Lords Sitting of 10 December 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 Guildford.

Free Personal Care for the Elderly
Lord Lipsey Lord Lipsey asked Her Majesty's Government:
Whether they are monitoring developments in the Scottish Executive's policy of free personal care for the elderly.
The Parliamentary Under-Secretary of State, Department of Health (Lord Hunt of Kings Heath): My Lords, it is for the Scottish Executive to monitor the implementation of free personal care in Scotland.
Lord Lipsey: My Lords, indeed, but would my noble friend agree that the disquieting but completely predictable reports that demand far exceeds the predictions of the Executive bear lessons also for England?
Is he aware of increasing anecdotal reports that councils in Scotland are slashing services to the poor in order to pay for this uncovenanted hand-out to the better-off? Will he accept my congratulations on resisting the blandishments—with the stout support, I may say, of Her Majesty's Opposition—of those who want free care for all to bankrupt the Exchequer in Britain, just as it is fast bankrupting the Executive in Scotland?
Lord Hunt of Kings Heath: My Lords, it is much better that politicians in Scotland deal with the issues arising in Scotland. I am of course aware of the various media reports. I am also aware of the comments made by the Scottish Executive. However, I believe that ultimately it is better for Scotland to decide on such matters.
As regards England, the Government took the view, and were supported by the noble Earl, Lord Howe, that spending extra resources on personal care would not be wise. It is better to spend the resources on a range of services designed to keep people out of hospital and in their own homes.
Lord Campbell of Croy: My Lords, has there been any noticeable migration of elderly people northwards across the Border?
Lord Hunt of Kings Heath: My Lords, an urban myth suggests that there have been instances of English people fetching up in Scotland in order to take advantage. However, I do not believe that I have seen any figures which will prove that one way or the other.
Baroness Greengross: My Lords, does the Minister agree that many people mistakenly believe that the
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terms "free personal care" and "free nursing care" mean free long-term care? For those in long-term care who are self-funding, average care-home fees of around £400 to £500 a week mean that people in Scotland may still have to find £10,000 or more and people in England and Wales possibly more than £15,000. What proposals does the Minister have to help fill that funding gap across the UK?
Lord Hunt of Kings Heath: My Lords, the noble Baroness is right to suggest that on top of the costs of personal care and nursing care many other costs accrue to residents paying their own fees in care homes. It has always been the position that self-funders should pay towards the cost of their care in such homes. The policy of the Government is to put resources into services such as intermediate care and into supporting social services departments in order to try to minimise the number of people who need to go into care homes. I believe that that must be a key priority.
Baroness Barker: My Lords, is the Minister aware that the press reports referred to by the noble Lord, Lord Lipsey, relate to the situation in only one local authority, which has now been satisfactorily resolved? Given that he cannot monitor but only compare the different systems running in Scotland and England, will his department undertake to provide such a comparison? Will it include the number of older people in Scotland who have been unable to stay in their own homes and the number of older people in England with Alzheimer's disease who are being forced to pay for their "free nursing care" through the increased cost of care homes?
Lord Hunt of Kings Heath: My Lords, I do not believe that that would be a fruitful exercise. The Government have made a policy decision and this House has voted on it. It is that we prefer to put extra resources into wider services such as intermediate care.
The noble Baroness asked about care-home residents who are not benefiting from free nursing care. Early in the year, my honourable friend Jacqui Smith announced a series of measures to deal with that problem, including the development of a core contract that NHS bodies should use as a basis for spelling out how any NHS nursing contribution received by care homes is accounted for. That was done in order to ensure that there is indeed transparency in the system.
Lord Campbell-Savours: My Lords, have we learnt any lessons from the experience in Scotland?
Lord Hunt of Kings Heath: My Lords, the new system in Scotland was introduced only on 1st July this year. It would be better for all concerned to allow the systems in both England and Scotland to settle down before any hard conclusions are drawn. The development of intermediate care is proving very

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successful. In England, our priority must be to ensure that as many people as possible have alternatives to going into such homes in the first place.
Lord Renton: My Lords, will the noble Lord bear in mind that people grow old at different ages? A few are finished at 50 and others go on looking after themselves for as long as they possibly can and may not be finished until they are, say, 95. Public money would be saved if there was not a fixed age for the arrangements which are being discussed.
Lord Hunt of Kings Heath: My Lords, the noble Lord is a shining advertisements for everything he says. Speaking for myself, the more questions I answer in your Lordships' House the older I feel.

Osteoporosis
2.43 p.m.
Baroness Greengross Baroness Greengross asked Her Majesty's Government:
What is their policy on the prevention and treatment of osteoporosis.
Lord Hunt of Kings Heath: My Lords, the National Service Framework for Older People covers falls services, which includes osteoporosis. The national service framework provides a clear basis for delivering improvements in prevention, care, treatment and rehabilitation.
Baroness Greengross: My Lords, I thank the Minister for that positive and informative reply. Does he agree that it is important to take a life-course approach towards tackling conditions such as osteoporosis? Despite preconceptions, osteoporosis is neither a condition that is caused by old age nor does it affect only women. As regards the national service framework, is the Minister aware that the National Osteoporosis Society estimates that, despite the NSF, 90 per cent of sufferers receive little or no advice or therapy to help them avoid repeat fractures? Does not this mean that many unnecessary further fracture repairs have to be carried out, at great cost to the NHS and causing great distress to those concerned and to their families?
Lord Hunt of Kings Heath: My Lords, I agree that prevention is very important. The National Institute for Clinical Excellence is producing guidelines on osteoporosis which I hope will deal with many of the points raised by the noble Baroness. Prevention of osteoporosis is dependent on establishing a maximum bone mass and density in early adulthood and on minimising bone loss later in life. Avoiding risk factors where possible is important, and our recommendations to the public include our old friends of not smoking, avoiding excess alcohol intake and taking regular exercise throughout one's life.
Baroness Gardner of Parkes: My Lords, is the Minister aware that many young people—ballet
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dancers, athletes and people we would think of as being amazingly fit—can suffer from severe osteoporosis because of a very restricted diet?
Lord Hunt of Kings Heath: Yes, my Lords. Although osteoporosis in children is very rare, the noble Baroness is right to point out that it is not confined to older people. That reinforces the point of having good prevention programmes.
Lord Clement-Jones: My Lords, is the Minister aware that one of the key problems suffered by those with osteoporosis is the failure to diagnose their fractures at fracture clinics? Would it not be a good scheme to use nurses with appropriate skills so that fractures are diagnosed good and early and further patient suffering is reduced?
Lord Hunt of Kings Heath: My Lords, I am always keen to see the role of nurses extended, particularly the role of specialist nurses. The review of clinical guidelines by the National Institute for Clinical Excellence will pick up on those points and on the role of GPs and primary care in this area.
Baroness Billingham: My Lords, further to the point about prevention rather than cure, is it correct that regular exercise for all age groups is very important? Are the initiatives being monitored and displayed by the Government and Sport England helpful in this area?
Lord Hunt of Kings Heath: Yes, my Lords. I would encourage local initiatives between the National Health Service, local authorities and sports authorities to ensure that more people take up healthy lifestyles. More importantly, young people should be encouraged to take more active roles by walking and cycling to school, and schools should be encouraged to provide more opportunities for physical education.
Baroness Masham of Ilton: My Lords, in declaring an interest, how long should people taking HRT to combat osteoporosis stay on it?
Lord Hunt of Kings Heath: My Lords, I cannot give a definitive view of the length of time. We know that there are potential risks as well as benefits in the use of hormone replacement therapy. We know that some women cannot tolerate the therapy but, equally, it is an important way of countering and reversing osteoporosis. This is a matter on which clinicians should advise women on an individual basis. We need to recognise that there is a balance between its benefits and the risks involved.
Baroness Sharpies: My Lords, is the Minister aware that in Millbank we are now able to get advice on and an investigation into our health. I was told that one of the most important things is that we should take good exercise to avoid any of these problems in the future?
Lord Hunt of Kings Heath: My Lords, I am glad to hear that. I do not know whether my noble friend the

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Chief Whip will agree, but certainly the more Divisions that are called in your Lordships' House the more we need to run and walk to get here quickly.
Baroness Finlay of Llandaff: My Lords, given the Minister's response in regard to the risks of long-term HRT and the risks that are recognised in hysterectomised women on oestrogen-only replacement, with in excess of three ovarian cancers per 1,000 women over 10 years, what are the Government's plans to instigate ovarian cancer screening in this sub-group of the population who are particularly at risk?
Lord Hunt of Kings Heath: My Lords, the Government have made clear in relation to screening that we shall be advised by the national screening committee. When the committee reaches a view that screening is appropriate in relation to particular conditions, the Government will consider the matter carefully.
Baroness Massey of Darwen: My Lords, screening for bone density is extremely important in preventing the risk of fractures and osteoporosis. I understand that the average wait for screening is about nine weeks and that screening is mainly concerned with patient monitoring rather than with diagnosis. What will be the situation as regards screening in the future?
Lord Hunt of Kings Heath: My Lord, clearly, where screening is considered to be effective, we would wish to see programmes put in place to ensure that people have access to screening as soon as is practical. In fact, the expert advice that we have received is that bone scanning is not appropriate for the general population. The UK National Screening Committee considered this matter in June 1999. Its recommendation was that population-based screening should not be offered in general, although bone scanning can be helpful in monitoring treatment in individual cases.
Lord Colwyn: My Lords, is the Minister aware that there are many diseases—including osteoporosis, cardio-vascular disease, diabetes and many cancers—that are treatable successfully if diagnosed early enough? Does the Minister foresee a time when any government will have the sense to invest in preventive treatment that does not necessarily show success within a given five-year period?
Lord Hunt of Kings Heath: My Lords, a number of actions that the Government have taken have indicated that we do indeed take the view that investment in prevention pays dividends over many years ahead. Indeed, our intention to give resources to the NHS over a longer period of time will help in that process. The work by the National Institute for Clinical Excellence to produce guidelines will give emphasis to the preventive approach in the way the noble Lord has suggested.

Zimbabwe
2.52 p.m.
Lord Blaker Lord Blaker asked Her Majesty's Government:
What consultation they have had with the leaders of the member countries of the New Economic Programme for Africa's Development and the African Union and the African, Caribbean and Pacific countries regarding the situation in Zimbabwe.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Amos): My Lords, Ministers and officials are in regular dialogue with African and ACP leaders about the situation in Zimbabwe. During the EU/SADC meeting in Maputo on 7th and 8th November, I discussed Zimbabwe with, among others, President Chissano of Mozambique, South Africa's Foreign Minister Zuma and Mauritian Foreign Minister Gayan, More recently, during the Africa/EU ministerial meeting in Ouagadougou on 28th and 29th November, I discussed Zimbabwe with a number of other EU and African colleagues.
Lord Blaker: My Lords, I am glad that the noble Baroness has had those discussions. Will she confirm that all three organisations mentioned in the Question have stated that they will ensure the observance of human rights, the rule of law and good governance in the member countries? Have the G8 countries made it clear to the southern African members of these organisations that, if they do not go ahead and do their best to improve the catastrophic situation in Zimbabwe which is now infecting neighbouring countries—which is within their power, if they have the will—the G8 countries will be reluctant to provide the aid and investment that is so sorely needed? If the G8 have not yet made such an approach to those countries, will Her Majesty's Government suggest that they do?
Baroness Amos: My Lords, I cart confirm that human rights and good economic and political governance in a range of (Efferent ways is reflected in the principles that underpin the work done by the African Union, the ACP, SADC and the European Union.
I have just returned from a G8/NePAD meeting in Accra in Ghana. We had substantial discussions on a range of issues, including the political and economic aspects of NePAD—in particular, the peer review process. We had substantial discussions on Zimbabwe and the concern felt not only by the G8 but by African countries about the impact that the situation in Zimbabwe is having on their economies and on the perception that people have of African countries more generally.
Lord Avebury: My Lords, does the Minister agree that the EU/SADC meeting was a great disappointment, in that no clear statement was made

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about the appalling human rights violations in Zimbabwe? Where the meeting made oblique reference to the use of food as a political weapon, it did so without mentioning Zimbabwe by name. Does the Minister accept that the failure of Zimbabwe's neighbours to do anything concrete about the human rights violations in Zimbabwe raises fears in the minds of many people outside, including in the G8 countries, about the effectiveness of the proposed African peer review mechanism? In that context, will the Minister comment on the correspondence in which M. Jean Chrétien, chairman of the G8, has tried to clear up ambiguities in statements made by President Thabo Mbeki about the application of the peer review mechanism to political matters?
Baroness Amos: My Lords, at the EU/SADC meeting we worked very hard to get an agreed statement on Zimbabwe. This was blocked by Zimbabwe within SADC. So the EU made a very strong statement that we could not agree a statement which we could make together. It is important that noble Lords understand that the EU and some southern African countries share an analysis of what is going on in Zimbabwe, particularly with respect to the humanitarian situation. But we differ on what action we believe needs to be taken. With respect to the peer review process, some 12 countries have now volunteered for peer review. The matter of political and economic governance—the issue that concerned Prime Minister Chrétien when he wrote to President Mbeki in a personal capacity—has now been resolved.
The Lord Bishop of Winchester: My Lords, what consultation are the Government having with the three groups referred to in the Question that will lead to the ending of Zimbabwe's continuing and huge-scale pillage of mineral and other resources from the DRC?
Baroness Amos: My Lords, the House will be aware that the report of the UN panel on the exploitation of mineral resources in the DRC was recently published. A number of individuals and organisations are mentioned in that report, including Zimbabwean individuals. We have requested further information from the UN panel, as have other members of the Security Council. We await that information. We shall talk to our Security Council partners in deciding what further action should be taken.
Lord Howell of Guildford: My Lords, I know that the noble Baroness is as keen as anyone to put pressure on Mugabe and his henchmen to prevent them poisoning and undermining development in southern Africa and the whole NePAD project. In that context, is it correct that a visa has been granted to the vice-chairman of the ZANU-PF Harare executive, Chris Pasipamire, who is a well-known and brutal activist in farm evictions in Zimbabwe and who has apparently come here to study land reform? If that is correct, will the Minister re-examine the whole matter?
Baroness Amos: My Lords, I am aware of this case having been raised. Allegations were made in The
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Sunday Times about this individual and his activities in Zimbabwe. I understand that the allegations against him were dropped. He was granted a visitor's visa to come to the UK, not a student visa. Were he to want to study in the United Kingdom, he would need a different kind of visa.
Lord Hughes of Woodside: My Lords, is it possible to check, among some of the most lurid reporting on Zimbabwe, whether the statement attributed to Didimas Matasa that he would be content to see 6 million Zimbabweans die from starvation because it would make the handling of Zimbabwe's economy easier? Can that possibly be true?
Baroness Amos: My Lords, it is sometimes very difficult to verify some of the statements that come out of Zimbabwe. However, I think that everyone in this House recognises that Robert Mugabe and his regime bear the brunt of the responsibility for the humanitarian crisis. Seven million people will need supplementary feeding by March next year. That is extremely serious. The economy of Zimbabwe is imploding, and this is a matter for which it has to take responsibility. We will do all that we can with our international partners, and working with African colleagues, to ensure that this is recognised in Zimbabwe.
Baroness Oppenheim-Barnes: My Lords, who dropped the allegations against the gentleman concerned? Was it the original complainant or the authorities?
Baroness Amos: My Lords, I will look into that further and write to the noble Baroness. The allegations were made in the newspapers on Sunday. I have had what information I can from our High Commission in Harare, which will look into the case in more detail. I will be happy to report further.

Patients Forums
3 p.m.
Earl Howe Earl Howe asked Her Majesty's Government:
What budget will be allocated to the Commission for Patient and Public Involvement in Health in order to ensure that the arrangements for replacing community health councils are adequately resourced.
Lord Hunt of Kings Heath: My Lords, funding decisions for the next three years will be announced shortly. I will write to the noble Earl when final decisions have been made.
Earl Howe: My Lords, I thank the Minister for that reply. Does he share my view that the success of the changes laid out in the recent legislation will be of the utmost importance for patients and the NHS? Given that the responsibilities of patients forums will be a good deal wider and more complex than those of

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community health councils, can the Minister confirm that substantially more staff are envisaged for patients forums than are currently employed by CHCs, and that 600 to 700 staff for some 600 patients forums will simply not be enough?
Lord Hunt of Kings Heath: My Lords, I cannot be committed as to the numbers of staff and resources. That matter is tied into decisions on resources. I agree that the changes, including the establishment of the commission and patients forums, and the role of local authority oversight and scrutiny committees, will together result in much more powerful involvement of local people in the running of the NHS. We want to ensure that those arrangements are completed as satisfactorily as possible.
Lord Clement-Jones: My Lords, does the noble Lord agree that it would be highly cynical for a Minister in the other place to promise 300 offices for patients forums and then to deliver only 28?
Lord Hunt of Kings Heath: My Lords, the question is not how many offices should be provided but whether there will be access to patients forum services in every part of the National Health Service. That is surely where we should focus our energies.
Baroness Pitkeathley: My Lords, does my noble friend agree that the budgetary requirements must ensure that adequate training is provided for patients and their representatives to ensure maximum participation in the development of strategies and patient representation?
Lord Hunt of Kings Heath: My Lords, yes, I do. That will be one of the responsibilities of the newly formed Commission for Patient and Public Involvement in Health. We want to encourage many local people to come forward for potential membership of patients forums. I accept that we need to give them all the support we can to do their job properly.
Baroness Carnegy of Lour: My Lords, the Minister referred to "patients forum services". Are patients forums really a service, or fora, for patients?
Lord Hunt of Kings Heath: My Lords, patients forums exist to ensure that every NHS trust and primary care trust is fully focused on meeting the needs of patients and the public. They will be composed entirely of local people with an interest in healthcare.
Baroness Masham of Ilton: My Lords, given that there are so many new health bodies with complicated names, when one is dedicated to helping patients, will the Minister ensure that it will be advertised so that people know where to go and that it will be well funded?
Lord Hunt of Kings Heath: My Lords, the noble Baroness is right to suggest that, for patients forums to be successful, we must ensure that patients and the
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public have ready access. The new Commission for Patient and Public Involvement in Health will look closely at what can be done to ensure that the public have ready access to the services of patients forums. In addition, the new patient liaison service, which many trusts are establishing in their facilities, is proving to be of great benefit to patients whose concerns, if raised immediately, can be dealt with very quickly. The new PALS service has made a very good start.
Baroness Fookes: My Lords, will the Minister ensure that, while the CHCs continue to exist, they will not be starved of funds?
Lord Hunt of Kings Heath: My Lords, there is no intention to starve current CHCs of funds. We do not yet have a precise timetable for the establishment of patients forums and the winding-up of community health councils. We stand ready to be advised by the new commission on that matter.

A400M Aircraft
3.5 p.m.
Lord Astor of Hever Lord Astor of Hever asked Her Majesty's Government:
Whether their decision to equip only nine out of 25 of the Royal Air Force's new transport aircraft with defensive aids suites will compromise the safety of the Armed Forces.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Bach): My Lords, we decided in 2001 to equip nine of the 25 A400M aircraft with defensive aids suites, based on the different operational roles and the various threat environments in which the aircraft will operate. All A400Ms not currently planned to have defensive aids suites can easily be fitted with such systems if required, either before or after delivery. Between now and 2010, we will of course continuously review our operational roles and threat assessments.
Lord Astor of Hever: My Lords, I am grateful to the Minister for that reply. Does the recent missile attack on an Israeli plane not show just how vulnerable the A400M will be to terrorist attacks? Can the Minister give the House a firm assurance that RAF pilots' lives will not be put at risk by flying unprotected aircraft in hostile areas?
Lord Bach: My Lords, I can give the noble Lord and the House that assurance. The attack in Kenya highlights what is an evolving threat to aircraft in general. We keep that threat under constant review, as the noble Lord would expect us to do. Such incidents are taken into consideration when assessing the need for future DAS capabilities. The decision taken in 2001 was based on planning assumptions valid at the time. We are now looking into that as a matter of priority.

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As the A400M has an in-service date of 2010, there will be sufficient time to adapt its capability to the evolving threat.
Lord Redesdale: My Lords, how long will it take to transfer defensive aids suites from one aircraft to another? More importantly, how much will that cost? The operation could be quite expensive.
Lord Bach: My Lords, there is no intention to move defensive aids suites from one aeroplane to another. One must realise that defensive aids suites are a package that can contain various units—they do not all contain the same ones. The average cost of a defensive aids suite is roughly £15 million per plane.
Lord Jones: My Lords, when will the first aircraft fly? Does my noble friend believe that the Germans will buy it?
Lord Bach: My Lords, I believe that the Germans will buy it. We believe that they will buy 60 rather than 73, which is why it has taken time to conclude the matter. We hope that the first flight will take place in December 2010. One of the great advantages of the A400M is that it will bring many jobs to the United Kingdom.
Lord Campbell of Alloway: My Lords, the Minister said that there was "time to adapt" the other aircraft. Does that expression apply to all 16 remaining aircraft?
Lord Bach: My Lords, our order is for 25 aircraft. We will adapt them with defensive aids suites if we feel that it is necessary for the safety of their crew—that is our primary responsibility—or if the role of the A400M changes so that it is used in a much more tactical role than at present.
Lord Marlesford: My Lords, was the point of the supplementary question by my noble friend Lord Astor not to illustrate the fact that the Al'Qaeda attack on the Israeli plane in Mombasa failed because it was fitted with heat deflectors? Does that not suggest that not only should all Royal Air Force aircraft have that equipment, but there is probably a case for fitting many civilian airliners with heat deflectors against such missiles, given the present threat from Al'Qaeda and similar terrorist groups?
Lord Bach: My Lords, the noble Lord is certainly right in that there is clearly an increased threat worldwide as a consequence of Al'Qaeda's activities. It will be a matter for other government departments and the Government as a whole to decide what should happen to commercial aircraft generally. It would be a huge expense, but perhaps one that has to be thought
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about with great care. Meanwhile, in the MoD, we are thinking carefully about the consequences of this terrible act.
Baroness Walmsley: My Lords, at what design stage is the A400M at the moment?
Lord Bach: My Lords, I cannot answer that question exactly. I can say that Airbus, which will be responsible for the manufacture of the A400M, is a distinguished company with a proud record of aircraft design and manufacture. We want to get the contract signed and under way and start manufacturing the aircraft, which is vital for the increased airlift that we very much need in this country.
Lord Elton: My Lords, the question asked by my noble friend Lord Marlesford went wide of the Ministry of Defence, but not of the Question on the Order Paper. Will the Minister, who answers for the whole of the Government, ensure that the issue is drawn to the attention of his colleagues and that if anything necessary comes out of that, it will be placed in the Library?
Lord Bach: Yes, my Lords, I shall certainly ensure that.

