble Lords this evening are pressing. Do the Government accept the necessity of ensuring that the framework decision makes it explicit that the required state shall have the right to question whether ECHR provisions will or will not be met by the requiring state? It is no good saying, "We should wait and see. All will be revealed when the Bill is published, when we can look at the Explanatory Notes". There will have to be consistency with the framework decision; otherwise our own courts, due to the Human Rights Act, will have a duty to strike them down.
Lord Rooker: My Lords, our courts have a duty to operate the Human Rights Act on behalf of our citizens as well. We should not beat about the bush. That is the primacy in this matter. The Human Rights Act is there to defend individual citizens. The courts also have that duty to consider.
I stick to the line that there are still policy decisions to be taken; I am not in a position to announce a series of policy decisions tonight. I am not in any way opposed to any debate in Parliament on any subject; far from it. However, sometimes the timing of debates can be a bit of a problem in the sense that one cannot make all of the announcements that one would wish.
Lord Lamont of Lerwick: My Lords, since it did not involve a policy matter, I wonder whether the Minister might answer the question that I raised.
Lord Rooker: My Lords, I can answer that, in the sense that I shall write to the noble Lord. I have been advised on this. I would not be able to answer his question from the Dispatch Box. I shall put the answer in black and white on paper. I apologise that I cannot answer his question now. The question is too difficult and complicated to answer from the Dispatch Box.
I understand why the noble and learned Lord, Lord Mayhew, pressed me on this matter. I am not in a position to go further than I already have, save in one area. In our first debate, in November, the question that the noble Lord, Lord Goodhart, asked about abortion and related issues gave me the greatest concern because I did not fully understand it. The issue was not clear.
The issue of dual criminality is set out in Article 2(2), but Article 2(4) of the framework decision allows the existing member state to decide whether to apply the dual criminality test. I said in our earlier debate, and we have said since—in correspondence and in the evidence that we have given before committees—that the Government have reflected on whether they should

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retain the dual criminality test in respect of certain moral issues, such as abortion or homosexuality. While the Government remain committed to the abolition of dual criminality within the European Union, we have come to the view that it would be right to make use of the safeguard that is provided for in Article 2(4) of the framework decision in respect of such conduct. Accordingly, we intend to apply the dual criminality test for non-list offences. I make it absolutely clear that we anticipate that the overwhelming majority of requests will relate to the list in Article 2(2).
However, where we receive a request relating to an offence falling under Article 2(4), the district judge will be required to impose a dual-criminality requirement; in other words, he will need to establish whether the UK Parliament has taken a view as to whether the conduct in question should be considered illegal. If the test is satisfied, the warrant can be executed. If those requests do not pass the test, the district judge must refuse to execute the warrant. All that will be contained in the legislation which will give effect to the European arrest warrant. As I said, the extradition issues go beyond that.
With regard to the issue of racism and xenophobia, I want to help noble Lords as much as I can because it is a thorny subject and one which is often raised. The tabloids love it. That is not a criticism of noble Lords who may raise it, but the way in which the tabloids play it knocks it on the head.
I shall place this on the record for the avoidance of doubt later. A proposal for a Council framework decision on combating racism and xenophobia was published on 28th November and deposited for scrutiny on 17th December last year. The purpose of the framework decision will be to combat racism and xenophobia in the European Union by approximating the laws and regulations of the member states regarding racist and xenophobic offences and facilitating and stimulating co-operation among member states to combat those offences. It will, of course, be subject to the usual parliamentary scrutiny procedures. The types of offence listed in the framework decision go somewhat further than those found in UK statute. The deadline for full implementation of the framework decision is 30th June 2004.
The annex to COPEN 79—that is, the framework decision on the European arrest warrant—states that in order to make the European arrest warrant operational throughout the Union for racism and xenophobia offences, member states should be guided in their definition of such offences by reference to the joint action of 15th July 1996. Once the framework decision on racism and xenophobia has been adopted, this will supersede the joint action of 1996.
I shall put one more question and answer on the record concerning how the Government define the crime of xenophobia as listed in Article 2(2) of the framework decision. If the UK were making an extradition request for offences under the heading of "racism and xenophobia", we would do so in terms
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of our law on incitement to racial hatred, racially aggravated offences, and racial discrimination under the Race Relations Act. Execution of the warrant would, of course, be subject to the threshold that a sentence of at least 12 months should apply to the offence in the issuing state.
I realise that there will be a good deal of debate about this issue, and rightly so. But it will have to rest on our proposals—that is, the proposals that the Government bring to Parliament. We are not in a position to do so now, towards the end of April, but we shall do so before the Summer Recess. I regret that I cannot be more specific than that in respect of the date, not least because I do not know the date of the Summer Recess. We shall produce the draft Bill which, of course, can, and I have no doubt will, be subject to debate in the country as well as in Parliament, perhaps before we even reach the point of publishing the formal legislation to bring before Parliament.
That said, I am extremely grateful for the work that the committee has done and for the way in which the noble and learned Lord, Lord Scott, introduced the debate.
Lord Pearson of Rannoch: My Lords—
Lord Rooker: My Lords, I shall never be able to answer the noble Lord's question but I shall give him a chance.
Lord Pearson of Rannoch: My Lords, the Minister has been very kind in telling us how the United Kingdom would regard an extradition request for racism and xenophobia. However, he has, I believe, given me no fewer than two Written Answers to the effect that, when a foreign country issues the arrest warrant, the crime of racism and xenophobia, and indeed all the others in the list, will be defined purely by the issuing country.
That leads me to a final question to the noble Lord, both as regards the directive which attempts to define the crime of xenophobia and racism and, more importantly, as regards the framework decision itself. How deeply enmeshed are we in this particular Eurobog in Brussels? When the noble Lord is good enough to publish his draft Bill, what powers will this House and the other place have to change that? Can we change it or are we already committed, and if so to what extent, particularly on the framework decision?
Lord Rooker: My Lords, I am unable to answer he question in a way which would satisfy the noble Lord. The powers of Parliament are to pass or reject the proposals put to it by the Government. In saying that I do not make a point either way. However, that is the only answer I can give. The Government will present a Bill to both Houses. We cannot get Royal Assent to the Bill and operate what would then be an Act unless both Houses agree to the final terms of the legislation, as in the normal parliamentary process.
I realise that to those who take a principled position on anything which contains the word "Europe", that is not a satisfactory answer because they will list, chapter