Greater London Authority Act 1999 (Repeal) Bill [H.L.]
3.11 p.m.
Lord Ampthill: My Lords, I beg to introduce a Bill to repeal the Greater London Authority Act 1999. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time.—(Lord Ampthill.)
On Question, Bill read a first time, and ordered to be printed.

Consolidated Fund Bill
Brought from the Commons endorsed with the certificate of the Speaker that the Bill is a Money Bill, and read a first time.
Consolidated Fund (Appropriation) Bill
Brought from the Commons endorsed with the certificate of the Speaker that the Bill is a Money Bill, and read a first time.
London Development Agency Bill
Read a second time, and committed to an Unopposed Bill Committee.

Business of the House: Debates, 11th December
The Lord Privy Seal (Lord Williams of Mostyn): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the debates on the Motions in the names of the Lord Peyton of Yeovil and the Baroness Oppenheim-Barnes set down for tomorrow shall each be limited to two-and-a-half hours.—(Lord Williams of Mostyn.)
On Question, Motion agreed to.

Budget Report
3.13 p.m.
Lord McIntosh of Haringey Lord McIntosh of Haringey rose to move, That this House takes note with approval of Her Majesty's Government's assessment as set out in the Pre-Budget Report 2002 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.
The noble Lord said: My Lords, each year the Government report information to the European Commission on our main economic policy measures. The procedure is set out in Articles 99 and 104 of the EC treaty, which relate to the broad economic policy guidelines, convergence and stability programmes and the excessive deficits procedure. The objective is to ensure that member states' economic policies are consistent with the goals of the treaty, as set out in Article 2: non-inflationary economic growth; respect for the environment; a high level of employment and social protection; and raising the standard of living and quality of life for citizens across the United Kingdom and the entire European Union.
These goals are consistent with the Government's own approach to economic policy. Section 5 of the European Communities (Amendment) Act 1993, usually known as the Maastricht Act, requires Parliament to approve the information sent by the Government to the Commission for this purpose.
The Government's strategy for economic policy is set out in the 2002 Pre-Budget Report, published on 27th November. This material will form the basis of the information that we send to the European Commission. Sharing the information in the Pre-Budget Report with our European partners allows us to influence the development of the European Union, bringing enhanced employment and growth to Britain and other member states.
In this Pre-Budget Report, we have shown that last year, of the major economies, the British economy was the fastest growing. This year and next year, Britain and North America are now forecast, even in a still uncertain and unstable world, to grow faster than all other major economies.
As the Chancellor set out in his Statement to the House on 27th November, with the lowest inflation for almost 40 years and long-term interest rates also the lowest for almost 40 years, Britain's monetary and
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fiscal framework is meeting the challenges of each stage of the economic cycle. We have made very dear that we will not let anything put that hard-won stability at risk.
In the Pre-Budget Report, we have also outlined further labour, capital and product market reforms to improve British science, skills and entrepreneurship, and proposals for continuing public service reform and tax and benefit modernisation showing that, both in Britain and abroad, strong economies and fair societies move forward together.
Twenty of the world's biggest economies, accounting for 60 per cent of the world's output—the United States, Japan, much of Europe and Latin America—have been or are in recession alter what has been the sharpest slowdown in global economic activity for almost 30 years and the biggest contraction in industrial output in the world's major economies since 1975.
The challenge for the British economy in this more uncertain and unstable world has been to steer a stable course, combining low and stable inflation with sustained demand growth and with high levels of employment. Our monetary and fiscal foundation, which is based on the independence of the 13an k of England, imposes a symmetrical target for inflation, requires debt at low levels, holds to tough fiscal rules over the economic cycle and is thus designed not just for times of high growth, but for a global contraction with all its attendant difficulties.
Because the Bank of England has established credibility through year after year meeting our 2½ per cent symmetrical inflation target, it has been able, supported by fiscal policy, to sustain growth. So while, against the background of the international slowdown, the euro area is forecast to grow by 0.8 per cent, France by 1 per cent, Germany by just 0.4 per cent and Japan by-0.9 per cent, for the UK, GDP growth is forecast to increase by 1.6 per cent this year, rising to 2½ to 3 per cent next year, rising again to 3 to 3½ per cent in 2004.
I turn to the public finances. As the Chancellor set out in his Statement, with this Government's long-term and deliberately cautious approach, we are, with current surpluses and historically low debt, able at every stage of the economic cycle to meet our fiscal rules, including in the cautious case. We meet our golden rule over the cycle, not just achieving a balance, but with an estimated surplus at £46 billion. And we meet the golden rule on the cautious case. Taking the full economic cycle into account, the current surplus for each year is forecast to be 0.2 per cent of GDP this year, 0.3 per cent next year, then 0.6 per cent, 0.5 per cent, 0.6 per cent and 0.7 per cent.
Our second rule—the sustainable investment rule—is that over the cycle net debt should be kept below 40 per cent of GDP. Net debt this year and in future years will be at 31 per cent, 32.1 per cent, 32.4 per cent, 32.6 per cent, 32.7 per cent and 33 per cent—comfortably meeting our sustainable investment rule, doing so over the cycle and in every year.
Our commitment to meeting our fiscal rules is, moreover, for the long term, so we have also published a report which examines the sustainability of Britain's fiscal position decade by decade and compares our position with other countries. It shows that, taking account of population changes and the cost of ageing on public spending, the British fiscal position in this period is sustainable and in a strong long-term position compared with other countries.
Because we have built sound foundations of low debt and low inflation and are today meeting our fiscal rules in every phase of the economic cycle, we have rejected the view that we should cut back our spending plans. So we have confirmed that we will fund our planned investments: by 2006, £8 billion more a year for local authorities; £15 billion more a year for education; £63 billion more a year for public services as a whole; and by 2008, for health alone £41 billion more a year, paid for by our national insurance rise.
I turn to productivity in the United Kingdom. If stability is the precondition for economic progress, enterprise is the driving force. Britain today is challenged by a long-term global restructuring of industry. In this next wave of globalisation, now upon us, it is the flexibility of our product, capital and labour markets, the strength of Britain's science base, the level of British research and development, and the scale and dynamism of knowledge transfer from our universities to our businesses that will drive our productivity growth and thus future prosperity.
This Pre-Budget Report continues the Government's programme of microeconomic reform, targeting historic weakness in five key drivers of productivity performance: strengthening the competition regime through the Enterprise Act; promoting enterprise by modernising the UK's business tax regime, and promoting an entrepreneurial culture, including for small and medium-sized businesses, local economies and high-unemployment communities; supporting science and innovation through the Government's comprehensive science strategy, and two complementary reviews into business innovation and university-business links; improving UK skills through measures to support the expansion and improvement of the modern apprenticeship scheme, and by continuing to pilot new measures to improve access to training for adults; and promoting investment by reforming the planning system.
Our policy is to combine enterprise with fairness. As the Chancellor announced in his Statement, to continue to make work pay more than benefits, we are, from April, extending the principle of the working families tax credit to single adults and couples aged 25 and over without children. Couples with wages less than £280 a week, or £14,000 a year, and single people with wages less than £200 a week, or £10,500 a year, stand to receive more money, taking forward our belief that an enterprising economy and a fair society advance together.
A flexible, efficient labour market must not only promote employment, but also be fair to parents. Next month, a joint Treasury-DTI report will publish proposals for enabling parents to make real and effective choices on balancing work and family life. Building on our increase, from April, in maternity pay to £100 a week, on the first ever paternity and adoption pay, on the new tax credits, and on the first ever national childcare strategy, we will consider further reforms including new tax and national insurance incentives to expand employer-supported childcare; paying the childcare credit for approved home childcare by carers who are not already childminders; and increased flexibility in parental time off, including giving fathers time off to attend antenatal care.
Our goal, stability and prosperity for all, also means fulfilling our objectives of tackling child and pensioner poverty. The child tax credit based on support for all, and on most support for those who need it most, will become the most powerful weapon in tackling family poverty. The levels of the new pension credit from next October will reward, instead of penalising, modest savings and small work pensions.
In conclusion, we have been tested by world events and have resolved to steer a steady course. That steady strength of purpose will continue, and we will honour our commitments to invest in public services, to advance enterprise and fairness, and to meet and master the global challenges. That is the programme set out in the Pre-Budget Report, and that, with the approval of the House, is the programme that we will send to the European Commission. We are fulfilling our commitment under the Maastricht Act to report on our main economic policy measures, and maintaining our position, developed by this Government, at the heart of the EU policy process. I beg to move.
Moved, That this House takes note with approval of Her Majesty's Government's assessment as set out in the Pre-Budget Report 2002 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.—(Lord McIntosh of Haringey.)
3.23 p.m.
Lord Saatchi: My Lords, I am grateful to the Minister and to the usual channels for allowing what is usually a formality to be the occasion for a full debate in your Lordships' House. As the Minister said, the Motion invites noble Lords to note "with approval" the national accounts as set out in the Pre-Budget Report. Looking at the most distinguished list of speakers—which is another tribute to the expertise of your Lordships' House in economic affairs—it is clear that there will be a thorough analysis of the Motion and of the financial situation it describes. Therefore, although the report may contain many figures which are wrong by accident, I shall, if I may, concentrate on the figures which seem to be wrong by design.
Since the report was laid before Parliament, a pall of gloom has descended over the economy and the country. There are, however, some bright spots. The

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report shows extra effort going into manufacturing—the manufacturing of figures. The Government are also pouring investment into engineering, of the financial kind, and giving a big boost to the creative industries, especially accounting. What is the Government's motive for all this? It is simple: they are running out of money, and they would rather that we did not know it. This year, government spending is up by 7.5 per cent on the most favourable measure, but GDP growth is up by 1.5 per cent. That means that the Government now have five times more money going out each month than they have coming in.
Consequently, last year, the Government told us that they would need to borrow £34 billion over the next four years. Then, in April, they said that they would need £72 billion. Now, in the report, they say that they need more than £100 billion. Sadly, however, that is not the end of it. The £100 billion figure arises before taking into account another £100 billion in two additional forms of borrowing, neither of which is mentioned in the report. This invisible £100 billion of borrowing has increased dramatically from just £10 billion five years ago. Yet not one penny of that huge sum appears on the Government's balance sheet, because the Government have found a way to make £100 billion of public sector capital expenditure vanish. That is why the noble Lord, Lord Barnett—who I am delighted to see in his place—asked the Government:
"to say conclusively that the reason they are borrowing in this way is that the Treasury understandably wants to take the percentage of borrowing" [out of the percentage of GDP].—[Official Report, 23/10/02; col. 1330.]
In order to explain, I ask noble Lords to put themselves for a moment in the Government's position. Let us say that we wished to build a road, although this could apply also to a school or a hospital. We would go to a private company and say, "We haven't the money for this road. You build the road for us. When it is finished, we will pay you every year for the next 25 years". That is what they call the PFI. There were 450 such contracts in place in April, and the Government have signed another 300 in the past six months. The value of all these liabilities to pay under PFI has now reached £73 billion.
Lord Radice: My Lords, I wonder whether the noble Lord is aware that the PFI policy was invented when his own party, the Conservative Party, was in government. That government accounted for PFI in exactly the same way as the current one.
Lord Saatchi: My Lords, I am aware of both points. My comments are not on the validity of PFI as a method of building roads and schools, but on the validity of the Government's accounting method. In Kenneth Clarke's last Red Book, in 1996, the value of PFI contracts amounted to £10 billion. The
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Government have expanded that figure from £10 billion to £100 billion in five years. That is precisely the point that I am getting at.
Lord Barnett: My Lords, the noble Lord knows why I cannot be here later to make a fuller reply. He seems to be saying that he would account differently for these expenditure items. How would he do that?
Lord Saatchi: My Lords, that point is the main thrust of my speech, and I shall deal with it in more detail later. In a few words, however, that stream of liabilities and obligations to pay under PFI should be included on the face of the Government's balance sheet as government debt.
PFI is the first form of invisible borrowing. The second form works as follows. Imagining ourselves in the Government's shoes, we tell the company, "You borrow the money to build the road and we will guarantee your loans for you". That is called PPP, on which the Government have at least £27 billion of further liabilities. So, adding together the £73 billion of the present value of PFI liabilities and the £27 billion of PPP liabilities, we arrive at a total of £100 billion of understated liabilities.
So it is that the Government are exploiting accounting technicalities to keep these PFI schemes, the guarantees, letters of comfort, government-backed bonds and underwriting of various PPP schemes off the books. The PFI liabilities are mentioned only in the hiding place of creative accountants through the ages—the notes to the accounts. The PPP obligations, including £21 billion for Network Rail, are not mentioned at all, not even as a note. As the national institute said:
"You can already smell the fudge being cooked up in Great George Street".
As the report does not make clear, for our Government today the total of all such future obligations to pay is a staggering £100 billion. That is 10 per cent of UK GDP. By not including these sums the Government are understating their liabilities and misleading us all.
In his introduction to the Motion the Minister spoke of historically low debt. Now we come to a matter of the greatest economic significance. In introducing the report in another place the Chancellor of the Exchequer said:
"Countries such as ours with low levels of debt … are in a position to borrow, whereas others are not".
If you or I went to the bank to borrow money, we would present our balance sheet setting out our assets and our liabilities so that the bank manager could determine whether or not, in the Chancellor's phrase, we are "in a position to borrow". The bank manager would ask some pertinent questions, as bank managers do, such as: what obligations do you have? If you revealed that you owed a stream of payments over future years, as the Government do with PFI, would that be considered part of your debts? Of course it would. If you had also guaranteed your mother-in-law's mortgage, the hire purchase payments on your

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sister's car and your nephew's school fees for life—as the Government do with PPP—would the bank manager say that that affected your borrowing position? Of course he would. This means that the Government have already breached their borrowing limits. Their debt is not 31 per cent of GDP, as stated in the report; it is 41 per cent of GDP. On the Government's own rules they should not undertake the extra borrowing described in the report.
I am hardly an impartial observer so perhaps my figures are wrong too. Normally you would call the auditors and ask them. But who do you call? There are three of them: the Comptroller and Auditor-General; the Office for National Statistics and the Statistics Commission. That is two too many, obviously, for a true and fair view but just right to give the Government a chance to divide and rule.
The relevant accounting standard for dealing with such transactions—I turn now to the question of the noble Lord, Lord Barnett, in more detail—is Financial Reporting Standard No. 5 entitled, Reporting the Substance of Transactions, which forms part of the generally accepted accounting practice in the UK.
The accounts of central government bodies are prepared under UK GAAP and are audited by the Comptroller and Auditor-General. They are intended to give a true and fair view of the income and expenditure of the relevant government body and of its state of affairs at the balance sheet date. This is similar to the basis on which the accounts of commercial or private sector entities are prepared and audited.
Meantime, a second body, the Office for National Statistics, produces most of the UK's official economic statistics, including the national accounts. That second body is under the supervision of a third, the Statistics Commission.
The Government have woven a tangled web around these three organisations which last week happily began to unravel. I bring your Lordships up to date. In a letter to the Statistics Commission, which, as I said, supervises government accounts, the Department for Transport's chief accountant, Alan Beard, revealed that he,
"could not support the view"
that £21 billion of Network Rail liabilities could be left out of the national accounts. He was responding to Treasury claims that he had advised it that the £21 billion could be left out. Mr Beard denied it and wrote:
"Indeed, had I been asked, I would not have done so".
The Statistics Commission chief executive, Gill Easterbrook, then wrote last week to the Cabinet Secretary, Sir Andrew Turnbull, saying her body believed that there was a need for,
"greater transparency over Network Rail".
Her letter said that the Government,
"must provide a clear statement of the position and risk to the taxpayer".
The Statistics Commission chairman, Sir John Kingman, backed her in a separate letter, warning that the Treasury view was "based on a misinterpretation".
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Three cheers for them and for Sir John Bourn, the Comptroller and Auditor-General, who last week also threw his weight behind calls for the loan guarantees to Network Rail to appear on the Government's balance sheet. Appearing last week before the Commons Treasury Select Committee, he said:
"The Government is providing security to the providers of debt and it is acting as a lender of last resort … If this had been in the private sector and I had been auditing this I would have expected it to be put on the balance sheet".
Sir John said that he hoped that Ministers would accept his advice. I do too but I am not confident that that will be the case.
I remind your Lordships that the Government have already had to climb down once over their attempt to mislay £15 billion of expenditure on tax credits. We should remember that the Government had argued that tax credits were a tax reduction and had accordingly lowered the UK tax burden by around 1 per cent by that accounting method. However, it emerged during the Committee stage of the Tax Credits Bill in your Lordships' House that 90 per cent of all tax credit payments actually exceed the tax liability of the recipient. So the credits were not credits after all. They were not relieving any tax because there was no tax to relieve in the first place.
I conclude by saying that there is an enormous need for much greater clarity of presentation in the public accounts. The mood of the times is for openness, transparency and full disclosure. We need a clear, complete and comprehensible set of public accounts. We need them to be composed under standards of accounting practice so that people have at least a chance of doing the detective work to find out what is really happening. That is democratically proper and a matter of common sense. We do not have it. By its extensive use of misleading statistics, its suppression of negative facts, and its many errors of omission and commission, the report ignores the duty of care owed by the compiler of a set of accounts to its readers and therefore does not merit the approval of your Lordships' House.
3.37 p.m.
Lord Howe of Aberavon: My Lords, I begin by echoing my noble friend's thanks to the Minister for his exposition of the Government's case in words faithful to those of his master in the other place. I congratulate my noble friend Lord Saatchi on his extremely interesting analysis which I have to confess takes me beyond the state of comprehension I achieved as Chancellor of the Exchequer when I struggled to solve this very problem for some time. I was unable at that time to find any suitably acceptable accountancy device to square the circle. Therefore, I have some sympathy with the analysis presented to the House by my noble friend.
I feel that sympathy perhaps with some reluctance because former Chancellors are almost bound to feel a sense of fellow feeling for their successors. Those of us who have grappled with these problems are reluctant to embark on fierce criticism of the holder of the office.

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I have refrained from doing so on any scale in this House until this time. It is now 20 years since I left the Treasury so I am all the more reluctant to do so.
But a former Chancellor also has an advantage in that he can intuitively begin to recognise some of the danger signs and warning symptoms of Chancellors who arc going astray from economic virtue. One can begin to see the symptoms of self-satisfaction, of over optimism, of hubris, even sometimes, as I shall suggest, of elephantiasis. As I listened to the noble Lord, Lord McIntosh, reeling off his figures predicting into the indefinite future the precise size of the public sector deficit to one decimal point and other precise figures I began to detect those symptoms.
In my own case, the Treasury did not do well enough during my time there for me to develop those symptoms, although I laid the foundations. By the time I was Foreign Secretary and travelling the world, I was making speeches about economic policy that made it sound as if we had learned to walk upon the water.
I detect similar symptoms when looking at the nature of the self-publicity in some of the documents accompanying the Pre-Budget Report. In my last year at the Treasury, we considered producing something like the neat little leaflet that the Government have provided. We felt that it was necessary to instruct the populace as to the wisdom of our activities in simple terms that they would understand. However, we rejected the idea as an implausible operation. The leaflet is full of the most generalised statements. It never anywhere suggests that any taxes will increase and it gives opinions to the world that are enormously exhilarating.
The title of that modest publication, the Pre-Budget Report, is Steering a steady course: Delivering stability, enterprise and fairness in an uncertain world. There is uncertainty all around us but here is stability, enterprise and fairness in enormous quantities. The contents page is also pretty revealing, because it reads like the chapter headings of a manifesto. The chapters arc called: "Overview", "Maintaining macroeconomic stability", "Meeting the productivity challenge", "Increasing employment opportunity for all", "Building a fairer society", "Delivering high quality public services" and "Protecting the environment". There are two annexes; annex A is titled "'The economy" and annex B "The public finances".
The report is an extraordinary exercise. I have one other comment to make about it: it costs £45 and runs to 225 pages. In 1982, I introduced the first Autumn Statement. The document that I produced was 32 pages long and cost £3.80. This document is only the half of it, because alongside these 225 pages, there are 300 further pages of supplementary documents.
I turn to the particulars of the Pre-Budget Report. For example, pages 8 and 9 are full of declamatory statements with which I shall not trouble the House. However, tucked away among those great achievements is the statement,
"publishing On 17 December a Green Paper on pensions setting out proposals to help those of working age plan more effectively for their retirement".
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We are still awaiting that marvellous document. The report does not suggest, as most people acknowledge, that the pensions industry is in deep crisis as a result of a £5 billion raid on the industry's funds in the Chancellor's very first Budget.
That is not simply a frivolous point, because it shows the extent to which the Chancellor has been carried away by euphoric insights into his own performance.
Another feature is worth commenting on. Noble Lords will remember that, earlier this year, the Chancellor introduced—or reintroduced—what used to be called the national insurance surcharge. That is a comprehensive and across the board imposition on employers' pay bills. When I looked at the document that I produced in 1982, I noticed a contrasting section: one modest little page headed, "Proposed changes to the national insurance surcharge". It described how the surcharge was introduced in 1977 at the rate of 2 per cent. The noble Lord, Lord Barnett, will know all about that. When we arrived in office in 1979, the surcharge was running at the rate of 3.5 per cent. In my Autumn Statement in 1982, I was able to reduce it by 1.5 per cent and, in 1984, my noble friend Lord Lawson was able to sweep it away altogether. We recognised it for what it was: a tax on jobs. That is the undisclosed item in this Autumn Statement. The Government are going in the old direction again.
I am distressed at the way in which the report is so comprehensive in its coverage of almost every aspect of human activity. If one goes through from beginning to end, there is not a sector of any social service, economic or business activity that is not described enthusiastically, if not in eulogistic terms. One wonders if, when the Chancellor sits there generating hundreds of pages of wisdom, anything is left for other Ministers to decide. I have an impression that, in a remarkable way, the Government are coming to match that which the less than exhilarated people of Iran have to tolerate. The system seems to he that we elect a Prime Minister—or in their case, a president—and it is up to the ayatollah who lives next door to tell the president exactly what he can and cannot do. That is not much of an exaggeration of the way in which the Government seem to operate. Other Ministers hardly get a look in at all.
That is amusing, serious and important. It tell; us something about the quality of the Chancellor's judgment. Can it really be the case that everything in this country is for the best in the worst of all possible worlds? That is the impression that one seems to get. He acknowledges the increase from £11 billion to £20 billion, which almost doubles the public sector net borrowing in the year ahead, as my noble friend Lord Saatchi pointed out with great clarity. That is a rise up to 2.2 per cent of GDP. The Chancellor is confident beyond doubt that he will be able to manage that year after year, well within the limits set by the stability pact and other factors.
If I were in the Chancellor's position and looking out on the world as it is today, I would seriously wonder whether the plans that I had proclaimed. So