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and verse, the things about which they are not happy which Parliament has approved. However, that is where I rest my case. Parliament will have approved it.
Lord Pearson of Rannoch: My Lords, the Minister has not quite answered the question, which was: to what extent are we inevitably committed to this legislation in Brussels and to what extent have the Government already sold the pass? How relevant is what we agree here and send to Her Majesty for signature and so forth? How deeply enmeshed are we in this? Can we change it? Is what we decide in Parliament the end of the matter or are the Government already compromised by decisions taken in Brussels?
Lord Rooker: My Lords, I had sat down. I do not accept the pejorative terms in which the question was asked as regards selling the pass and the Government being compromised. I rest the case on the answer I gave originally. I have now concluded.
Lord Scott of Foscote: My Lords, I am grateful to all noble Lords who have spoken in the debate and who have provided support for the report of Sub-Committee E. I am grateful also to the Minister for the assistance he has given in the response to the points made by your Lordships. There are some points about which I am still troubled and some about which I am still uncertain. I am anxious to see the draft Bill, which we shall have before the summer Recess, to see to what extent the points of principle which have been made in the various speeches tonight have been taken on board by the Government. I was pleased to hear from the Minister that there were points of principle on which the Government have not yet made up their mind. They have had a great deal of material tonight to assist them to do that.
Perhaps I may take a moment to refer to the point raised by the noble Lord, Lord Pearson. The framework decision has not yet become final. The
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Minister said that besides ourselves, Ireland, Sweden and Denmark still retain scrutiny reservations. According to the document of 10th December at which we have all been looking, COPEN 79, there were scrutiny reservations also from the Netherlands. Perhaps they have relinquished their reservations since then.
Unless the framework decision becomes final, Parliament will have complete freedom to pass whatever amendments to the extradition arrangements with the European Union it chooses. If the framework decision becomes final, as a matter of treaty the Government will be bound to introduce domestic legislation to implement the terms of the decision which will have become final. However, if the legislation introduced by the Government and passed by Parliament in one respect or another appears to contain an inconsistency with the framework decision, it will be the Westminster Act that will govern in this country. What potentially might happen then would be that some other member states might take whatever proceedings are available—I hope not to be asked what they might be—in order to complain of the British Government's failure to produce legislation which corresponds with the framework decision. But we can rely, for the time being at least, on the contents of the Act passed by the Westminster Parliament. Therefore, the assurances that the noble Lord has given about what will be contained in that are of legitimate comfort to us.
I am grateful for the opportunity to have had the report of Sub-Committee E debated today. I am grateful to all noble Lords who have spoken and for their support and to the noble Lord for his response.
On Question, Motion agreed to.

Greenham and Crookham Commons Bill
Returned from the Commons with the amendments agreed to.
House adjourned at fifteen minutes after ten o'clock.