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proudly had really immunised us against all that. It is a world in which, curiously, when one tries to identify a locomotive economy that will take us out of trouble, one can identify only two. They are relatively modest vehicles: Russia and China. They are the only two identifiable locomotive economies in a world in which the Chancellor is so confident of surviving.
When looking at the realism of the Chancellor's prospects, one must consider the factors working against fiscal recovery along the lines for which he hopes. The top half of income tax is paid by the top 10 per cent of earners. Those are the people who face substantial sacrifices, with the impact of austere world conditions on the City of London and financial industries generally. I am doubtful whether income tax revenue levels can be maintained even at their present level, against that background. Stamp duty receipts are also likely to fall substantially and to continue to do so as the housing market almost certainly turns downwards. If one looks at the day-to-day news, one can see that corporation profits are shrinking rather than expanding. All those areas more than justify the warning given by the IMF and reported in The Times today, of the hazard that the Chancellor may fail to come anywhere near fulfilling his expectations.
What one has to remember—and I remember this well—is that when the economic tide starts running against you, it often comes in faster than you might have expected. The Chancellor has had it very lucky so far. I look back to the period in the winter of 1980 and spring of 1981, when we tried to determine the likely size of the public sector borrowing requirement in 1981–82. We knew from the outset of that analysis that it would be far in excess of that for 1980, which was £8.5 billion. We expected it to be £11.5 billion when we started to work it out at the beginning of 1982. By February, one month later, our forecast suggested £13 billion. By the time of the Budget, one month after that, it had risen to £14.5 billion. That is what happened in the three months before the Budget came to be made. My fear is that, if something of the same kind happens now, many of the optimistic expectations will not be fulfilled.
I do not want to take up more of your Lordships' time. I could go on to a number of other topics, but I feel that I must spare my colleagues. My contribution is a serious one. Taking account of the analysis of my noble friend Lord Saatchi, there is a real potential flaw in the foundation of optimism. I am sorry that we shall not be able to hear the noble Lord, Lord Barnett, on this occasion. It is a pity that he is unable to take part in the debate, but I understand the reason why. Aside from that, the other foundations of the Chancellor's optimism give cause for great anxiety, which could begin to erode the confidence on which he counts so heavily.
3.49 p.m.
Lord Higgins: My Lords, I declare an interest as the chairman of a company pension fund. I am very glad to follow my noble and learned friend Lord Howe of Aberavon. I agree with what he said about the huge
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mass of documentation—it is probably a record amount—that has descended on us. It exceeds the limit that the Printed Paper Office imposes if one wants to post copies to anyone. It is not all propaganda, as my noble and learned friend said. But a great deal of it is. A number of very important points are made in the documents. I shall comment on one or two.
The Government said early on in their period in office that they had brought an end to boom and bust. That will probably have a rather hollow ring with the many investing in the Stock Exchange or with many pensioners. The economic cycle continues; it is not the case that the Government have in some miraculous way brought it to an end, although its current amplitude is somewhat less than it has been in other periods. The reality is that the Government's forecasts, made only a few months ago, appear now to be substantially wrong.
It is unfair to try to put responsibility for the assumptions that the Chancellor makes on the National Audit Office. The NAO fulfils many useful functions but asking for its imprimatur on these issues is of no great advantage. It has produced some extremely good reports, not least one published recently entitled, Tackling pensioner poverty: Encouraging take-up of entitlements. It states:
"Over 20 per cent of pensioners do not take up all their entitlements".
We are getting to the situation in which the Chancellor of the Exchequer constantly says that he will spend more on this, that and the other in terms of social security, but the reality is that it is so means tested and so complicated that the shortfall in terms of the amount expended is very great. Will the Minister tell us, taking last year as an example, what the difference was in pounds between the amount the Chancellor said he would spend and the amount actually spent?
Many of the Chancellor's objectives, in particular the golden rules for prudence, are related to the economic cycle. It would be helpful if the Minister could clarify exactly where we are in that regard. Page 22 of the Pre-Budget Report gives some indication. It states that,
"the Government's provisional judgment has been that the economy completed a full, albeit short cycle between the first half of 1997 and mid-1999. The current economic cycle therefore began in mid-1999".
I presume that that means the Government regard that as the bottom of the present cycle; perhaps the Minister will confirm whether that is so. What measures are there of where we are in the current cycle? If we are to appraise the Government's policy correctly, it is very important, since it is all related to smoothing over the cycle, that we have a clear statement from the Government about exactly where we believe we are with regard to the cycle. There are many references to traditional economic stabilisers and so on. It is appropriate for us to allow them to operate fully.
A fascinating paper in this vast mass of documentation is entitled Long-term public finance report: an analysis of fiscal sustainability. The amount of algebra contained in Technical Annex A of that

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report must surely be unprecedented. It reminds me of the period when I was teaching economics at Yale. The econometricians went absolutely berserk at times. There appears to be some sort of cross-infection with this document.
Having said that, I welcome very much what is suggested in the document. Traditionally, so far as economic performance is concerned, it is said that we must achieve a low level of inflation, high employment, economic growth and a balance of payments equilibrium. The document introduces what is called "inter-generational balance". That is tremendously important. It is very easy for a government to run up their liabilities or to run down their assets for a considerable period, giving the impression that all is well when in fact they are putting a burden on future generations. I hope—I say this in a co-operative mood that is typical of the House of Lords—that the Government will agree that we should have an additional objective; that is, that there should be inter-generational balance.
The algebra in the document is incredibly complicated. However, at the end of the day, the whole issue turns on the balance sheet. The question is whether or not—from generation to generation and spread over time—there is a deficit on the balance sheet and whether that is going up or down. The noble Lord, Lord McIntosh of Haringey, and I have debated that previously. The Government came close to producing the outline of a balance sheet. They produced a huge document showing the assets but they have been reluctant to conduct a real appraisal of the liabilities, perhaps the largest of which is paying the basic national insurance pension to future generations.
That links, without any degree of co-ordination, with the comments of my noble friend on the Front Bench. The genuine balance sheet, taking into account what are being treated as off balance sheet items as well as those on it, really indicates how things stand. It is tremendously important for us to have, at least so far as economic analysis is concerned—I leave strict accountancy to one side—an idea of where we are 'with regard to the Government's balance sheet and how they project that through time. The so-called inter-generational balance—economists, I am afraid, always fall into jargon—is important and I hope that on an all-party basis we can make some progress in relation to it. We must rely on honesty so far as the figures are concerned and not shuffle off some items into a side track. I agree with my noble friend Lord Saatchi in that regard.
A noticeable point in last weekend's Sunday papers was the extent to which commentators—the more serious commentators, such as Mr Peston, Mr David Smith and others—felt that we should consider the implications of the Pre-Budget Statement in relation to whether we should join the euro. That is not surprising because the Government have said what they propose to do with regard to decision-taking in that regard.
I want to make a number of further points but I do not wish to detain the House for longer than necessary so I shall proceed very much in shorthand. The first
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point about our joining the euro is that the five tests imposed—or selected—by the Chancellor are a charade. They are far too ambiguous and vague for anyone not to be able to fiddle them one way or the other. I do not believe that they are a helpful way of looking at the matter. Whether they are related to the political ambitions of the Prime Minister or Mr Gordon Brown to go down in history as the person who joined the euro, I know not. In all events, those tests are not what this is really about.
The crucial question is whether we give up for all time the main means of allowing for differential movements and prices within the broader European Community; the question is the same so far as those within euro-land are concerned. That would be an irrevocable move and it is crucial to decide whether the size of the area and the relative importance of different countries is such that it is not wise to give up that major means—that is, changes in the exchange rate—of adjusting in terms of economic changes.
It is important to differentiate interest rate policy from monetary policy. It is interesting that the Government gave control over interest rates to the Bank of England while, at the same time, clawing back the ability to exercise influence on monetary policy—that is, control over the money supply. But, at all events, the euro-land system of one-size-fits-all interest rates clearly imposes considerable strains on those in the Community. Further strains have been imposed by the Stability Pact, which even some of the more enthusiastic individuals in the European Community have described in fairly critical terms.
The fact is that, over the centuries, the whole basis of parliamentary or House of Commons power in this country has depended on the control of money, whether it be taxation or expenditure. While clearly some degree of balance is required in relation to fiscal policy, it would be very unwise to go for a rigid system of the kind that now exists in euro-land. From the Chancellor's own statement before us, I believe it is clear that, from time to time, it is necessary to use fiscal policy in order to manage the economy, not least when control over interest rates, if not the money supply., has been handed to some other independent body.
I shall make two final points. The first concerns convergence. At present, it is absolutely clear that, far from converging with the euro-land economies, we are moving in a different direction. Therefore, that does not suggest that this is an ideal moment for a referendum to be held. That is an important point.
I also want to make a longer-term point. I remember that, years ago, the Canadian dollar was worth more than the United States dollar. Both economies now appear to have converged closely together. However, at that time, had those countries adopted a single currency and had the two economies developed as they have since then, the effect on the Canadian economy would have been traumatic, given, for example, its present exchange rate with the dollar. I believe 'that the idea of convergence over a large area must be given considerable scrutiny.

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My final point is that, according to the Prime Minister, we are moving into a period in which this issue will soon become live. In the context of the European Union, the statement that we have before us today is most important. I spend much of my time travelling between here and Holland. Generally speaking, the Dutch are enthusiastic about our joining, and I can understand that. Having said that, we must also consider that, if we were to join, even at a sensible, or what appears at the time to be a sensible, exchange rate, then the strains in the current euro-land situation are such that our joining could result in the break-up of the whole system. It is possible that at some point in the future these matters will need to be reconsidered.
For the reasons that I have set out and against the background of the documents we are considering—there is much about Europe in them—I do not believe that it would be appropriate for a referendum to take place in the near future. That view seems to have been held fairly widely in the press in recent days.
4.4 p.m.
Lord MacGregor of Pulham Market: My Lords, I am grateful to the government Front Bench for giving us this opportunity to talk about the Pre-Budget Report. I rise to do so with some diffidence, given the expertise in your Lordships' House.
I want to comment briefly on four issues. The first follows on from what my noble and learned friend Lord Howe said in relation to the increase in public sector net borrowing. In all fairness, and in order to give my comments balance, I believe that in his earlier years the Chancellor was a very good and conservative—with a small "c"—steward of the nation's economy and the nation's finances, although, in doing so, he benefited from a very sound economic Conservative—with a large "c"—legacy.
But we are now entering far choppier economic waters—in particular, internationally, but also at home. I believe that the Chancellor made a great mistake in throwing prudence out of the window in his Budget in April this year. Here, I follow very much what my noble and learned friend Lord Howe said.
I can recall as a Chief Secretary, as can my noble and learned friend Lord Howe as Chancellor—other former Chief Secretaries are, and have been, present in the Chamber—exactly the point that he made about how the figures in relation to borrowing changed substantially within a three-month period because of international events. In that case, it was due to a change in oil prices. That is because the fiscal deficit is the residual of two enormously large sums of expenditure and income.
I shall come later to what I consider to be the unrealistic borrowing figure that the Chancellor is giving and which my noble friend Lord Saatchi brought out so brilliantly. However, I fear that, even taking into account the increase that he included, the Chancellor is basing his calculations for borrowing on
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very optimistic assumptions. Given that this is a small figure in relation to two very large sums, that can change at enormous speed.
There is of course the international situation. At present, many people are pessimistic about the prospects of a recovery in many parts of Europe, in the United States and elsewhere in the world. I am concerned about our own situation here in relation to household debt. It seems fairly clear to me that a large part of current consumption spending, which is keeping the economy at its present growth position, is based on the calculation that people can continue to borrow substantially—in many cases on the equity in their house—because of low interest rates. People believe that that can continue. If it does, then, frankly, there will be a risk that at some point the Bank of England will have to put up interest rates. At that point, there will be a remarkable change in the gearing effect. I believe that that could have a dampening effect on consumer expenditure in the next year or two or beyond. In addition, as my noble and learned friend pointed out, receipts from corporation and incomes taxes may be over-optimistic at present.
Therefore, I simply believe that the Chancellor has taken a great risk in engaging upon the current levels of high public spending. Whereas, at present, most people are talking about the need to increase borrowing or possibly change taxation should the growth figures not be reached, it is possible that public spending will have to be cut. That will have to be another option. A former Chief Secretary, who, until a few moments ago, was in the Chamber, will remember when that happened under his government's stewardship.
My second concern is in relation to large increases in public spending in individual departments over the next three to five years. To many, that has been a clear signal that it is open court for bidding for higher wages in the public sector. I acknowledge readily that in some areas that is desirable. In cases where a clear difficulty exists in recruiting people to key jobs, as is the case with long-term career teachers in London at present, then there is a need to spend more in that area. But there are many other areas where there is no difficulty in recruitment and where it will now be very difficult for the Government to resist higher wage demands.
The signal of higher public expenditure has opened the doors. However much the Chancellor tries to resist it, it will always be present. That is why I believe that it would have been right to put larger sums into the contingency funds in years two, three, four and five, as was done previously, and not to have placed everything into higher departmental expenditure on the assumption that it would not be leaked away in higher wage demands.
My next point concerns PFIs and PPPs. My noble friend Lord Saatchi was absolutely devastating in his criticism of the current situation with regard to the accountancy for public borrowing. Of course, it is not only an arcane accountancy point. In the corporate world, we are learning that what appeared to be arcane

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accountancy points in the United States very rapidly turned into real issues affecting the corporate economy.
If the Chancellor is underestimating the real extent of future public borrowing, that could have a real impact on the economic situation. I noted that the noble Lord, Lord McIntosh, referred with some pride to the 32 to 33 per cent proportions of GDP for borrowing, but in my view that depends on an inaccurate assumption as to what the borrowing figure is. I do not just refer to the black hole in the way in which Network Rail's position has been treated, and the figure there of £21 billion. It seems to me that by all previous standards of government accounting—certainly those that applied when I was Chief Secretary—that should have been classified as borrowing. I hope that the current dispute between the three bodies to which my noble friend referred will come to that conclusion.
I am much more concerned about another aspect of PFI, on which I should like to spend a few minutes. I fully understand the management and risk advantages of the PFI concept, provided that risk really does transfer. That is why, as Secretary of State for Transport, I introduced some forms of PFI, which was then called Design, Build, Finance and Operate. I introduced four road projects under DBFO because I recognised that there were considerable management and risk advantages in dealing with them in that way.
However, that was on the assumption that motorway tolling, which I also advocated at the time, would in due course be implemented so that real cash would flow in future years, not from the Government but from the user for that borrowing. Indeed, the Dartford bridge, which was one of the first PFIs, reflected precisely that. It has been a huge success. It was built much faster than if it had been kept in the traditional road programme, but was financed by charges not by future taxation. That is an important point to bear in mind, because real cash flowed.
Now, as we see PFIs grow to the £77 billion to which my noble friend referred, we are in a situation where PFIs arc being used all the time as an alternative means of financing, as well as a better management approach, in order to avoid those figures appearing in the government borrowing statistics. As all those PFIs are being financed by future contributions from Government year by year, that is a form of financial leasing and comes very close to borrowing through gilts or whatever else. As the burden grows, so the future commitment to pay off that borrowing also grows. That is why I believe that these PFIs, the expenditure on them and the future payment flows that will follow should be clearly shown. They are effectively a form of borrowing. That is why I conclude that the Chancellor's figures for borrowing as a proportion of the GDP are a considerable underestimate.
Next, I turn to transport. The record of this Government on transport has been—I fear I must use these words—an unmitigated disaster. It started with integrated transport planning which, in my view, was
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a slogan and a substitute for action. No road project had been designed in previous years without taking account of the impact on transport, rail, air and everything else. So, there was effectively a form of integrated transport planning in the planning of the road programme. But the result of integrated transport planning is that we have had multi-modal planning schemes as a substitute for action on the ground in the past five years. Many of those have not yet come through. Road schemes which could have been started some years ago are still not even on the running board. That is why in transport we need decisions, action and concrete work on the infrastructure, not paperwork at the desk, which, frankly, is what we have seen.
That stemmed from John Prescott's view that he would reduce the amount of car travel in the United Kingdom and that he would be judged a failure unless he managed to achieve that over five years. Clearly, the figures speak for themselves. I do not think that that was a realistic, practical or wise course of action to take, and I shall give two reasons.
First, 90 per cent of all transport is by road. Therefore, that is inevitably a significant figure. Even if we managed to double the amount of freight and passenger transport by rail, which I was keen to do, it would have only a small impact on the growth in car and road transport generally over the years ahead because of the growth of the economy. Secondly, for a variety of reasons into which I need not go at this stage, with their modern lifestyles and aspirations, people want to use their cars. Such reasons include travel to work, taking children to school, and just-in-time deliveries for many goods which cannot satisfactorily be dealt with by rail. Therefore, it is inevitable that if one is to have a modern transport system one still has to invest heavily in the roads.
We shall not stop people from using their cars by refusing to spend any money on roads, thereby letting them deteriorate and fall into chaos. But that is what has happened in the past five years. There has been a total moratorium on all road projects. It takes dime between the decision to go ahead and the completion of the road; and because of the moratorium in the past five years, over the next five years we shall be in a devastating position. In my last year as Secretary of State for Transport we spent £2.7 billion on the roads; £1.4 billion of which was new construction on national roads; that is, on widening and improving. The new construction projects completed in that year numbered 37, of which 12 were bypasses. We had 65 bypasses in five years. We now hear the Government talk again about bypasses but none has been started in the past five years.
I am delighted and relieved at the complete U-turn, as I understand it, of the Secretary of State for Transport in the Statement he is making today on the road programme. He is right to start to reinstitute some of that programme. However, the cost to the economy and the nation has been substantial in the complete moratorium in the past five wasted years. I hope that that will not happen again.

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I conclude by turning to pensions. I declare an interest as a non-executive director of a pension company, as declared in the Members' Register. I was chairman of the House of Commons pensions fund for five years before I left the House. I am still a trustee of other funds. In other capacities as a non-executive director I am seeing the impact of pensions on company performance. In my view, this will be one of the biggest political issues in the coming years but it has received little attention in the Pre-Budget Report. Incidentally, I could find hardly a reference to the word "road" in the Pre-Budget Report, which indicates the neglect by this Government of that area.
However, this is another area in which the situation has deteriorated substantially over the past five years. We can all recall how five years ago we said that we in the United Kingdom had one of the best positions on pensions in the whole of the European Union; more funds in occupational pension schemes than the whole of the rest of the European Union put together, and so forth.
We still compare fairly well with most, but our position has weakened considerably since then. Not everything can be laid at the Government's door. Clearly, one substantial factor is the current position in the equity market. Another is the new accountancy system, FRS 17, which again is having a real impact on the ground and which is forcing many companies to move from defined benefit schemes to defined contribution schemes.
However, in other areas the Government are at fault. I believe that the withdrawal of tax credits from the pension funds in 1997 was a massive mistake—£5 billion per year cumulatively rising, and therefore substantially reducing the cash flow of the pension funds. But there is another point. The Chancellor at that time—I remember this clearly in our debates in the other place—said, "Well, it doesn't really matter because you can now judge pension funds by the capital value of the equities and they are all doing fairly well". That is not a point which I think I would hear anyone make today. We all knew then that that could change.
I do not believe that the stakeholder pension is working in the way that the Government planned and said that it would. The take-up is still low. I fear that the level of charges allowed means that not enough people are promoting and advocating the stakeholder pension and running it in the way which, with some relaxation of those charges, they would. The cost of mis-selling, which is now substantial, and the cost of compensation, falls on the other policyholders and the shareholders. That, too, is an inhibiting factor at present. One matter on which we probably all agree is the role of the state pension. Clearly, that is now very small in comparison to the encouragement of occupational pensions. That, too, is the Government's position.
Looking several decades ahead at the funding of state pensions, I believe that the time will come when we shall need to raise the state pension age for
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everyone, as over a period we have equalised the state pension age for women. That will be the only way that we shall be able to fund future pensions.
However, I recognise that a government document will be issued on 17th December. A great deal hangs on that. I hope that we shall have other debates in the House once we have had time to absorb it. Unless there are major changes in this area I believe that pensions will seriously adversely affect lives, just as roads have done in the past five years.
4.20 p.m.
Lord Howell of Guildford: My Lords, after the superb opening analysis by my noble friend Lord Saatchi, I am pleased to be following my noble and learned friend Lord Howe and my noble friends Lord Higgins and Lord MacGregor. It is really quite like old times. Perhaps some of the problems are all too similar to those from the past and require the same clarity of thought as has been addressed in the previous speeches.
I was propelled into this debate by a single illuminating sentence from the noble Lord, Lord Barnett, who said that,
"since its inception, the euro-zone has gone very well indeed".—[Official Report, 4/12/02; col. 1134.]
That is a point with which the noble Lord, Lord McIntosh, concurred or indicated his agreement.
I am not sure whether the noble Lord, Lord Barnett, was being, as he often is, very entertaining. I have known him down the years to be extremely witty and indeed sardonic about the ways in which economies work. Incidentally, I told him that I intended to quote his intervention. He explained that the reason he is sadly not here—which I am sure we all understand—is that he has gone to interview the new Governor of the Bank of England, who, incidentally, believes that it could take hundreds of years to prove UK convergence with the euro. We miss the noble Lord in this debate.
This is not a debate, or perhaps we should not make it yet another debate about the contentious issue of the euro. Nevertheless, if the Government believe—as, from the Front Bench's reaction, that exchange seemed to indicate—that things are marvellous in the euro-zone and that everything is going extremely well, then we need to start worrying about the robustness of all the Government's views and forecasts, as my noble friend Lord Saatchi has rightly suggested.
The reality is very different. The euro-zone is doing extremely badly. The very day that we were told that it was doing very well, it was announced that German unemployment had risen to four million and was due to rise further. A leading German industrialist said that the conditions were the,
"worst since the end of the War".
At the same time, the European Commission issued a forecast that the euro-zone economy will contract in the first quarter of next year. Today Portugal faces huge budget cuts, plus a recession and strikes, and is caught inside the euro-zone trap. I am advised that today one-tenth of the entire population is on strike.

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Meanwhile, the stability pact, which has already been mentioned in the debate, has clearly become—whether or not it is stupid, I do not know—the instability pact for the following very obvious reasons: those countries with high real interest rates and deflation—of which Germany is the prime example—need lower ones; and those with inflation and low real rates—Spain, Ireland and Greece for a start—need higher ones. Of course, within the euro-zone system they do not have that choice; it is the same nominal rate for all. That means that the whole system is working perversely. Those countries that should have higher real rates have been forced to have lower ones and vice-versa.
I do not want to exaggerate the impact of interest rates on growth. Economists and monetarists always tend to do that. The truth is that we have reached a point in euro-economics where "one size fits nobody" and we are dealing with a dangerously unstable system. If we now had to join and cut our rates to that set by the European Central Bank, one trembles to think what that would do to our already deeply unbalanced economy, to the housing boom, which is already out of control, and to the sea of personal debt that my noble friend Lord MacGregor has mentioned, which I understand is now running at the staggering figure of £800 billion.
I do not want to overplay the relevance of a stagnant and struggling euro-zone to the UK. The truth is that less than half our exports, including invisible receipts, go there. Anyway, as we have now learnt, the dollar is much more important to us. According to the Bank of England's website, dollar-denominated trade is 1.6 times that of euro-dominated trade. In fact, some of us are still waiting for a correction of the very puzzling information given to us in February by the noble Lord, Lord McIntosh, when he relied on the trade weighted sterling index for a reply—when all are agreed that that index is completely unreliable and out of date. I know that he will apply his mind to that in a fair way as always.
I turn to a separate issue. The reflections on the past of my noble and learned friend Lord Howe prompted me to comment on this. At the moment taxation is rising. In particular that is through national insurance additions, but it is also through the vast increases in borrowing about which we have heard today. Today, as was the case 30 years ago, a widespread belief seems to have crept back that higher taxation is the answer to failing public services. It sounds simple, but it seems to lie at the centre of a great deal of comment from the Government and many other sources.
That contains a double fallacy: first, that higher taxing and spending will deliver improved high-quality public services—that was repeated in the Pre-Budget Statement and again this afternoon; and, secondly, that higher taxes leave the economy somehow undamaged and generate more revenue. If we have learnt one thing over the past 30 years through bitter experience, it is that higher taxes and higher spending lead to wasted resources and, indeed, to inflated pay increases and pay demands—as we see every day in the newspapers—and also, and this is the double
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whammy, to lost output and slower growth. Serious academic studies are beginning to prove that a tax pound withdrawn from the private sector not only buys far less in the way of services than a pound, but also distorts and weakens economic performance. So there is a double-engine at work, which is making things more and more difficult for both the Chancellor and for the rest of us.
All the evidence shows that the biggest losers from that process are the less well off. The latest figures from the Office for National Statistics confirm that, while last year there was a 6 per cent spending increase in the public services, that led only to a 3 per cent volume increase. The other 3 per cent evaporated in a sea of inefficiencies and channels of bureaucracy, as is inevitable in the translating of all tax pounds or tax dollars into the public sector.
The IMF made the same point. In its very interesting warning to the Chancellor, it stated:
"It remains to be proved whether public funds may be spent without incurring significant inefficiencies".
It certainly does remain to be proved. The proof seems to be leaning heavily the other way. That is not entirely a party point because it extends right across the political spectrum. Even in my own party it is sometimes forgotten that a low tax economy results in a richer and much more caring economy—not just through trickle down, which tended to get discredited, but through direct benefits to the poorest households. That has been argued in great detail in report after report from the World Bank, the MF, the United Nations and many others.
Therefore, when I hear everyone say, "It's all right, we must go with high taxation and high spending; that will be the answer to higher quality public services" and everyone is agreed on a line, I am reminded, as many noble Lords must be, of that wonderful book by the late Barbara Tuchman called the March of Folly, when she described those amazing moments in history when everyone was agreed on a certain line and everyone was fundamentally wrong. That situation is developing now, especially among the economics profession.
The insight of 1979, which my noble and learned friend Lord Howe of Aberavon understood with such perception and determination, was that if low taxation could be achieved, that was the key to innovation and enterprise—more key than all the things listed in the Pre-Budget Statement by the Chancellor and by the noble Lord, Lord McIntosh, this afternoon. It was that insight above all that led to the huge turn-around in the United Kingdom economy and changed us from being a passenger in Europe in the 1970s to being the pace-setter in the 1990s.
I hope that all my colleagues have got that message again now, although it is sadly clear that the Chancellor has not. We are beginning to move on a march of folly and there will be much suffering and disappointment unless we change direction soon. Higher taxes are not the way out; lower taxes are.
4.31 p.m.
Lord Stevens of Ludgate: My Lords, I listened with interest to the noble Lord, Lord McIntosh. I thought that he did a good job of defending the report—single-handed, if I may say so.
Last year, we were told by the Chancellor that the UK economy was so strong that it could insulate itself from world events, completely ignoring the fact that 30 cent of gross domestic product is represented by trade and more than 50 per cent of manufacturing industry's profits are export-related. Now we are told that the UK economy cannot insulate itself from world events. The Chancellor has at last revised downwards his forecasts for growth in 2002–03, but he has increased them for 2004 by 0.5 per cent and in 2005 by 0.25 per cent. According to him, the economy will grow somewhat more quickly over the period than before and, more importantly, thanks to increasing his growth estimates for 2004 and 2005, his numbers over the period of the cycle are in accordance with his golden rule.
The Chancellor downgraded his growth forecast for 2003 by 0.5 per cent, blaming everyone but himself. His original economic predictions last April included a deterioration in world trade. He got that right, but now he is using it to explain slower than predicted UK growth. He blames the world economy but ignores the fact that the United States of America—by far the largest world economy and our largest trading partner—expanded by 2.25 per cent this year. Others did as well; only parts of Europe and Japan did less well.
The Chancellor is relying for his growth on an increase in government consumption. That will rise by 4.25 per cent next year, falling to 3.75 per cent and then 3 per cent. So that is where his growth is to come from, although even that growth is slowing down and, in the meantime, he has increased his growth forecasts for 2004 and 2005. Where will the growth come from? Investment and exports. Investment fell by 12 per cent this year—the biggest fall on record—but will rise, or is due to rise, by 7 per cent in 2003. Exports, down by nearly 2 per cent this year, are due to rise by 4 per cent in 2003 and by 8 per cent in 2004. The Chancellor has given up trying to manage the UK economy and has handed it over to the world economy. So consumer spending can slow down and the world economy will pull us up.
However, consumer spending will still rise by 2.5 per cent next year, although that is less than previously. Let us pause there for a moment. The housing price boom has encouraged consumer spending. The gross value of UK residential property is more than twice GDP. Seventy per cent of households are owner occupiers. Of total personal debt, 80 per cent is borrowed against housing and it is increasing rapidly. House prices are not stable. For example, between 1989 and 1995, they fell by almost 40 per cent, leaving them only 10 per cent higher than 14 years before. They are now rising at 30 per cent a year. House buyers and owners are taking out bigger mortgages to finance their current expenditure and the savings rate has fallen to only 4 per cent of income.
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Last week, the noble Lord, Lord McIntosh, told us that although household debt had risen, interest charges accounted for only 7.3 per cent of personal disposable income. They had peaked at 15 per cent in 1990. The statistic is worrying. If interest rates rise to 6 per cent, that 7.3 per cent becomes 11 per cent of personal disposable income and we potentially have a massive decline in consumer spending that cannot be financed by higher mortgages, as house prices will fall, or by savings, because there are none. The stock market has already fallen by 40 per cent. To put it another way, every 1 per cent rise in interest rates is, give or take, 1 per cent of GDP.
Last summer, the Chancellor told us that he would spend billions of pounds—£15 billion—on education, £40 billion more on health over the next three years and more on other public services without increasing public borrowing. In the Pre-Budget Report, he told us that even after the adjustments that I mentioned and the Treasury's optimistic assumptions, he will borrow only an extra £20 billion over the next two years. His borrowing will total £100 billion over the next five years. What is happening to that extra spending? As we all know, public sector inflation is 5.4 per cent, two-and-a-half times the economy's overall inflation rate. So it is going into higher wages and prices, not better services.
Since the Government were elected, we have been told that there will no return to Conservative boom and bust. But the economy has become more unbalanced. We have a booming house economy financed by debt, a fall in net exports and a fall in corporate investment. If house prices fall, consumer expenditure cannot sustain its rate of growth—or, indeed, any growth. There is more to come, as usual, in the fine print. But, fair enough, it is there.
In the Pre-Budget Report, we note that productivity growth is to rise from 2 per cent to 2.25 per cent. On what basis is that assumption made? At present, productivity growth is less than 1 per cent and profitability—or return on capital in industry—has been falling almost continuously since Labour came to power. Although it peaked at 14 per cent at the end of 1998, it is now just below 8 per cent—lower than 10 years ago. The result is lower corporation tax revenues—now running almost £4 billion below the Government's estimate of last April.
Why cannot the Chancellor give us the facts up front rather than putting them in the notes? Robin Hood was a popular figure. He took from the rich and gave to the poor. The Chancellor does the same, but he also takes from the not-so-rich, so why not come clean and admit it? At page 9, the report mentions,
"increased transparency about what is being achieved".
As my noble friend Lord Saatchi said, a start on transparency would be to include the £100 billion of private finance initatives.
Tax revenues have fallen further than expected. That is blamed on the collapse in financial services, but if the recovery in financial services predicted by the Treasury does not occur, the deficit will be even greater. As I mentioned, productivity is falling—we

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are moving down the league table—but the Chancellor heaps regulation after regulation on British industry. That is quietly crippling productivity growth. I fear that we must face more borrowing and higher taxes. The Chancellor not only taxes and spends but borrows.
I close with three simple examples of what is wrong. First, there is even a health and safety regulation closing golf courses if there is fog. It is too dangerous for the greenkeepers and players. Even if the greenkeepers leave the course, it is still too dangerous, but not too dangerous to drive a 15-tonne lorry down the M4. Secondly, the tax credit system is so complicated that the Government have to advertise on television to ask taxpayers—or non-taxpayers, as the case may be—to claim it. Thirdly, due to a change in licensing requirements in October 2001, the price of gas for some residential users is to rise by 8 per cent in January 2003.
4.40 p.m.
Lord Brooke of Sutton Mandeville: My Lords, it is a pleasure immediately to follow my noble friend Lord Stevens of Ludgate, to whom I shall return in a moment. It is also a pleasure to be the most junior infantryman in the platoon of noble friends that my noble friend Lord Saatchi has assembled today.
To a degree, even if the debate, for which I join my noble friends in thanking the Government, fills a necessary constitutional slot in the European Union and parliamentary calendar, it is as much a coda to the Pre-Budget Report as the hybrid debate on the economy, industry, culture, media and sport: on 20th November, which was part of the series of debates held on the gracious Speech, was an overture. In both cases, we had the pleasure of seeing the noble Lord, Lord McIntosh of Haringey, conducting the orchestra—in this case, he is opening and winding up the concert. The one minor discrepancy between the two events is that the earlier debate was graced by a series of germane speeches by noble Lords in the Labour interest. I see the noble Lord, Lord Haskel, in his place today; he spoke in the earlier debate.
My noble friend Lord Stevens of Ludgate has, like myself, supported our noble friend Lord Saatchi and his excellent speeches in both debates. He will recall that, in the earlier debate when, as today, he came in at the end of the batting order, four of the last six speeches before the winding-up speeches were made from the Labour Benches and that those noble Lords were, by no means, the first Labour Peers to speak. Since then, we have had the Pre-Budget Report, and, yet, no Labour Peer chose to speak on it in this debate, even if the words "with approval" are formal, rather than significant. I see that the noble Lord, Lord Haskel, is anxious to intervene.
Lord Haskel: My Lords, I thank the noble Lord for giving way; he did mention my name. I must explain that two Select Committees are sitting this afternoon—the Select Committee on Economic Affairs and the economics sub-committee of the Select Committee on the European Union. Many of the
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people on the Labour Benches are on ',hose committees, which is why they are not here. Other people have other engagements. As the noble Lord will see, if one cannot be here for the winding-up speech, one is advised not to speak.
Lord Brooke of Sutton Mandeville: My Lords, I am sure that that admirable explanation does not apply to any of my noble friends who have managed to speak, but I am grateful to the noble Lord, Lord Haskel, for giving it.
There are two interpretations of what Mr Holmes identified as the silence of the dog in the night, in the case of' the racehorse Silver Blaze, which was as much a thoroughbred as the present Chancellor. I acknowledge the points that the noble Lord, Lord Haskel, made, but I must say that the first interpretation might be less charitably—if metaphorically—compared with Churchill's verdict, given in his life of his great ancestor the 1st Duke of Marlborough, on the Margrave of Baden, of whom he said that his military epitaph for all time must he that the two greatest captains of his age thought that his absence from a crucial battlefield was well worth the loss of 15,000 men. The second, more charitable, interpretation is that the Minister's colleagues have such confidence in him, especially when he speaks twice—his winding-up speech in the first debate, embracing culture, media and sport, as well as the economy and industry was a tour de force—that they feel that they can safely leave the entire field to him alone. I spoke in the earlier debate and deliberately avoided second-guessing the Chancellor, in advance of the Pre-Budget Report. Therefore, I shall limit my contribution today to one point most easily made by someone who was present for both debates. The noble Lord, Lord McIntosh of Haringey, will recall that, in the first debate, the noble Lord, Lord Roll of Ipsden, who has, characteristically, been in his place today already, and the noble Lord, Lord Skidelsky, spoke most generously of the Chancellor's macro-economic management. Both noble Lords were confident that it would continue in any difficult times that lay ahead. The noble Lord, Lord McIntosh of Haringey, will also recall that he prayed both of them in aid in his winding up speech, especially the noble Lord, Lord Roll of Ipsden, as he was wholly—if gratefully—entitled to do.
There was, however, one admission from the Minister's winding-up speech on 20th November. I do not hold it against him, for he made it clear at the start of his speech that he was hard put for time to answer even a significant proportion of' what he described as the valuable points that were made. However, I shall remind him of the omission, so that he can rectify it on this occasion. After the noble Lord, Lord Skidelsky, had praised the Chancellor's macro-economic management, he went on to say that the Chancellor had developed serious symptoms of delusion in micro-policy. He said that the Chancellor was,
"always tweaking this tax or that tax, this target or that target, thinking up this or that clever wheeze".

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The noble Lord went on to say that it was,
"the reverse of the admirable trend towards simplicity set by the noble Lord"—
my noble friend—
"Lord Lawson, when he was the Chancellor, and the reverse of what British industry requires".—[Official Report, 20/11/02; col. 433.]
In the event, the noble Lord's advice came too late before the Pre-Budget Report, which included another addictive dose of micro-economic meddling.
By chance, I raised the same broad point in the small business debate that we held last summer, to which the admirably ubiquitous noble Lord, Lord McIntosh of Haringey, also replied. I was nothing like as eloquent as the noble Lord, Lord Skidelsky, but I paid tribute to my noble friend Lord Lawson of Blaby and my noble and learned friend Lord Howe of Aberavon for the way in which, in the 1980s, they moved us to the point at which businessmen made decisions for their essential worth and for themselves and not because there was a dedicated tax distortion in their favour.
In his winding-up speech in the small business debate, the noble Lord, Lord McIntosh of Haringey, gently chided me for not applauding the Chancellor's efforts to be the businessman's friend. However, he did not respond to the central point, nor did he respond to the similar argument made on 20th November by the noble Lord, Lord Skidelsky. I have acknowledged that the Minister was short of time on 20th November, and I recognise that it would have been churlish of the Minister, after expressing gratitude to the noble Lord, Lord Skidelsky, for his macro-economic approval, to bite the hand that had fed him by taking issue with the noble Lord's micro-economic criticism. However, I hope that tonight, on this less time-constrained occasion, the Minister will do proper justice to the argument made by the noble Lord, Lord Skidelsky, and, incidentally and more modestly, to mine.
4.47 p.m.
Lord Stoddart of Swindon: My Lords, I apologise for speaking in the gap. I would have put my name on the list to speak, but I did not expect to be here for the beginning of the debate. I am happy to say that the situation changed, and I was able to hear the opening speech of the noble Lord, Lord McIntosh of Haringey. I have listened attentively to the debate. It is unfortunate that there have been no speakers from the Labour Benches to support the noble Lord, Lord McIntosh of Haringey. Perhaps, I am the next best thing, as a Labour expellee.
The noble Lord needs a little support, as all the speeches so far have been antagonistic. The case that he put was very reasonable. The British economy has had sustained growth, coupled with high employment and low inflation. That is altogether good. Monetary policy, coupled with fiscal policy, has produced a good outcome over the past five or six years. We cannot deny that. As the noble Lord said, Britain's performance has been better than that of the major economies in Europe. That is something we should applaud; I applaud it very much.
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The noble Lord, Lord McIntosh of Haringey, said that the British fiscal position was stable and better than that of other countries. We are able, therefore, to expand expenditure on our public services, which have been run down for a long time. That has been done by a government who have fiscal freedom and a Bank of England that can run monetary policy in accordance with the needs of the country. The Bank has done that well and in public, not in private or in secret. The British people have been able to see how and why the Bank has taken its decisions and have, therefore, supported it.
The outline given by the noble Lord, Lord McIntosh, was good and I support it. He said that the Government, pestered by world events, were resolved to pursue a steady course. That is what we want them to do, is it not? That is precisely what governments should be doing. I agree with the Government's borrowing policy. It is when there is a recession in prospect that we should be borrowing to ensure that it does not affect us. That is the good Keynesian economics on which I was raised.
Why put all that at risk by playing around with the proposition of abandoning our currency and, with that currency, the ability to run our own economy? The noble Lord, Lord Howell, instanced what happened in Portugal. Indeed, I believe that this morning the Portuguese Foreign Minister was urging Britain to join while 1 million people in his own country were protesting against the impositions of the single currency. As the noble Lord, Lord Howell, noted, the German economy is in deep trouble and its banking services are on the brink of collapse. Why should we want to join a failed system such as that?
If our economy is stable, satisfactory and on the right road, why should we want to join? The message I give to the Chancellor of the Exchequer is, "Carry on Gordon. Don't let the Prime Minister grind you down".
4.51 p.m.
Lord Newby: My Lords, follow that! Although "European Communities" appears as part of the title of the debate, traditionally, as far as I can recall, it has not been about Europe, and far less about the euro. Today has been an exception in that we have had significant speeches on the issue by the noble Lords, Lord Howell and Lord Higgins. Even the Minister felt—I believe, because of the title—that he had to include in his peroration a reference to the fact that all this economic activity was taking place because Britain is in the centre of Europe.
The noble Lord, Lord Stoddart, referred to the Portuguese Prime Minister, whose comments, as reported today, pose a challenge to both sides of the House. If I heard him correctly, the Portuguese Prime Minister said that Britain would not, and could not, exercise its full potential in influencing the future of Europe as long as it remained outside the principal project within the European Community at the moment; namely, the single currency. Those who argue—the noble Lord, Lord Stoddart, probably does

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not argue this, but many would, including the Prime Minister—that on the one hand we can exercise a major influence on the direction of Europe and, on the other hand, stand aside from its single biggest project—the euro—fly in the face of political reality. It is a challenge to both of them.
It is not my role—it is that of the Minister—to answer all the points made today. However, I could not let one comment by the noble Lord, Lord Howell, pass. He argued that public expenditure was running out of control and that there was no link between the level of public expenditure and the quality of public services. Clearly, there is no linear link if one were to increase public expenditure to infinity. However, if the noble Lord, Lord Howell, argues that the provision of public services at the end of this Government's cuts in 1999–2000 was not leading to poor provision of public services in schools, hospitals and other areas, I do not believe that he could have been in a school or hospital, or talked to a teacher, doctor or nurse at that time.
None of us would argue that opening a tap marked "public expenditure" solves all the problems. Equally, to argue that first-class public services can be provided on a pittance, as the noble Lord seemed to imply, is flying in the face of reality.
Lord Howell of Guildford: My Lords, I thank the noble Lord for giving way, but he is slightly parodying what I said. I said that a campaign or philosophy of higher taxes—and, it is to be hoped, higher revenue—and higher spending to produce high quality public services was not the right doctrine. The proposition that one will spend less does not follow from that. Indeed, I should like to see many more resources go into our health, transport and education systems. l am simply questioning whether the best way to do it is to tax people, shove it through the usually rather centralised government service and deliver not very satisfactory results. That is what I am saying, which is different from what the noble Lord is saying.
Lord Newby: My Lords, I am pleased that we agree that first-class provision of health and education is desirable. I suspect that where I part company with the noble Lord, Lord Howell, is that he would probably want to see more of those resources come directly from the individual to the provider, through private provision, rather than collective provision. I agree with him that over-centralised direction as to how that money is spent is a major problem now and one that this Government have added to, rather than detracted from.
The purpose of the debate—in normal times, at any rate—is to note and approve the Government's assessment of the economy and public finances as set out in the Pre-Budget Report. Usually, we do not spend much time commenting on specific measures either included or missing from the report. Therefore, I shall avoid the temptation to do so, except in one respect.
My concern is one which a number of noble Lords have raised. The Pre-Budget Report does nothing to acknowledge that Government and their
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out-posts—the FSA and the Bank of England—can do anything to address the extremely worrying growth in mortgage equity withdrawal. It is now anticipated that total spending on consumer goods funded by mortgage equity withdrawal will exceed 5 per cent of GDP this year, and the levels of withdrawal are continuing to increase at an extraordinary 25 per cent per quarter.
That poses a major dilemma to the Chancellor because his plans require continuing high levels of consumer expenditure. Given what is happening elsewhere in the economy, the only likely source for those continuing high levels of consumer expenditure is if people continue to take out high levels of additional mortgage equity. However, that growth is completely unsustainable. When the bubble bursts there is likely to be a sharp downward correction in consumer spending, which could then remain depressed for a prolonged period.
For a number of years, the Chancellor has aggressively claimed as one of his great policy achievements that he has engineered an end to boom and bust. As regards consumer spending, we now see the boom. At some point, quite possibly during the next financial year, we shall see the bust. The unwillingness of the Government to accept that that is a problem—far less to give active thought to what might be done to mitigate it—shows a degree of complacency which will come back one day to haunt them.
Devotees in your Lordships' House of "Yes Minister" will remember the episode about a Civil Service pay review. One of the main conclusions was that permanent secretaries should receive a disproportionately high pay increase. In order to slip this past the Minister, the relevant figures are hidden in the middle of a submission some hundreds of pages thick, where the permanent secretary hopes that that particular increase will remain unnoticed. In some respects, I fear that the Pre-Budget Report, along with its flotilla of supporting glossy documents, follows the same principle.
In its overview—the part that people with nothing to do on long winter evenings are likely to read first—it conveniently omits to mention the headline figure of public sector net borrowing altogether, even though the increase in that figure to £20 billion this year and £24 billion next year is arguably the most significant single change included in the Pre-Budget Report since the Budget Report itself was published. But in order to find this figure one has to look at page 24, and by that stage all but the most assiduous reader of the document will have turned to the football.
Trying to hide away a figure such as this and other important aspects of the report is one of the Chancellor's least attractive features. He spends a lot of time extolling the virtues of what he is doing with the fiscal rules, but on key matters one has to look at the detailed parts of the Pre-Budget Report, to which the casual reader—or, indeed, anyone except the most assiduous reader—will not get.

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It is a great demerit for this Government to claim that the Pre-Budget Report has the full support and audit of the Comptroller and Auditor General. On page 23, the Comptroller and Auditor General has audited the assumptions in relation to oil prices, anti-tobacco smuggling measures and VAT that underpin the public finances prediction. All three were deemed to be reasonable and to incorporate caution. Everything else has been left unaudited. Therefore, to claim the Comptroller and Auditor General's imprimatur on the whole document, as I fear the Government have, is completely misleading.
But the bigger picture is whether the projections for the economy and the public finances are prudent and realistic. For example, is it realistic to expect business investment to change from a decrease of 10½ per cent this year to a 2¾ to 3¼ per cent increase next year? Is it realistic to expect manufacturing output to rise by up to 2¼ per cent next year from a fall of 4 per cent this year? Is it realistic to expect growth to rise to between 2½ to 3 per cent next year? Is it realistic to expect tax revenues to bounce back from the falls of the current year? Is it prudent to assume that a crackdown on indirect tax avoidance—laudable as it is—could yield an extra £4 billion by 2005–06? Finally—this is an issue which troubles a number of noble Lords—is the exclusion of billions of pounds worth of public sector liabilities, notably on the railways and the Tube, from the Government's borrowing figures either prudent or realistic? I do not believe that it is.
The recent evidence of what is happening in the real economy and the views of independent economists also question these over-optimistic assumptions. For example, the figures for manufacturing and output fell to their lowest levels for eight years, the third successive monthly fall. Trading statements in recent days from companies in sectors as diverse as engineering, hotels, banking and computer software have contained warnings about worsening anticipated trading conditions in 2003. In all these sectors, investment decisions are being delayed, not brought forward as the Pre-Budget Report implies. Until the threat of military action against Iraq recedes, the likelihood is that uncertainty will remain at a very high level for those taking long-term investment decisions.
These downbeat assessments of many companies have been matched by the views of many independent economists. Even leaving aside suggestions in the weekend media that the Treasury misquoted a number of independent forecasters—all in the same direction, incidentally—to enable it to argue that their predictions were in line with the Government's own, the Chancellor's figures have now been deemed imprudent by economists appearing before the Treasury Select Committee last week and the IMF now admits that they contain more uncertainties than in the past.
I should like to be able to both note and approve the projections in the Pre-Budget Report. In a number of previous years under this chancellorship I would have done so with relative equanimity. This Pre-Budget
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Report, however, reflects the continuing complacency of a Chancellor who has been happy to take credit for good economic times but who is only too keen both to blame others and to ignore warning signs about the imbalance of the economy now that times have become tougher.
5.5 p.m.
Baroness Wilcox: My Lords, I join my noble friend Lord Saatchi in thanking the Minister for once again setting out the Government's fiscal strategy and approach to managing the economy and for allowing us this opportunity to debate the subject in your Lordships' House. As always in this House, we have had a fascinating debate and have been privileged to hear the contributions of some very distinguished speakers—all from the Opposition side of the House. I am sorry that that is the case. Although we were told that there were two Select Committees running, I have sat on Select Committees for the past six years and I do not ever remember there being a three-line Whip which prevented Members speaking in a very important debate.
Lord Haskel: My Lords, I thank the noble Baroness for giving way. These committees—the Economic Affairs Select Committee and the economic sub-committee of the European Union Committee—are dealing with these very matters. That is why most of their members are not here.
Baroness Wilcox: My Lords, I support my noble friend Lord Saatchi in expressing disapproval at the fact that up to £100 billion has been omitted from the UK economy balance sheet. My noble friend summarised why this is potentially damaging and misleading and how, in the light of recent international accounting issues, now is the time for full disclosure and transparency. Many noble Lords also expressed their concern on this issue.
It is my pleasure and an honour to follow the noble Lord, Lord Newby. Speaking for the Liberal Democrats, he started by saying that we do not normally debate this report. I thought he was not going to do so, but he then proceeded into great depths of analysis. He agreed with many noble Lords who had spoken of their worries about mortgage equity withdrawals, which he felt was completely unsustainable. He is concerned about the consumer expenditure boom now and fears that we will see a bust all too soon. He is worried that the Chancellor's high degree of complacency will come back to haunt him in the future. I shall be interested to hear the Minister's response to the questions posed by the noble Lord.
We heard from my noble and learned friend Lord Howe of Aberavon, a distinguished former Chancellor of the Exchequer. He took us on a tour of the Government's optimistic document and spoke about "steering a steady course in an unsteady world". He informed us that the document cost £45, so we are awfully lucky to have been given a copy. He feared that the Chancellor may have been carried away by his own performance. My noble and learned friend said that

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the document seemed to cover every area of human activity and spoke about "everything for the best in the worst of all possible worlds". But despite his wonderful quotes and light-hearted tone, he is very worried. Based on his years of experience in the job, he warned us that there was great cause for concern.
My noble friend Lord Higgins spoke about pensions, his area of expertise. My noble friend said that he had taught economics at Yale at one stage, so I shall look at him with a new degree of respect. He asked various questions which I am sure the Minister will wish to answer. For instance, where are we in the cycle? He also spoke about the intergenerational balance in pensions and how he would like to see work carried out cross-party.
My noble friend Lord MacGregor of Pulham Market, a former Chief Secretary of the Treasury, congratulated the Chancellor on being prudent in his early days, albeit having inherited a good economy. He agreed with my noble and learned friend Lord Howe in expressing worry about the optimistic assumptions in the document. My noble friend Lord MacGregor was particularly worried about PFI and PPP—as was my noble friend Lord Saatchi—and heartily supported the analysis we have heard of the troubles ahead. My noble friend also referred to transport and pensions—issues with which I am sure the Minister will deal.
My noble friend Lord Howell of Guildford, speaking about the euro, was worried about interest rates and the one-size-fits-all strategy. He felt that it was to be avoided at this time of huge personal debt and staggeringly high housing costs. He reminded us that taxation is rising and said that in his experience higher taxes and higher spending led to lost output and slower growth, the biggest losers of all being the least well off.
The speech of my noble friend Lord Stevens of Ludgate was a tour de force. He spoke about the housing market. I do not feel that I can repeat all he said in a marvellous analysis. His description of failing industrial production must be a great worry for us all.
The noble Lord, Lord Brooke of Sutton Mandeville, as always, gave a most eloquent speech. He talked about being a "junior infantryman" speaking today among colleagues from another place—but I, of course, am the junior here today among giants. No one speaks more wittily than my noble friend; no one is more experienced. He made a searching point on micro-meddling.
To our surprise, the noble Lord, Lord Stoddart of Swindon, decided to speak in support of the Minister, no Labour Peer having done so. He took the opportunity to urge the Government not to throw it all away by joining the euro.
Following those wonderful contributions, perhaps I may be allowed a few words of my own to wind up from this Front Bench. Yet again, in the Pre-Budget Report the Chancellor of the Exchequer has issued a long list of measures, which are intended to deliver changes so that the Government can keep the promises they have made and meet the targets they have set.
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Going on the Government's performance over the past five years, we have come to expect those promises to be broken and for targets not to be met.
The area of the public services demonstrates the Government's single biggest failure. In their 1997 manifesto, they stated:
"The level of public spending is no longer the best measure of the effectiveness of government".
Now we hear that they are to increase public spending by a further £20 billion.
How the Chancellor intended to reform public services was set out in his public service agreements. In his first spending review, in July 1998, he stated that these were an "essential change" and would help to ensure that government would do what they did "to the highest standard". Sadly, as we have heard, what has happened instead is that nearly 40 per cent of the targets the Government set in 1998 and 75 per cent of the targets that they set in 2000 have been missed. I also find it concerning that some of those are targets to set targets. For example, in 1998, the Department of Transport was given the following target:
"Establish in 1999 new targets for reducing road casualties from road accidents in the period up to 2010".
So what we really want to hear about is why those targets have not been met and why those promises have not been kept, and the implications for those who should have been helped during that time. When we see no tangible benefits, it is even more troubling that £115 billion more is being taken every year from the taxpayers of this country—nearly £40 a week for every many, woman and child.
The Minister reminded us that the UK economy is the fourth largest in the world. While some headline indicators remain strong, we are increasingly seeing changes that give serious cause for concern. We have argued consistently that public services will not improve if they are just given more money. What is needed is genuine reform. Without reform money alone will not deliver improvements on the scale we all want and expect to see.
In announcing the Pre-Budget Report, the Chancellor was forced to admit that his forecasts on growth, revenue and borrowing were wrong. As a result—this was highlighted by my noble friend Lord Stevens—government borrowing will have to increase from £30 billion in last year's Budget to £66 billion in last year's Pre-Budget Report, to £72 billion in this year's Budget, and to over £100 billion for the next five years.
That brings me to the Chancellor's sustainable investment rule. If the Chancellor had not, as highlighted by my noble friend Lord Saatchi and other noble Lords, omitted to put £100 billion of his liabilities off the balance sheet, public sector debt would already have reached the 40 per cent limit in his own rule. Can the Minister confirm that the extra borrowing announced in the Pre-Budget Report will take us over that limit? It is this action—spending more without reform—that will be locking the Chancellor on to an unsustainable course, and that will inevitably lead to more tax rises.

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In conclusion, as my noble friend Lord Saatchi and others on these Benches have stated, I find it very difficult to agree to note "with approval" financial statements that we believe omit liabilities amounting to at least £100 billion. We have concerns about the possible implications for the UK economy and for future Treasury policies.
I am keen to press the Minister on one point. If, as we estimate, the liabilities not appearing on the balance sheet do total in the region of £100 billion, it means that the Chancellor is extremely close to—if not already in excess of—the 40 per cent of GDP limit that he has set himself when it comes to public sector borrowing.
To my mind, the Chancellor has two options: he continues to borrow, and therefore most certainly exceeds this self-imposed limit; or he can stop borrowing and do what we have suspected he would do all along—namely, raise taxes. I ask the Minister: which of those two options is most likely to be followed, and what are the implications for the British economy?
Lord Stoddart of Swindon: My Lords, before the noble Baroness sits down, perhaps I may state that I am an Independent Labour Peer, not a Labour Peer.
5.17 p.m.
Lord McIntosh of Haringey: My Lords, I, too, was impressed by the experience and quality of the speeches in the debate—so much so that I did a few sums. I looked at the senior government experience of those who have taken part. The five former senior Ministers—almost all of them Cabinet Ministers—who have spoken have a total of at least 45 years of senior government experience behind them. I find that enormously impressive. In addition, we have heard from two big businessmen, the noble Lords, Lord Stevens and Lord Saatchi, from one medium-sized businesswoman, the noble Baroness, Lady Wilcox, and from one small businessman—me. So perhaps I am out on the end of the acceptable range of experience. Nevertheless, I very much enjoyed the debate.
Unusually for me, I shall attempt to deal with the points made in turn, speaker by speaker, rather than by subject. There has been so little overlap that it is possibly easier to do it that way.
I begin with the noble Lord, Lord Saatchi. I have heard the argument that he put before, but I have not had an opportunity to reply to it in detail and I am grateful for that. To summarise, the noble Lord is saying, first, that we are using the PFI and the PPP in order to disguise our liabilities and keep figures off a balance sheet, rather than because there is value for money in the PFI/PPP schemes themselves. He went on to say that this disguising of liabilities is damaging to the public accounting, indeed to the economy as a whole. Let me take those points virtually in turn.
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First, let me reiterate that the decision to use the private finance initiative is entirely on value-for-money grounds and not because of the accounting procedures that are used. The value-for-money assessment includes a qualitative assessment and a quantitative assessment. The quantitative component—the public sector comparator—has been reviewed to increase its transparency. All of these reviews are carried out by independent bodies.
Under PFI, the private sector puts its own money on the line—that is risk transfer. It gets paid only if it delivers the service it promised for the length of the contract. It is particularly important when we move from construction contracts to extended contracts, which, to give him credit, the noble Lord, Lord MacGregor, sought to start when he was Secretary of State for Transport.
There is a real incentive to deliver on time and to budget. Jeremy Coleman, the Assistant Auditor General of the NAO, who has been quoted as being critical in the past, said:
"The evidence is that, on the whole, PFI deals deliver to time and to budget. You get what you want, you get it when you want it, and it costs you what you thought it was going to cost. Conventional public projects have a very bad record in that respect".
That is the reason why we do it. The reason why we do more of it than the previous government is that they made a mistake. They thought that the right thing was to examine all public contracts under the system of so-called universal testing, even when it was obvious that there was not much choice for private finance. That gummed up the works so thoroughly that, as has been said, there was little effective private finance initiative under the preceding government.
The second allegation is that the obligations are concealed. I shall respond by describing how they are not concealed. First, I shall discuss PFI liabilities. Annual service charge payments—they are called depreciation in the private sector—under PFI contracts are included in departmental budgets and accounts. In the Budget, we publish a table of expected payments under PFI contracts for the next 25 years—I say that in terms of the inter-generational equity referred to by the noble Lord, Lord Higgins. The payments are counted on our fiscal plans in public expenditure, current expenditure and public sector net borrowing to fund that expenditure for the relevant year. That is done in the public sector and it will be done in the private sector.
Where a PFI deal is found to be on the balance sheet—that is to say, the asset remains in the ownership of the private sector—it is included in the public sector net investment and public sector net borrowing. It is not for the Government to decide whether a deal is on or off the balance sheet. It is for the auditors concerned. When we undertake a deal, we do not know whether or not the auditors will decide that it is on the balance sheet. But it does not matter, because we are not concerned whether it is on balance sheet or off it. We are well within our limits under any circumstances. There has been a tendency—it is not a bad thing—for more to be included on the balance

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sheet than in the past. That is the case for all PFI prisons in England, for example, and the London Underground PPP.
In addition to PFI liabilities, there are other liabilities. We have introduced resource accounting and budgeting. Departments must now recognise in their accounts, which all add up to the national accounts, future liabilities that are more likely than not to result in payment in their budget as provisions. Payments against these provisions score in the national accounts. They are not concealed. Contingent liabilities are those that are less likely to result in payment because they are dependent on other factors. They do not score in national or departmental accounts but are reported in most accounts.
The supplementary statement to the Consolidated Fund and National Loan Fund Accounts, which is published every year, lists all the statutory liabilities and all non-statutory, reportable liabilities. Some of those are unquantifiable. B14 of the supplementary statement shows why so many of them would be unquantifiable. The point is that many are unquantifiable because they are based on remote possibilities. For example, in the past seven days, the Secretary of State for Transport stated that he would indemnify the contractors for the London Underground contracts not against all their liabilities but against a specific one: a contingent liability that the Mayor of London might appeal against the decision of the European Commission that state aid was not involved. First, there is the judgment of whether he will go to appeal. If he does, contrary to his wishes, he will not get control of London transport for a long time. Secondly, there must be the assumption that he will win. He has lost twice, and there is no new evidence to suggest that he is doing anything other than delay.
The chance of that £1.9 million contingent liability being called in is very minimal. I give an example. A children's charity goes to the scene of an earthquake and brings home 10 orphans, planning to place them for adoption. It knows that the cost of bringing those orphans up to adulthood would be £100,000 each. Are we saying seriously that the children's charity should have £1 million in its reserves to provide for that contingent liability? Of course not. You cannot just add together in one lump liabilities that we know about and can time, those that we know about but cannot time, and contingent liabilities. But that is what the noble Lord, Lord Saatchi, has been doing. It is the entirely false basis on which he claims that there is £100 billion black hole in the accounts of the Government.
Since we introduced government accounting in this country—I do not claim credit for this Government; it was started by the previous one—we have the most transparent accounts of any developed country in the world. All our obligations and liabilities that should be declared in those accounts and taken on the balance sheet are done so. Only yesterday, the IMF confirmed that, as in the past, the Pre-Budget Report provides a transparent and comprehensive account of the Government's economic policy. I believe that to be the case. The charges of the noble Lord, Lord Saatchi, are wholly unfounded.
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The noble and learned Lord, Lord Howe, made a very interesting speech. Psychologically, I am enormously sympathetic to what he says. Of course the danger is that if you have pursued what are perceived and acknowledged as successful microeconomic policies for more than five years, there is a great risk of "hubris", as he put it. But our forecasts and those of independent forecasts have been extraordinarily close. Our forecasting period is not what he calls the indefinite future. It is the specific forecasting period required for the assessment of any economic cycle. We can, and do, defend it in detail. I shall do so in response to later speakers.
Incidentally, the chapter headings that the noble and learned Lord so objects to are those laid down in Article 2 of the European Treaty. Therefore it is right that we should respond to them. The risk that we should be claiming that all is for the best in the worst of all possible worlds is one of which we are profoundly aware and profoundly wary. We know, and he knows very well, that such overconfidence is the worst crime that a Chancellor could commit.
The noble Lord, Lord Higgins, then asserted that our forecasts are wrong and that we are blaming it on the National Audit Office. Both those points are untrue. We do not blame it on the National Audit Office. Since 1997, on the whole, outturn has been under prediction—in other words, we have been under-forecasting. Our average error in forecasting growth has been of the order of 0.6 percentage points, compared with I percentage point between 1979 and 1996, under the previous government. Even the revision down since the Budget figures earlier this year is of only 0.4 percentage points, compared with a revision of a full 2 percentage points—from plus 1 per cent to minus I per cent—following the 1992 Budget. I am sorry that the noble Lord, Lord Lamont, was not available to join in the chorus today.
The noble Lord, Lord Higgins, asked about spending on tax credits and the uptake compared with the forecast. It is not easy to get statistical data on that, but we have survey data that indicate that the uptake for working families' tax credit was 62 per cent of people but 76 per cent of money. In other words, there was a shortfall in uptake, but on the whole the money was going to those most in need. Working families' tax credit is benefiting 1.3 million people, which is more than half a million more than family credit at its peak.
As to what the cycle is, the information is all in the PBR. It does not very much matter whether we take the beginning of the cycle as 1999–2000, as we do, or 1997, as some argue. Taking from either 1997 or 1999–2000 to the end of any conceivable cycle period, all the statements that we make about the golden rule and sustainable investment are still true.
Of course, the noble Lord was right to raise the point about inter-generational equity. He says that it should be an additional objective, which is an interesting thought. These implications are certainly shown on the

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balance sheet. That is clear from what I have said about the Budget showing obligations for the next 25 years.
Lord Higgins: My Lords, does the noble Lord agree that if one is going to get a reasonable estimate of whether the generations are in balance, one must include the liability of the national insurance pension? If he is treating that as a contingent liability, perhaps he ought to tell pensioners.
Lord McIntosh of Haringey: My Lords, unfortunately that is a theoretical point in a sense. I do not deny that it is important—of course it is important—but doing the calculation is a challenge for the public sector and for the economics profession. I do not think that challenge has been resolved.
I do not think the House would welcome me spending a great deal of time talking about the euro. I know it was raised, but it does not arise from the Pre-Budget Report. I shall say only that, although some speakers have claimed that our membership of the European Union or our entry to the euro would take over our control of taxation and expenditure, that claim cannot be sustained.
On our policy on the euro, I shall do no more than refer noble Lords to the interview with the Prime Minister in today's Financial Times, which shows that he is clear that he has nothing more to say at this time. Therefore, I have nothing more to say at this time.
The noble Lord, Lord Higgins, raised a point about pensioner poverty. We can see from the Pre-Budget Report and from the figures that I have given that even with any shortfall in take-up, following the introduction of pension credit on average pensioner households will be over £1,150 a year better off. That is a response to the requirement that we should be fair as well as successful.
The noble Lord, Lord MacGregor, made some valuable points about household debt, which require a response. The noble Lords, Lord Stevens and Lord Newby, made similar points. Our forecasts provide for a moderation in the increase in house prices—in other words, a return to trend. We have therefore provided for a change in what is generally accepted to be an unacceptable rate of increase in house prices. Household consumption growth is forecast to slow this year and to decelerate further in 2003. That is all taken into account in the forecasts. We look to a rebound in growth of real household disposable income in 2003. With that, we look to an increase in the savings ratio.
The fundamental point, which I have already made in this House, is that household finances are strong, as are net household assets. That backs up the forecast. In addition, we have policies to encourage personal saving, including individual savings accounts, which are much more successful than TESSAs and PEPs.
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We recognise the need for caution in projections on public sector borrowing. We are still vigilant in the face of potential risks. Our projections are based on cautious assumptions, which have been audited by the National Audit Office, including the figures for trend growth and equity prices. They have all passed the stress tests.
I can only agree with what the noble Lord, Lord MacGregor, says about public sector pay. This is an issue for public services as a whole. I say this to the noble Lords, Lord Howell and Lord Newby, as well. First, of course it is true that more resources for the public sector do not in themselves provide better public services, but they are a necessary, if not a sufficient, condition for improvements in public services. As has been clear from our reaction to the fire-fighters' strike, we are very conscious that unless public sector pay is kept to reasonable proportions—our long-term settlement with the National Health Service is a good example of that—we will fail to meet our targets for the public sector. The idea that we can do it without the scale of resources that we are putting in is wholly fallacious. That is my response to the noble Lord, Lord Howell, who said that higher taxation is not the answer to failing public services. Of course it is not the answer, but it is an essential part of the answer.
I have already talked about forecasts, which was the focus of the arguments of the noble Lord, Lord Stevens. I agree with him that there has been a risk of an unbalanced economy. I also agree that it is by no means self-evident that there will be increases in productivity. However, we are making very modest forecasts. We are assuming that productivity will grow at the same trend rate as over the recent past. We are not assuming any outstanding changes or improvements in the forecasts that we make.
The noble Lord, Lord Brooke, has again questioned me on microeconomic management. If there were gaps in the answers that I gave this summer to the debate on small business, then I apologise, and we can find an opportunity to correct that. However, this is a debate on macroeconomic management. On that basis, I hope that he will forgive me for not going into more detail.
I think that I have already dealt with many of the questions asked by the noble Lord, Lord Newby. I hope that he will find that in the responses that I have given to other noble Lords.
I was going to sum up by giving the Government's view, but I have decided not to. Instead, I have decided to look at the concluding statements from the IMF Article 4 report that was issued yesterday and made available today. On the macroeconomic framework, including transparency, the report states:
"These economic achievements are due, in no small measure, to the government's sound macroeconomic policies, in the context of a policy framework that has emphasised division of responsibilities, accountability, and transparency".
It goes on to state:
"In the past few years, fiscal policy has been managed prudently within the context of the golden rule and the sustainable investment rule.

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On borrowing, the report states:
"As to macroeconomic management, the short-term widening of the overall deficit is not a source of concern: fiscal policy can play a useful supportive role in a cyclically-weak economy when the underlying fiscal position is sustainable.
On long-term sustainability, the report states:
"Over the long-term, the UK public finances appear to be in a better position than those of many other advanced economies".
Beat that, my Lords.
On Question, Motion agreed to.

National Minimum Wage (Enforcement Notices) Bill [H.L.]
5.42 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I beg to move that this Bill be now read a second time.
The minimum wage is now firmly established as a permanent feature of the labour market and widely recognised as an outstanding success. More than 1 million people have benefited from increased pay since the minimum wage was introduced in 1999, and we have tackled the poverty wages of £2 and £2.50 per hour that were so widespread five years ago. There has been no significant adverse impact on business, and the LOW Pay Commission reported last year that the vast majority of employers were complying with the minimum wage and that the enforcement system was working well. Since April 1999, Inland Revenue enforcement teams have completed more than 21,000 case investigations and identified more than £12 million of wage arrears.
When the Government introduced the National Minimum Wage Act in 1998 we wanted to establish an enforcement regime that was fair and effective, without being an unnecessary burden on business. In particular, we did not want workers—whether they still worked for the employer in question or had left their employment—to have to take action on their own behalf against the employer, although this remains an option for them if they wish. Low-paid workers are a vulnerable group and are often not capable or are unwilling to take action on their own behalf, and of course intimidation and fear can often act as a deterrent to making a complaint.
Since 1999, therefore, minimum wage officers from the Revenue and DEFRA have been issuing enforcement notices—which can require employers either to pay the minimum wage in future or make good arrears of the minimum wage arising in the past—on behalf of both current and former workers. I should add at this point that the minimum wage legislation, and this Bill, covers both the national minimum wage and the agricultural minimum wage as well.
In August 2002, an Employment Appeals Tribunal ruled on Section 19 of the National Minimum Wage Act in the case of Inland Revenue v Bebb Travel plc. The appeals tribunal held that enforcement officers could
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only issue enforcement notices requiring the employer to pay the minimum wage in respect of current and future pay periods or in respect of current, future and past pay periods. The ruling means that enforcement officers cannot now issue notices for past periods alone. This therefore means that we cannot now issue notices to recover arrears due to former workers. The Revenue believes that about half of all complaints come from former workers. It has currently placed about 250 cases involving former workers on hold, and of course that figure is growing by the day.
The Government are determined to restore the position to what we believed it to be before the Bebb decision, for two reasons. First, former workers are entitled to the minimum wage in just the same way as current ones. If someone was not paid the minimum wage for, say, some work they did in the summer, then we believe that the employer should be required to make good the shortfall, whether the person is still in their employment or not. While it would still be possible for former workers to take action independently against their employer, this is really not as satisfactory as action by the enforcement officers. As I mentioned a moment ago, low-paid people are often unwilling or not capable of taking action against their former employer. They may perhaps need a reference from him or they may feel that their chances of success are small against the employer. That is why we believe that former workers should enjoy the protection of Revenue or DEFRA enforcement officers, in the same way as current workers. If this change were not made, we would also be creating an incentive for employers to dismiss workers as soon as they knew they were being investigated. That is clearly not desirable.
The second reason why it is important to restore the position is that former workers tend to be much more ready to make complaints to the minimum wage helplines, which then prompts action by enforcement officers. Current workers tend not to complain, for obvious reasons. When officers follow up complaints made by former workers, they often then find that the minimum wage is not being paid to current workers as well as the former ones. We do not want to accept a position in which former workers may think there is nothing we can do on their behalf, and therefore stop making complaints that benefit everyone.
I hope that I have explained clearly why the Government believe that the Bill is needed. I should perhaps add that both the CBI and the TUC support the Bill.
The Bill inserts a new subsection (2A) after Section 19(2) of the National Minimum Wage Act 1998. According to the decision in the appeals tribunal which I referred, the existing sections 19(1) and (2) of the Act allow an enforcement officer to issue a notice only in respect of current and future pay periods or in respect of current, future and past pay periods. The new subsection (2A) therefore allows an enforcement officer to issue a single notice on an employer requiring him to pay minimum wage arrears to a worker or workers who have at any time qualified for the minimum wage. It will not matter whether the notice

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also covers future pay periods; so, if he wishes, the officer will now be able to issue notices that cover minimum wage arrears for former workers alone. This provision restores the position that the Government believe existed before the recent tribunal ruling.
I should also make it clear that subsection (2A) has also been deliberately drafted to allow enforcement officers to issue notices in respect of pay reference periods ending before or after the Bill comes into force. I should like to explain why the Bill has been drafted in this way.
As matters stand, enforcement officers have not been able to issue any notices on behalf of former workers since August 2002. Some of these workers may of course have taken action against their employers independently but, although we do not have figures, I suspect that many will not. Unless we allow officers to issue notices covering pay periods before the Bill came into force, we will not be able to recover minimum wage arrears that might have arisen in the past on behalf of former workers. The key point to stress here is that this subsection does not change anyone's entitlement to the minimum wage; that is unchanged. All this subsection would do is create a new means of enforcing existing rights, to help these former workers recover their proper entitlement.
We therefore believe that this subsection is not in fact retrospective. We have approached the Attorney-General on this specific point, and he has advised us that he is content for the subsection to apply in this way.
Clause 2 provides that the Bill shall extend to Northern Ireland in addition to the remainder of the United Kingdom; this is the same arrangement as that for the 1998 Act.
In closing, I should like to stress that this Bill will not affect the vast majority of employers who are already paying the minimum wage. The only people who will be adversely affected by the Bill are the minority of employers who are not paying the minimum wage. I believe that it is entirely right that all workers, whether they are current or former workers, should enjoy the protection of our minimum wage enforcement officers. I beg to move.
Moved, That the Bill be now read a second time.—(Lord Sainsbury of Turville.)
5.50 p.m.
Lord Razzall: My Lords, it will come as no surprise to the Minister that we on these Benches entirely support this short Bill. However, in the course of the Second Reading we should touch on how we have arrived at the position in which we are today.
I was one of the spokesmen from our Front Bench who participated in the passage of the National Minimum Wage Act 1998 and, indeed, congratulated the Government on introducing it. We considered that it was a much needed provision. We also congratulated the Government on the way in which they consulted on the ensuing regulations. Like the Minister, at the time of the Bill's passage never in my wildest nightmares did
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I believe that the actions of enforcement officers would be constrained in the way that an employment tribunal appears to suggest in the case of Bebb Travel; namely, that if someone leaves a particular employment no order can be made by an enforcement officer to protect the minimum wage backlog that that individual has accrued.
We should bear in mind the amount of legislation that has passed through this House after having been almost unscrutinised by another place, and the extent to which officials have often presented the Minister with amendments to legislation that have to be produced in this House, often at the last minute, and often in a form that has been completely unscrutinised by another place. The Minister is in the unfortunate position of having to bring the Bill before us to rectify a lacuna in the law. Does he believe that this situation has arisen because the tribunal has acted wrongly and therefore the law has been misapplied, or does he believe that he has been the victim of misdrafting of either the original Bill or the regulations under it? If it is the latter, does he draw any conclusions as regards the way in which we, and often he, are forced to bring legislation before your Lordships?
It has undoubtedly been the case—no doubt the noble Baroness, Lady Miller of Hendon, will endorse what I say—that the long and complicated Bills that emanate from the Minister's department often comprise legislation that has not been scrutinised by another place and amendments to that legislation are then proposed by the Minister. That is not his fault as his officials alert him to parts of legislation that are missing, need to be amended or have not been covered properly. Does he believe that this is one of those occasions? I hope that the Minister will respond to that point when he replies to the debate. However, as I say, we totally support the Bill and hope that it will proceed through the House without any difficulty.
5.54 p.m.
Baroness Miller of Hendon: My Lords, this is an uncontroversial Bill to correct an anomaly in the interpretation of the National Minimum Wage Act 1998, to restore the position to what Parliament clearly intended and common sense demands, and, indeed, to the position that we all thought prevailed until the decision of the Employment Appeal Tribunal last August in Inland Revenue v Bebb Travel plc, as the Minister pointed out.
It would be wrong to blame the parliamentary draftsmen for what appears to be a drafting error. But like the noble Lord, Lord Razzall, I believe that we should discuss how this situation came about. It is possible that had the matter been pursued further through the courts a differing interpretation might have prevailed. That is because of an extension to Duggan's Law; namely, that to every lawyer there is an equal and opposite opinion.
However, the Government are to be congratulated on not wasting legal costs and time by pursuing the appeal procedure, especially as they have seemingly been advised that the chance of success in the courts i

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problematical. Instead they have taken the sensible course of having Parliament correct its own error, or rather, not Parliament's error but the Government's error.
I do not pretend for one moment that the Opposition in the form of either the Conservatives or the Liberal Democrats spotted the error. I do not think that anyone did. Certainly my advisers did not and nor did our colleagues in the other place. But I am sure that the Minister would agree with me that, even if I had spotted the error, he would have tried to oppose me. That is what my experience tells me.
I fear that there may be other time bombs ticking away waiting for some astute lawyer to upset the Government, and scarce parliamentary time may be needed to make further corrections. We certainly hope that that will not be the case. However, I shall at a later stage introduce a very minor and, I believe, totally constructive amendment to head off future problems. Although any underpayment of the national minimum wage is to be deplored, whether it is deliberate or inadvertent or, as often may be the case when a small employer is involved, due to ignorance, I shall simply propose that the degree of retrospection that may be imposed should be restricted to the limitation period for any other civil debt. I trust that with that advance notice the Minister will have time to reflect on what I shall propose.
If I have any general criticism of the present Bill, it is that, bearing in mind that the National Minimum Wage Act 1998 was intended to give employees—or rather "workers" as the Act calls them—a clear indication of their rights, and employers a clear indication of their obligations without the need to have recourse to professional advice, the wording of the new subsection (2A) (which the Minister explained to us) seems very convoluted. I am not a lawyer but I should have thought that it might be enough simply to have said:
"An officer may make an order under subsection (2) retrospectively notwithstanding that the employment of the worker with the employer has already ended".
Those words are taken from the excellent explanatory note provided by the Government to accompany the Bill. When I was involved in business and spent a great deal of time approving advertising campaigns, I was taught what was definitely lesson number one; that is, keep it simple.
With that very small criticism, and subject to my intended amendment, I assure the Government that, like the noble Lord, Lord Razzall, we on these Benches support the Bill. Although I am not part of the usual channels, I am sure that we shall do whatever we can to facilitate its progress so that employees may not be deprived of their rights.
5.58 p.m.
Lord Sainsbury of Turville: My Lords, I thank the noble Lord, Lord Razzall, and the noble Baroness, Lady Miller, for their helpful comments. We launched an appeal as we considered that the appeal tribunal's decision was wrong. Bearing in mind the terms of the
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original Act, it is difficult to see how that rather strange interpretation was arrived at. It is not for me to criticise the draftsmen at this point. As I say, we have appealed against the decision.
I am sure that, had the noble Baroness spotted an error when we discussed the original Bill, we would have opposed her remarks as we still consider that the Bill covers the position. But perhaps the milk of human kindness and charity would have prevailed and we would have recognised the rightness of her argument and taken it on board. That would have saved a great deal of subsequent trouble.
As regards the retrospective nature of the measure we are discussing, it can only be retrospective for three years as companies are required only to keep records for three years. Although I believe that civil debt can go back six years, the measure we are discussing could be retrospective for only three years.
I appreciate that the noble Lord, Lord Razzall, and the noble Baroness, Lady Miller, referred to the main point. In drafting the Bill, our intention has been to restore what we thought to be the position, which is the ability of enforcement officers to take action on behalf of former workers following the tribunal ruling last August. It must be right that we do all we can to help to recover the arrears due to those low-paid workers. We have gone back to all the people involved in the drafting of the Bill. It is clear that that was their intention, so we intend to restore what we all felt was the purpose of the Bill.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

High Hedges Bill [H.L.]
6.1 p.m.
Baroness Gardner of Parkes: My Lords, I beg to move that this Bill be now read a second time.
For some years I have brought the subject of high hedges before the House. I introduced my first Bill to alleviate the hardship and suffering of "hedge victims" in 2000. At the time, I hoped that a small simple Bill, dealing with the problem as a statutory nuisance under the Environmental Protection Act 1990, would provide a quick and easy answer. The Bill received all-party support in your Lordships' House but fell in the Commons. In 2001, I worked with John Taylor, who brought his Bill to the Commons. It passed all stages in this House and we hoped that it would also pass in. the Commons on the last day before the general election. I pay tribute to the noble Baroness, Lady Farrington, for her help and support in the matter. Rather sadly, it was talked out. I say "rather sadly", as the one good thing about that is that it enables us to improve on the Bill.
As presented today, the Bill is almost identical to John Taylor's Bill. I find that it fails to provide wide enough grounds on which a complaint can be made and considered. The Bill is presently tied in to a specific light issue, and the difficulties and disadvantages of those on the shady side of such hedges are much more

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than just loss of light. Reduction in property value, damage to buildings and loss of proper use of gardens for plant growing and recreation are some of the other losses of amenity. I hope that your Lordships will share this view and support my intention to bring forward the necessary amendments in Committee to cover these other aspects.
On the front page of The Sunday Times of 8th December 2002, I saw the news that Stephen Pound, who drew a place in the ballot for Private Members' Bills, is to bring forward a Bill on this same subject and,
"ministers have agreed to allow time for a private member's Bill to go through. With backing from the Department of Transport, Local Government and the Regions, led by John Prescott, the Deputy Prime Minister, the Bill is certain to become law, according to government business managers".
Stephen Pound has drawn 14th place in the ballot, which would not normally be a very hopeful position, but it seems that he will be getting special treatment to ensure that the Bill becomes law. That is good news as far as I am concerned. I am not interested in getting glory for the result, but I want to see the reality of a new law that helps those affected so adversely by high hedges. If the Government are making special time available, as seems to be the case, I am slightly puzzled as to why they do not make it a government Bill.
If, as I understand is the case, my Bill is almost the same as the proposed Commons one, I am pleased that your Lordships' House is able to consider the matter early and, in our usual way, in detail. In that way, we may make improvements by adding to the Bill, by altering parts in Committee. The timing of publication of the Commons Bill is such that it should be possible for Stephen Pound to include in his Bill any widening of grounds of complaint or other amendments that have been fully supported in this House. That would mean that the work we are doing here would be of great benefit to him.
My Bill is clear and self-explanatory. As we have debated the subject so many times in this House, I do not intend to go through it in detail. The aim of the legislation is to provide a formal complaint procedure for those suffering a hedge problem and to empower the local authorities to assess the situation. They will decide whether the complaint is justified and, if so, make an order for appropriate action to be taken. As a last resort, local authorities will be able to act to reduce the hedge and bill the owner for the work done.
As a first step, and prior to making a complaint, the affected party will have to mediate—that is, contact the offender and try to resolve the matter by agreement. Past debates have made clear that this has proved unsuccessful in most cases, as there were no sanctions if the offender simply refused to consider action. I remember the contribution of the noble Lord, Lord Graham, on that point. I am convinced that with legislation as a back up there will be a great incentive to reach agreement with one's neighbours and mediation will be more successful, saving further action in most cases.
The press has given some readers the impression that nothing over two metres will be allowed as a hedge height. It is important to clarify that point. Anyone can erect a
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fence or wall to a height of two metres without planning permission. It is to match that planning law that two metres is, in the Bill, the height that is permitted without query. That is enough to provide ground floor to ground floor privacy between houses.
Members of your Lordships' House have spoken to me in the past few days about their concern that they will not be allowed a hedge that is higher than two metres, but that is not the case. A hedge of massive height could be unobjectionable if it was sited in a position where it had no effect on an adjoining property.
One noble Lord explained to me that he has a hedge of trees that is 25 feet high, which he has repeatedly trimmed over the years to suit his neighbour. He has always had this done at his own expense. In such a case, when there is already a satisfactory relationship between neighbours, there will be no change. It is important that the Bill should not cause unnecessary anxiety, which is why I mention that. The fact that local authorities have a discretion means that all existing circumstances will be taken into account. Under Clause 4(2)(b), they could decide that a complaint should not be proceeded with.
When the consultation document entitled High Hedges: Possible Solutions was published in November 1999, more than 3,000 replies were received by the end of the consultation period on 31st January 2000. It was an exceptionally high response, and it took months to analyse the replies. On 10th August 2002, Michael Meacher stated that 94 per cent of the replies were in favour of legislation.
A new difficulty that has been brought to my attention is that home owners are being asked to carry an excess of £2,500 on their household insurance for any problem related to a hedge problem. That may be a result of the Delaware Mansions and Westminster City Council case, in which the council was held liable for its refusal to deal with the tree root problem at a cost of £14,000 for repairs, and had to meet the full restoration cost of £570,000 and legal fees of £500,000. The cost came to a total of more than £1 million for just one tree. The case established the liability for damage by invasive roots to a neighbouring property, and for that reason would apply equally to root damage by a hedge. It may be for that reason that insurers are targeting people with hedges, or people with hedges adjoining their property.
As I drive around the countryside, I notice that public awareness of nuisance hedges has grown remarkably. Many tall conifer hedges are now being trimmed, to the benefit of neighbours on the shady side. No one on the sunny side ever complains, and they are often not even aware of the difficulty on the other side. A few hedges have been planted deliberately and maliciously to damage an adjoining property, but that is rare. In most cases, people who planted hedges—commonly known as leylandii, although the Bill covers any species—were quite unaware of the speed and height of the growth. I received an excellent note of response from the Royal Horticultural Society today, which makes it clear that the easiest and best solution is to plant the right hedge and never face a problem.

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Many plant nurseries and individuals are taking note of those recommendations. The RHS supports legislation. Apart from listing more than 20 varieties of possible hedges, it makes the point that,
"hedges are often not a suitable solution for garden boundaries under modern conditions",
and it,
"urges gardeners to consider fences where there is no commitment to long term hedge care and size restriction".
Many concerned people have asked me what is defined as a hedge—they may have a ragged group of hedging or just four or six trees that are causing them trouble. Clause 2 defines a hedge as,
"two or more adjacent evergreens",
and adds that,
"despite the existence of any gaps",
it may still qualify as a hedge.
Under Clause 4(2) the local authority will have the right to decide that the complaint should not be proceeded with if there has been no attempt to mediate or if the complaint is "frivolous or vexatious". There are long histories of hedge battles continuing for 20 years or more, and I believe that some of the parties have shown that they can spin the time out for an undue length. There should be some sanction against those deliberately trying to obstruct the process by the unreasonable use of appeal procedures.
In the debate on this subject reported at column 1094 of Hansard of 24th November 2000, I drew attention to an unreasonable case in which the offending party was ordered to pay costs of £20,000. As that person was legally aided the costs were entirely met by the taxpayer. In such a case, which will cost nothing to the offending person, the offending party has no disincentive to carry on with the case, whatever the cost.
I therefore consider that there should be a "frivolous or vexatious" condition attached to the appeal procedure. I would be interested to hear from the Minister whether he believes that that should be dealt with in the Bill or in regulations.
In moving this debate, I put this Bill not only before this House but before the public for full consideration. If the Bill is given a Second Reading today, the Committee stage would probably take place on 9th January 2003, just two days after the House returns from the Christmas Recess. Amendments can be tabled on 7th and even on 8th January and I would welcome suggestions for those, at an early date, from interested parties. I suggest that they write to me or the department or both to make their views known, so that those points can be given full and careful consideration. Obviously, I cannot guarantee to act on each and every comment but if a body of opinion makes it clear that there is concern about something in the Bill, or some omission, I would seek to move the appropriate amendment. Of course, amendments from other Members of the House would be welcome.
The Bill will be of great help to hedge victims and I ask your Lordships to give it a Second Reading. I commend the Bill to the House.
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Moved, That the Bill be now read a second time.—(Baroness Gardner of Parkes.)
6.13 p.m.
Lord Graham of Edmonton: My Lords, I begin with an apology. I had to leave in the middle of a very important meeting upstairs—it was not as important as these proceedings, of course—but I will have to get back to it, for which I apologise.
I congratulate the noble Baroness, Lady Gardner of Parkes, on her persistence. This is one of those infuriating things: the Bill should be known as the "number 11 omnibus" Bill because one waits for a long time and then two turn up at the same time. That is not an inappropriate comment in view of the previous profession of Mr Stephen Pound. Wherever he is—he can hear me now—he must be laughing.
We are in a marvellous situation. The noble Baroness, Lady Gardner, has persisted in this regard. I also thank my noble friend Lady Farrington. For a long time there has been sympathy, understanding and a willingness to act, although there have been problems. If anyone thinks that when this Bill—or any Bill—has completed its passage through both Houses, it will solve the problem, they have another think coming. We are dealing with people, property and a community. I assure noble Lords that the Bill is most welcome.
Mr Tony McNulty, the junior Minister at the department, was kind enough to receive a small deputation from a hedge abuse organisation led by Clare Hinchliffe, who played a leading role; previous responsibilities were carried out by Mr Michael Jones. We have much assistance in terms of services and facilities—telephones, typewriters and many other things—but out there many people (I shall not exaggerate by referring to thousands) spend all their spare time being a post box for complaints. They are on the telephone and providing help. In an ideal world, these problems would not arise; when they do we are seeking to provide legislative back-up in this parliamentary Session.
When I bought my house about 12 years ago in Loughton, in the middle of Epping Forest, I wondered whether I should get the hedges cut down. Next to my house there was a big fence. When I made inquiries of my neighbours, they said, "It is no good going round to the other people. We have been round before and they simply told us to get lost". However, I did go round but the owners had changed and the new man had a different attitude. Within a month, he had a man there lopping the tops down substantially.
We should speak to our neighbours, be patient and have a spirit of compromise. Mr McNulty, speaking guardedly—as he has to do—said that if an opportunity occurred via the Private Member's Bill route, we should use it. That has happened. We are in the wonderful situation that with collaboration between both Houses—in particular, between the noble Baroness, Lady Gardner of Parkes, and Mr Stephen Pound—I am sure that eventually a Bill will reach the statute book that will do what is required.

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Many of us have experience of serving on local authorities and know that the bane of one's life is to be told that nothing can be done. Ultimately, something can be done. I was interested in the point that the noble Baroness, Lady Gardner of Parkes, was keen to squash; that is, that no fence over two metres would be tolerated. That is not true. A hedge of more than two metres will be the subject of scrutiny by arboriculturalists on the council and in other ways only if there is a complaint that is upheld after an inquiry.
It will be some time before we realise the effects of this approach. I thank the noble Baroness, Lady Gardner of Parkes, who has, for the past three or four years, been determined to reach the position that we have realised tonight. That has occurred against the background that the ministry was satisfied by the inquiry. The noble Baroness, Lady Farrington, was at the centre of the need to consult. That shows her local government experience. We are keen to ensure that of the options available, the legislative back-up route should be preferred.
I welcome my noble friend Lord Evans of Temple Guiting to his new ministerial role. I am sure that he will acquit himself very well. Otherwise, the twig will snap or we will not see the wood for the trees. What else can I say that Mr Stephen Pound would appreciate? He appreciates an attempt—even a poor attempt such as mine—to bring levity to these proceedings.
6.19 p.m.
Baroness Hamwee: My Lords, I recently attended a meeting where the agenda included the fire-fighters' strike, the local government settlement, corporate performance assessments and other weighty matters. I added to the list the High Hedges Bill. That provoked some laughter, but I suspect that, in some people's eyes, the subject matter is at least as controversial as the bigger issues. I believe that that is confirmed by the fact that the Office of the Deputy Prime Minister felt it necessary to publish leaflets on the subject. I see that that office's emblem has been used on a number of publications about high hedges.
As we heard, this is the latest—or, I now understand, almost the latest—in a series of attempts to address the problem. I hope that it will be the end of the beginning in putting in place the necessary mechanisms and possibly even the beginning of the end in finding real solutions on the ground for what we all seem to call hedge "victims".
I, too, thank the noble Baroness for the part that she is playing now and for the significant part that she played in the lead-up to the presentation of the Bill. I also thank her for her explanation. I suspect that the Bill may be less contentious than individual complaints about hedges. For the sake of the noble Lord, Lord Evans, I hope that it is because I believe that this is the first Bill with which he has become involved in his capacity on the Front Bench. From
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these Benches we support the Bill. I hope that the fact that I have some concerns and questions will not be read as a reduction in our support for it.
As the noble Baroness explained, as drafted, the grounds for complaint are limited to the obstruction of light. Those of us with experience on planning committees in local government will be accustomed to hearing members of the public complain that a proposed development will block their light and then hearing the officer's explanation, accompanied by graphs and charts, which demonstrates that the light will not be blocked. No one is terribly satisfied by that.
In addition, the Bill talks of "unreasonable" obstruction of light. I believe that that is possibly even a higher test than one meets when dealing with a development for planning purposes. Another test to be overcome—a matter that we may be able to explore in Committee—is that light can be blocked even if there is no "barrier". That is the term used and, as it were, is the hurdle to be overcome in Clause 2 of the Bill.
The leaflet from the Office of the Deputy Prime Minister, to which I referred, lists examples of the problems which go wider than obstruction of light. It refers to depriving a person of winter sunshine, encroaching on a garden and affecting the growth of plants, a hedge pushing over a fence, and roots damaging one's path, garage or home. I believe that that probably provides us with some material to work on at a later stage. It also seems to me that the Bill is not evenly balanced in that a complainant has to meet a tough test but, under Clause 4(4), the occupier can rely, for example, on his own privacy.
It is probably a considerable breach of etiquette to say this of the Delegated Powers and Regulatory Reform Committee, but I was a little surprised that it took the view that the Henry VIII power contained in Clause 16(1) is acceptable or appropriate. The committee says that the power is limited to extending complaints to non-domestic property or altering the definition of a high hedge. Those appear to me to be fundamental alterations, and it would be better if we dealt with them in the course of the primary legislation rather than by affirmative resolution at a later stage.
It will not be easy for local authorities to be seen as objective and consistent. The ODPM briefing pack talks of tests being worked on by the building research establishment and of the need for those tests to be simple. I believe that, so far as possible, they also need to be objective. I understand that the Local Government Association has indicated that it would welcome government guidance. I believe that that is anticipated by the ODPM and that must be right. Local authorities need to be able to point to something that has general application. They do not want to be in a position where they could be accused of not being objective or fair.
This point will come as no surprise, but I am concerned that the Bill should not put an unreasonable burden on to local authorities. There is always the issue of resources. As I understand it, the fee will be limited by central prescription and is unlikely to be sufficient to fund the service because such fees never

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are. The ODPM tells us that it estimates that costs of about £2 million will be involved simply in dealing with the backlog of cases. This is not only a question of straight cash. I believe that we are all aware of the shortage of planning officers in local authorities. Indeed, not so long ago in your Lordships' House, a debate on planning threw up the issue of the lack of training available for planning staff.
The fine at level 3, which I believe will be the maximum of £1,000—perhaps the noble Baroness can confirm that at the end of the debate—will, I imagine, as with all fines, be kept by central government and will not be directly available for funding the service. My concern over resources is not limited only to local authorities; it is suggested by the Government that people seek advice from CABs and community legal services. They, too, have their resource problems.
I know that concerns have been expressed that the Bill does not apply to single trees. I assume that that is because many instances of damage caused by individual trees can be dealt with by other remedies. However, again, I wonder whether the noble Baroness can say a word about that when replying to the debate.
There appears to be no opportunity for appeal within the local authority unless, of course, both neighbours agree to seek a variation or withdrawal or unless there is a material change in circumstances. I was not able to think what a "material change in circumstances" might be in the context of the Bill. I would welcome any comments on that point as that might help us in our deliberations during the next stage of the Bill. I also wonder whether it would be considered helpful to have something at an intermediate stage before the planning inspectorate becomes involved. I should also welcome hearing what discussion has taken place with local authorities and perhaps with other bodies, such as the Law Society, which might wish to comment.
Trees, both singly and in groups and whether or not they comprise hedges for this purpose, play a significant part in our urban and suburban landscape. The relations between neighbours are also fundamental to urban and suburban life. I hope that the Bill is able to progress in order to support both.
6.28 p.m.
Lord Walker of Doncaster: My Lords, I fully support the noble Baroness's Bill and wish only to ask her a question. First, I should perhaps say that I am the chairman of the Parliamentary All-Party Gardening and Horticulture Group. I do not know whether that is of interest but I am sure that my members will share my welcome for the noble Baroness's Bill.
In the noble Baroness's explanation of the Bill, I did not hear her refer to the difficult problem that arises in conservation areas. I live in a conservation area and I have an overgrown leylandii hedge. My neighbour objects. I cannot cut it because, at 20-odd feet, it is too high. I have to get a tree surgeon to do the work, but I can do so only when he has applied for planning permission from the local authority. The authority inspects the tree and the relevant notice is posted.
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Then, eventually, the tree surgeon can come along and trim back the hedge to the height indicated by the local tree preservation officer and no lower. However, that is still far too high for me to reach.
I do not know whether the Bill will also have an effect where a hedge is made up of mature trees. In summer the entrance to my house is permanently in darkness because of the line of lime trees along my driveway. When I moved in, about 20 years ago, I had to pay a tree surgeon to cut them back or pollard them. The local authority immediately threatened me with legal action and said that if there was any repetition of that I would find myself in court. I wonder whether the noble Baroness could comment on the position regarding the application of the Bill in conservation areas.
6.30 p.m.
Baroness Hanham: My Lords, I am in the happy position of noble Lords having said practically everything that I might have said. Therefore, I shall probably cut down on the time I would otherwise have taken. I was able to welcome the Minister to the Front Bench yesterday. However, in case we should do that with every Bill, I take the opportunity of doing so again. I look forward to working with the Minister.
If he were still in his place I should like to thank the noble Lord, Lord Graham of Edmonton, and indeed, because she is still in her place, the noble Baroness, Lady Hamwee, for the gracious and justified comments they made about my noble friend Lady Gardner. As the noble Lord, Lord Graham, said, she has been truly persistent over this matter—it is now two years since she first started—and it is a pity that she has not yet been able to achieve the results she sought. I am sure that if Mr Stephen Pound, who I see is at the Bar, manages to achieve legislation on this issue, he will acknowledge the great part played by the noble Baroness, Lady Gardner of Parkes. I, too, was slightly irked by the comments in the Sunday Telegraph. I thought my noble friend should at least have figured somewhere in that.
High hedges always conjure up the image of neighbours from hell. They seem to have played an enormous part in bad neighbour relationships. This problem largely started with a number of public fallings out over some very large trees. It is not only the fact that there are neighbours from hell. There are also those who are simply too belligerent to take action or to see that high hedges affect other people.
To put this problem into the hands of the local authority does not seem unreasonable. Local authorities are accustomed to taking enforcement action and to intervening in disputes. Certainly, planning laws are littered with those opportunities. It would be a good solution for local authorities to be given the powers and resources to take proper action and to ensure by means of a fine or otherwise that they have an impact on the situation.

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The noble Lord, Lord Walker of Doncaster, raised an interesting point about tree preservation orders in conservation areas. I am sure that my noble friend will respond—
Lord Walker of Doncaster: My Lords, I did not refer to hedges or trees which are the subject of a preservation order, but to the universal application of the Bill within a conservation area.
Baroness Hanham: My Lords, I thank the noble Lord for that correction, which I am sure my noble friend has noted. I do not have anything else to add, other than that I support the Bill introduced by my noble friend Lady Gardner. I congratulate her again on carrying it through. Many people other than me will think that this has been a job well done once the Bill is on the statute book, which I very much hope it will be at the whim—no, the will, of the House of Commons, in due course.
6.34 p.m.
Lord Evans of Temple Guiting: My Lords, first, I thank all noble Lords who have kindly welcomed me to this new position. In particular I thank the noble Baroness, Lady Gardner, for introducing her Bill and for stimulating such an interesting discussion. I join with my noble friend Lord Graham in acknowledging her persistence, perseverance and energy in getting the Bill renewed and to this stage. My noble friend Lord Graham rather bizarrely wondered whether I would be a firm twig. I can say to him that this twig is not for snapping.
I should like to start by celebrating trees and hedges. Hedges and trees have been an inspiration for many people and for many great poets including Robert Frost and Seamus Heaney. My favourite poem—a short one—about hedges is called, The Hedge, by E.J. Scovell, which I shall read:

"Hedge of my holding, faithful and benign,
Rounding this garden like the wedding ring
That names as mine the woman who is mine

Hedge, keeping out with your intricacies
The daytime-drowsy thief, welcoming all
Nest-building birds and grazing swarms of bees;

"Hedge I repaired and strengthened like a wall
As still the household grew—re-planted part,
Every day happier, richer not at all;

Of hawthorn, tamarisk and pomegranate
With honeysuckle scent flowing between:
Through you I am rich and lord of my estate,

Hedge of my holding, city-wall of green".

We have heard a lot today about the problems of high hedges, and we recognise that those problems loom large for the people affected. But, as has been said, we should not lose sight of the fact that the right hedge in the right place can make a significant difference to the quality of the local environment. For instance, a hedge is a useful weather and dust filter; it is inexpensive to create and long lasting. It can encourage wildlife and can be a feature of beauty and interest in its own right. It also offers privacy and security.
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I would not want people who are following our debate to think that a hedge is nothing but trouble. Our towns, cities and villages would be a poor sight if they comprised nothing but a sea of panel fencing. Many of us will remember the despoliation of the East Anglia countryside in the 1970s when hedges were grubbed out to make for larger fields.
For anyone thinking of planting a new hedge I commend our leaflet, mentioned by the noble Baroness, Lady Hamwee, entitled, The Right Hedge for You. It has practical advice for gardeners on how to choose the right hedge for their circumstances, taking account of how much time they are prepared to put into its upkeep.
I want there to be no doubt that we as a government are pro-hedge, pro-tree and even pro-leylandii, provided they are in the right place and properly cared for. However, people encounter huge problems with overgrown hedges. We all know the cliché that an Englishman's home is his castle, but across the country vast fortifications of fast-growing and dense evergreen hedges have appeared. Unchecked and poorly-maintained hedges can cause misery to some people and a breakdown in relations with neighbours. Light is reduced in homes and gardens, and once-cherished views, perhaps of countryside or coast, are blocked. There are huge difficulties in growing many plants near hedges. All those things lead to a sense of oppression and of being hemmed in. People feel they are unable to enjoy their own garden.
I am sure that all noble Lords will agree that it is always best if those matters can be settled by negotiation amicably. A quiet word with the hedge owner may be all that is needed. I am pleased that the Bill introduced by the noble Baroness recognises that and requires people to try to negotiate a solution before involving the local authority.
To help neighbours settle high hedge disputes amicably, we published last month another leaflet, aptly entitled, Over the Garden Hedge. It takes people through all stages of the process from making the first move and talking to their neighbour to finding the right answer and putting it into practice.
As the leaflet acknowledges, negotiations do not always work. If the first approach is rebuffed, then trouble may start, resulting in serious and sometimes costly neighbour disputes. That is why in August 2000, the Government committed themselves to legislate in order to help solve these problems. We were supported by the results of our consultation, which showed overwhelmingly that new laws were needed to tackle the issue. That came not just from people affected by hedges, but from local authorities that were powerless to help. A standalone complaints system, such as that proposed in the Bill of the noble Baroness, Lady Gardner, was favoured by most of the consultation respondents.
Problems caused by high hedges will not go away until there is a statutory solution. The Government remain keen, therefore, that legislation on high hedges should reach the statute book.

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There is no difference between the aims of the noble Baroness, Lady Gardner, in bringing forward the Bill and the Government's objectives. We both want to see fair and workable legislation that will provide relief to thousands of people who suffer from these problems.
We supported the Private Member's Bill that was introduced by John Taylor in another place in 2001. As the noble Baroness, Lady Gardner, acknowledged, her Bill owes a good deal to the work that John Taylor did previously.
In all those circumstances, the Government are pleased to support the principle of the Bill introduced by the noble Baroness today. I do not know whether the matters that she wants on the face of the Bill are covered in regulations. I shall write to her as soon as I have been advised on our proposals.
Like the noble Baroness, we shall note carefully the views expressed during this debate and take them into account as the matter progresses. I am very pleased that the first Bill that I am involved with will make a direct and significant difference to the lives of many people in our country.
6.42 p.m.
Baroness Gardner of Parkes: My Lords, I thank those noble Lords who have taken part in the debate. I had not appreciated that this is the first Bill the noble Lord Lord Evans, has dealt with from the Front Bench. I join other noble Lords in welcoming him to that role. I am delighted to see that the noble and learned Lord, Lord Falconer, has come into the Chamber. In the middle of this year I had a very helpful and constructive meeting with the noble and learned Lord and his staff from the department at that time. The helpful leaflet that has been mentioned was in the process of being written at that time. We were very pleased that various points that were raised were taken into account in that publication.
The noble Baroness, Lady Hamwee, was first to raise a number of points. I am glad that she thinks that the grounds of complaint need to be wider. It would be very desirable to have consultation or meetings with the Minister and perhaps with the noble Baroness and anyone else who is interested, and for this House to try to get the correct wording for the widening of that complaint procedure. I am convinced that anything that we can decide on in this House must be of benefit to Stephen Pound in the other place when he brings forward his Bill. As it will be published so much later, he will be able to incorporate into its text anything that we had already thought was a great improvement. I would put that point to the department, in order for it to be thought about before we go much further on the matter.
The noble Baroness, Lady Hamwee, said that local authorities need to be objective. The noble Baroness is absolutely right. The Bill will enable them to be objective. For that reason, I do not go along with her suggestion that local authorities should be a first port for appeal. That might reduce their objective position. If local authorities make only the original decision and then the appeal goes elsewhere, that is more of a
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parallel to planning procedures. There is merit in that because local authorities should have had ample time to consider every aspect of the case at an earlier stage. I hope that the noble Baroness will not press that point.
The noble Baroness is quite right that single trees are not covered in this legislation. There have been interesting court cases. I have mentioned the case of Delaware Mansions v Westminster City Council, which involved a single tree that cost the council over £1 million. Single trees are fairly well covered now in terms of damage to property. I suppose that it is considered that it would be an exceptionally large single tree that would really take away all one's light and local amenity.
As to material changes, I am not able to give the noble Baroness exact examples. One might be where there had been a storm and the hedge had been half-blown down. That might be quite a material change.
The noble Lord, Lord Walker of Doncaster, raised some interesting points. He asked about a conservation area. That is a disadvantage. It is a worry as to exactly how that would be dealt with. At my meeting with Michael Meacher in September 2000, we discussed that issue. I asked him about the position in a conservation area and how we could ensure fiat people would get permission. One has certainly to apply for permission in a conservation area. But in the instance that the noble Lord, Lord Walker, referred to, where if the hedge was cut, it might not be cut enough or cut to a point where it was within control. I think that once permission was given to reduce the height, it could be that the local authority would be willing to agree a height at which it would be possible for it to be controlled and maintained afterwards. I would hope that that would be the case. But certainly there is a degree of conflict between conservation areas and the legislation.
The noble Lord mentioned mature trees. The Westminster City Council case has made quite a difference to councils' attitudes. If the person owning the mature tree applies to the council either to lop it or to remove it and the council refuses, the council is then entirely liable for the bill, due to the damage the tree has done. That has changed local authorities' attitudes very much on the issue of mature trees.
I was delighted that the Minister started off with a poem. Of course that was very appropriate with his literary background. I am glad that it will be printed in Hansard, so we shall all have the benefit of enjoying it again. The noble Lord referred to hedges being a lovely place to encourage birds and so on. In a way that is true about garden hedges, but more so about a hedgerow. The ones in East Anglia that he referred to which were taken out to make fields bigger were hedgerows.
That draws my attention to the fact that possibly that matter may not be clear enough in my Bill I should like those commenting on the Bill to decide whether they think that the term "domestic property" is the right phrase or whether the Bill should refer to residential property. We are talking about houses in occupancy. We are not talking about whether a hedge affects one's barn, which is used to house hay or

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whatever. We must be clear on that point. My previous Bill referred to residential areas whereas the Bill before us today does not specify only residential areas. That may be a significant difference that we should perhaps consider.
There is no need to say more, other than that we should have the opportunity now for more consultation with the department. I found the officers in the department most helpful. I am sure that they will continue to be so. I do believe that any proceedings in this House must add to the effect of Stephen Pound's Bill in the other place.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Synodical Government (Amendment) Measure
6.49 p.m.
The Lord Bishop of Guildford The Lord Bishop of Guildford rose to move, That this House do direct that, in accordance with the Church of England Assembly (Powers) Act 1919, the Measure be presented to Her Majesty for the Royal Assent.
The right reverend Prelate said: My Lords, I hope that this Measure and the subsequent Church of England (Pensions) Measure will not delay the House too long.
Your Lordships will be aware that the Church of England has a system of synodical government, which gives representatives of clergy and lay people a role with bishops in the government of the Church at all levels. Although those principles are long-standing, the actual system of synodical government came into being with the passage of the Synodical Government Measure in 1969 and was established in 1970.
About 20 years later, it was decided that the time was right to review the position and a review was conducted by the noble and learned Lord, Lord Bridge, between 1993 and 1997. The report of that group concluded that there was overwhelming acceptance within the Church of the principles of synodical government and attachment to the general form that it took. In particular, the co-operation of representative clergy and laity with bishops in the Church was widely valued. The report affirmed the principles of openness, accountability and subsidiarity and sought to strengthen confidence in the operation of synodical government. Where the structures were working well, the report recommended that they should be left alone; but in other cases, there was evidence of over-bureaucracy and the stifling of individual responsibility or initiative. In those cases, the report made recommendations for change.
Consultation on the Bridge report revealed a number of divisions about its recommendations. It was therefore decided to give priority to a first-phase package of proposals that had extensive support among those consulted. It is essentially those uncontroversial proposals that form the basis of the Measure. They relate mainly to synodical government
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at parish level, where the Bridge report concluded that all was working well and that only minor changes were needed. Larger, more controversial, issues arising in relation to the General Synod will be dealt with subsequently.
The main proposals in the Measure—to be found in the schedule—provide for amendments to the church representation rules, made under the 1969 Measure, that make detailed provision for a number of matters relating to synodical structures. A number of those changes are intended to confer more flexibility or lighten Church structures. Examples include the reduction in the minimum size of diocesan synods from 150 to 120, new arrangements for calculating the number of lay representatives on parochial church councils and a power for another cleric to chair a PCC in the absence of the minister—if the minister, the PCC and the bishop give their consent.
Other changes affecting the position of PCCs include a new requirement that lay people aged 18 or over should have had their name on the electoral roll of a parish for at least six months before being eligible for election to its PCC or the deanery synod. That requirement—which is less onerous than the qualifying period of 12 months recommended by the Bridge report—is considered to be desirable protection against a sudden influx of new members with little previous involvement in parish life.
In addition to making changes to the church representation rules, the Measure also makes a number of other miscellaneous changes to legislation relating to Church life at diocesan level. Those include the lightening of certain committee structures—always welcome in the life of the Church—and an amendment to the functions of diocesan synods to enable them to approve the annual budget and accounts of the diocesan board of finance. The latter change reflects an increasing desire to enhance strategic management by bringing policy and finance together.
The changes to synodical government effected by the Measure may at first sight seem somewhat amorphous and modest in themselves. But taken together, they nevertheless represent a valuable and uncontentious first stage in the process of synodical reform and development, to which the Church stands committed. They have been passed by the General Synod and found expedient by the Ecclesiastical Committee. I therefore commend them to the House. I beg to move.
Moved, That this House do direct that, in accordance with the Church of England Assembly (Powers) Act 1919, the Measure be presented to Her Majesty for the Royal Assent.—(The Lord Bishop of Guildford.)
Lord Newby: My Lords, I declare an interest as a clergy spouse. We on these Benches support the measures. I have only two points to make. First, they once again represent the extreme deliberation—if not slowness—with which the Church of England deals with change. They are extremely modest and have taken a long time to reach this point. Secondly, the

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right reverend Prelate the Bishop of Guildford mentioned the possibility of incomers flooding a PCC. The thought of entryism in the Church of England is a new concept to me. I suspect that for many clergymen and women, the thought of a lot of new people wanting to be on the PCC would be only too welcome a novelty. But I am sure that a period of six months will not deter people too much, so, as with the other proposals in the Measure, we will support it.
The Lord Bishop of Guildford: My Lords, I welcome that contribution. We are discussing not membership of PCCs but attendance at annual meetings. There are occasions when contentious issues are around and a little campaigning goes on. The provision provides a little discipline.
On Question, Motion agreed to.

Church of England (Pensions) Measure
6.56 p.m.
The Lord Bishop of Guildford The Lord Bishop of Guildford rose to move, That this House do direct that, in accordance with the Church of England Assembly (Powers) Act 1919, the Measure be presented to Her Majesty for the Royal Assent.
The right reverend Prelate said: My Lords, this Measure makes provision in essentially two main areas: the first relating to various powers of the Church of England Pensions Board and the second relating to a particular power of the Church Commissioners.
As regards the position of the pensions board, the Measure, first, amends its powers in relation to certain charitable funds that it has previously held on statutory trust for the benefit of its pensioners and their dependants. It does so by winding up those funds and transferring them to the general purposes fund established by the board in 1975. The Measure then gives that fund charitable purposes, which embrace all the former purposes of the funds added to it. The result of that will be to enhance the flexibility that the board enjoys to make discretionary charitable provision for its pensioners and others, as well as reducing administrative costs.
The Measure also widens the board's powers in relation to the provision of retirement housing for those who have served in the stipendiary ministry. Previously, where a couple housed by the board divorced after retirement, the board has been able to continue to house only its pensioner, not the pensioner's former spouse. The Measure gives it power to do so, enabling the board to be even-handed between them.
Those changes in relation to the powers of the Church of England Pensions Board—and another technical change clarifying responsibility for the costs of accruing pension rights in certain circumstances—are addressed in Clauses 1 to 4 of the Measure. The remaining clause, Clause 5, extends the lifespan of one of the powers of the Church Commissioners which was granted to them in 1997.
If your Lordships dig deep into your memories, you may recall that the pensions Measure 1997 significantly altered the arrangements for the funding of clergy pensions. In particular, it limited the commissioners' pension liabilities to those arising from service before the end of 1997 and created a new and separate funded scheme into which dioceses—through funds raised from parishes—could pay clergy pension contributions in respect of service from the beginning of 1998. In support of those arrangements, it gave the commissioners power—but only until the end of 2004—both to give financial assistance to diocesan boards of finance and others in taking on the cost of paying those pension contributions and to spend capital in meeting their own pre-1998 pension liabilities.
It is the last of those powers that the Measure will alter by extending for a further period of seven years—from 1st January 2005—the commissioners' power to spend capital to pay their pre-1998 clergy pension liabilities. The reason for seeking that extension is that, because of the need to fund these liabilities, the commissioners' expenditure is likely to exceed their income by at least £30 million per annum for the foreseeable future. Without the continuation of the power to resort to capital to meet those liabilities, the commissioners would need to make substantial cuts in their discretionary expenditure or re-align their investment portfolio to generate higher income. Either course of action would damage the Church's long-term interests.
Your Lordships will be aware that there was one aspect of the Measure that initially gave cause for concern to the Ecclesiastical Committee. The difficulty that the committee identified in the form that the Measure originally took was that, in addition to providing for an initial extension of the power for seven years up to 2011, it provided for an indefinite number of further extensions after 2011, to be secured by a statutory instrument made by the General Synod and subject to annulment in Parliament. The Ecclesiastical Committee considered that to be inappropriate, taking the view that any further extension ought to be achieved not by statutory instrument but by means of a Measure.
I am glad to be able to reassure your Lordships that that point of concern has now, of course, been resolved. In the light of the views expressed by the Ecclesiastical Committee, the Measure was re-introduced to General Synod and amended by omitting the power to obtain further such extensions. As a result, further extensions of the commissioners' power will have to be achieved by Measure, as the Ecclesiastical Committee thought that they should be. The Church was willing to amend the Measure in that way because it did not consider any question of principle to be involved. Had the Church known the views of parliamentarians in that respect—which it did not—at the time when the Measure was being drafted, proper account would have been taken of them.
The Measure, in the form in which it is before your Lordships' House, has accordingly been found expedient by the Ecclesiastical Committee. I hope that your Lordships will now feel able to approve the Measure. I beg to move.
Moved, That this House do direct that, in accordance with the Church of England Assembly (Powers) Act 1919, the Measure be presented to Her Majesty for the Royal Assent.—(The Lord Bishop of Guildford.)
Lord Newby: My Lords, unlike the previous Measure, this Measure has significant implications for the Church of England. The cost of fulfilling its obligations to clergy pensioners is such that half the capital assets of the commissioners are likely to be spent over the next 60 years in settlement of those obligations. It will have a major impact on the funding of the Church and on the scope of the commissioners.
The Church has an obligation to provide for its pensioners. I should add that my wife is not covered by the Measure, so I have no personal interest in it. It is an example of the Church leading, in the sense that it is accepting and living up to its obligation, even though that may be painful. Many companies might benefit from considering that example. We support the Measure.
The Lord Bishop of Guildford: My Lords, I thank the noble Lord for those remarks.
I shall add one thing. As the Church Commissioners' capital is used for past pension service, so a new fund is being built up, so the total impact on the Church's total resources is not quite as it might appear.
On Question, Motion agreed to.

Police and Criminal Evidence Act 1984 (Codes of Practice) (Statutory Powers of Stop and Search) Order 2002
7.3 p.m.
The Minister of State, Home Office (Lord Falconer of Thoroton)The Minister of State, Home Office (Lord Falconer of Thoroton) rose to move, That the draft order laid before the House on 13th November be approved [2nd Report from the Joint Committee].
The noble and learned Lord said: My Lords, the order has been seen by the Joint Committee on Statutory Instruments. With the approval of this House and of another place, it will bring into effect from 1st April 2003 the revised code of practice for the exercise by police officers of statutory powers to stop and search a person, without first arresting him, and to stop and search a vehicle, without first making an arrest. The order has been made under Section 67 of the Police and Criminal Evidence Act 1984, which I shall call "PACE" from now on. It cannot have effect until it is approved by resolution of each House.
Under Section 66 of PACE, my right honourable friend the Home Secretary has a duty to issue codes of practice to regulate the police in the exercise of their powers. There are six codes of practice, entitled A to F. The current version of PACE Code of Practice A for the exercise by police officers of statutory powers of stop and search came into force on 1st March, 1999. Since then, a variety of legislative changes have amended the powers of stop and search available to police officers. It is time to update the code.
Since 1999, there has been a wide-ranging public debate about the use of the powers and, in particular, the question of whether the powers have been exercised by officers in a way that discriminates against members of minority ethnic communities. The debate was brought into focus by the report of the Stephen Lawrence inquiry, published in 1999, which highlighted the importance of the use of stop-and-search powers in the context of relations between the police and the community and made a number of recommendations in that area.
In accordance with the provisions of Section 67 of the PACE, my right honourable friend the Home Secretary prepared and published in March, 2002 a draft of the code of practice, considered representations made to him about that draft and modified it accordingly. The consultation draft was prepared in collaboration with the Association of Chief Police Officers, as well as the other staff associations, police authorities and independent advisers drawn from diverse organisations and communities. Many were drawn by the Lawrence steering group, which oversees the implementation of my right honourable friend's action plan in response to the Lawrence inquiry report.
The revised draft code covers the exercise by police officers of the statutory powers of stop and search. There is a separate issue relating to the recording of stops or non-statutory encounters. That will be the subject of phased implementation and is not part of what we are debating today.
I hope that the proposed revisions to Code A are not contentious. The objective in revising Code A has been to ensure that the powers of stop and search are exercised in a way that would be as effective as possible in reducing crime but would also promote trust and confidence in policing in all communities. It is clear that, in order to achieve those objectives, stop and search powers must be used in a fair, reasonable and non-discriminatory way. Furthermore, research evidence shows a clear link between fairness and effectiveness. In other words, when the powers are used in a way that is likely to increase trust and confidence, their use is more likely to reduce crime. The revised code, therefore, includes important new provisions for searches and ethnic monitoring which will significantly increase the confidence of the public and of officers using the powers.
I shall highlight some of the main changes. The revised code sets out the principles that govern stop and search. It places an obligation on forces, in consultation with police authorities, to make

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arrangements for search records to be scrutinised by representatives of the community. An officer carrying out a search must now record the person's self-defined ethnicity, as per the 2001 census classifications. There is a clearer definition of what constitutes reasonable suspicion in the exercise of the powers. The revised code says that there should be an objective basis for that suspicion, based on facts, information and/or intelligence relevant to the subject of the search. Reasonable suspicion must never be supported by generalisations or stereotyped images of certain groups.
The revised code also states that an officer carrying out a search must explain the grounds for reasonable suspicion. In the revised code, an officer who has carried out a search must make a written record at the time unless that would be wholly impracticable, such as in situations of public disorder or when the officer's presence is required urgently elsewhere. A copy of the record must be given immediately to the person who has been searched. Generally, the revised code is clearer throughout and simpler for officers and the public to understand, something that was commended in the public consultation.
Statistics published on 7th November, 2002, show that 714,000 stops and searches were recorded in England and Wales in 2001–02. Of those, 12 per cent were of black people, 6 per cent of Asian people and 1 per cent of other minority ethnic groups. Black people were eight times and Asians three times more likely to be stopped and searched than white people in 2001–02. Although more work must be done to understand fully what the statistics mean, they are still deeply concerning. The new provisions for searches and for ethnic monitoring should help us better to understand and address any disproportionality in the use of the powers.
The revision of Code A has long been awaited by the police service. There is an eagerness for this important step in the reform of the overall process. As far back as 26th May 2001, the Association of Chief Police Officers council agreed to introduce the 2001 census ethnicity, classifications for, among other things, stops and searches, and issued detailed guidance on 12th March 2002. The Association of Chief Police Officers also issued a good practice guide on stop and search in August 2001. The revised Code A essentially follows the principles and provisions of stop and search which were laid out in this guide and at the 14th meeting of the Lawrence steering group in January 2002. ACPO was keen that the revised draft should be put out to consultation without delay. The police service wants this revision and I urge its acceptance. I commend the order to the House.
Moved, That the draft order laid before the House on 13th November be approved. [2nd Report from the Joint Committee].—(Lord Falconer of Thoroton.)
Viscount Bridgeman: My Lords, first, I apologise for not being in my place at the start of the debate. From this side of the House we support the order as a sincere attempt to address this sensitive subject and to adjust
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secondary legislation in the light of experience. As the Minister said, the whole subject is dominated by the findings of the Stephen Lawrence inquiry.
I commend a letter by the Minister, Mr John Denham, to the Independent on 11th November, which I believe set the scene well. He made the point that any figures released on this subject produce a predictable but sterile debate. However, he suggested one or two reasons for that; namely, the possibility that some types of crime have a greater prevalence in some communities than others, and that some types of crime are associated with areas of poverty, deprivation and weak, fragmented communities which reflect ethnic mix, as opposed to ethnicity, which is an important distinction.
I suggest that that sets in context the figures recently released by the Home Office showing that blacks are eight times more likely to be stopped than whites, which gives an indication of the problems that that type of code of practice faces. On the other side, another consideration is that following publication of the Macpherson report there was evidence that police officers were reluctant to stop and search blacks or Asians in view of the sensitive climate that prevailed.
On this side of the House, we feel that the draft code attempts to address those problems. It cites three important considerations: first, respect for the individual and no unlawful discrimination; secondly, the intrusion must be brief and as near as possible to the location of the stop; and, thirdly, no search is to he made where there is no authority under legislation to do so.
The draft code makes clear the positive intentions, and that should not be forgotten. Stop and search, with all its potential hazards and pitfalls, is a means to enable officers to allay or confirm suspicions about individuals without exercising their powers of arrest. As such, that can play an important role in the prevention and detection of crime. I have just one question for the Minister. The whole problem of race relations and crime is a constantly moving one. Will the Minister reassure me that the problem is being kept under continual review and that the Government will not hesitate, should the situation arise, to issue a further revised code in the light of experience?
7.15 p.m.
Baroness Harris of Richmond: My Lords, we on these Benches offer our support for this statutory instrument. We do so because we are satisfied that the draft code has been prepared in consultation with key police and community organisations. It has, as we have heard, the backing of the Lawrence steering group which monitors the Home Secretary's action plan in relation to the Stephen Lawrence inquiry report. Here, I must declare my interest as a former chairman of the North Yorkshire Police Authority and deputy chairman of the National Association of Police Authorities.
The new code of practice on how police officers use their stop-and-search powers is welcome in many ways. The code is now much clearer and easier to read

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and understand. That is important because the code needs to be understood, not just by police officers but by the public as well.
Stop-and-search powers are an important police tactic. The effective and targeted use of stop and search can contribute to preventing and detecting crime. And that is why the public are generally supportive of the police having extensive powers—extensive and, in many ways, intrusive powers. A police officer can stop one in the street while about one's normal business. He or she can search one's person and ask for pockets or bags to be turned out, and even remove outer clothing. That is why it is so important that people are stopped only with good reason and that police use of those powers is rigorously scrutinised by police authorities and local people.
However, recent figures published by the Government give cause for concern. As the noble and learned Lord reminded us, black people are eight times more likely to be stopped and searched than white people, Asians three times more likely. We need to exercise great caution in the claims that the drop in stop and searches has produced a rise in street crime. It is hard to see how that could be so because only about 12 per cent of stops produced an arrest. In reality, even if there were a clear-cut link between the use of stop and search and crime rates, there could be no argument of returning to the old days of racially biased use of the powers.
The figures are disturbing. It is not surprising that stop and search is—as we know—one of the main causes of mistrust and conflict between the police and minority ethnic communities. That has to be a major cause of concern because policing by consent works only if we all have confidence and trust in the police service. We all need to work hard to build greater trust in policing among minority ethnic groups. I know that it is a priority for all police authorities, as it is for the Government. The new unit set up by the Government to look at the issue will be helpful.
Part of the difficulty is the way that officers handle those encounters: people want to be treated fairly and with respect. Clearly, there is a key issue here for police training. The new code could help, but pilot studies have proved the need for better use of such powers.
It is disappointing that the Government have not taken the opportunity to implement the recommendation in the Stephen Lawrence report that the police should make a record of stops as well as searches. The record is important because it enables a person to understand why he has been stopped and on what grounds. The draft code which the Government issued for consultation earlier this year included proposals to implement that recommendation. The version of the code we are discussing today does not include it.
In spring 2001, the first ever nation-wide consultation was carried out by all police authorities on this issue. Generally, the response from communities was that they wanted the police to record stops. They saw it as a way of making the police more
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immediately accountable for their use of the powers. In particular, minority ethnic communities and young people wanted to be given a record.
However, the Government have now chosen to implement Recommendation 61 on a phased basis in seven police areas. I believe that that could mean a further two years' delay before it is implemented fully across the country. I know that we are not discussing it today, but I know the noble and learned Lord will take note of my concern.
I know that police authorities across the country will work closely with forces and the Home Office to find practical and effective ways of implementing the recommendation. None of us wants to add unnecessarily to police paperwork. I suggest that mobile terminals will almost certainly provide a way forward. We must also draw on good practices.
Therefore, in welcoming the new code, I urge the Government to press on with full implementation of Recommendation 61 and give a commitment to its introduction across the country as quickly as possible. We shall certainly ask for a proper system of monitoring the use of the code to ensure that it delivers what it set out to do without reverting to stereotyping people.
Earl Russell: My Lords, perhaps I may be forgiven for adding a small footnote to what my noble friend Lady Harris of Richmond said, with which I fully concur. Like her, I welcome the spirit in which the noble and learned Lord introduced the order.
My small footnote concerns what was, when it left this House, Section 7 of the Asylum Act 1996. That authorised the police to stop and search anyone on suspicion of being an illegal immigrant. The potential for that to be used in a discriminatory manner is considerable. The noble Viscount, Lord Bridgeman, referred to the need to avoid legislation discriminatory in its impact. Will the noble and learned Lord consider whether this may perhaps be a case in point?
Lord Falconer of Thoroton: My Lords, I thank the noble Viscount, Lord Bridgeman, the noble Baroness, Lady Harris of Richmond, and the noble Earl, Lord Russell, for their support, both for the terms of the code of practice and the way in which it was introduced.
I can readily give the noble Viscount, Lord Bridgeman, the assurance that he seeks. He asked that the order should be kept under review and for an undertaking that it would be changed if appropriate. As to keeping it under review, I draw the noble Viscount's attention to the unit referred to by the noble Baroness, Lady Richmond, which was set up in the light of the recently published Section 95 statistics showing the "eight times more likely to be stopped and searched" statistic to which we have all referred.
The noble Baroness, Lady Richmond, referred to Recommendation 61. She will be aware—but it is worth putting it on the record—that we intend to carry out several trials and pilots from spring of next year. They are not yet up and running. They will be carried

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out at the behest of the chief constables in the relevant forces. It will be a matter of administrative practice, therefore it will not require PACE code amendments. However, when they have been evaluated in due course and we have identified the best way in which to introduce the power nationally, we anticipate a further revision of the code. So, as has been said, we are going about it in a phased way.
Finally, I take note of the point made by the noble Earl, Lord Russell. I shall reflect upon it and write to the noble Earl.
On Question, Motion agreed to.

Proceeds of Crime Act 2002 (Cash Searches: Code of Practice) Order 2002
7.20 p.m.
The Attorney-General (Lord Goldsmith)The Attorney-General (Lord Goldsmith) rose to move, That the draft order laid before the House on 25th November be approved [3rd Report from the Joint Committee].
The noble and learned Lord said: My Lords, I should inform the House that the Joint Committee on Statutory Instruments approved the draft order last Tuesday, 3rd December and that a Standing Committee in the other place approved it this afternoon.
I hope that your Lordships have had the opportunity to study the explanatory memorandum and the draft code of practice which provide background on the need for and content of the draft order.
Your Lordships will recall that the Proceeds of Crime Act contains a comprehensive package of measures focusing on the recovery of criminals' proceeds and wealth. Included in the provisions is a scheme for the recovery of cash in summary proceedings. These can be found in Chapter 3 of Part 5 of the Act. The draft order before the House brings into operation a code of practice connected to that scheme.
Provisions relating to the recovery of cash are not new. The Criminal Justice (International Co-operation) Act 1990 introduced a power for police and Customs officers to seize cash discovered on import or export which was reasonably suspected of being derived from or intended for use in drug trafficking. An application could then be made subsequently in a magistrates' court for the forfeiture of the cash. No conviction was required for the forfeiture of the cash to be ordered. Cash forfeiture proceedings are civil proceedings and the civil standard of proof applies. These provisions were later consolidated into the Drug Trafficking Act 1994, which applied on a UK-wide basis.
The Proceeds of Crime Act replaces and extends this scheme to cash related to all unlawful conduct and also provides for the seizure of such cash inland. Like the previous legislation, the Act provides for a minimum amount of cash in respect of which the search and seizure powers may be exercised. My honourable friend
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the Under-Secretary has made and laid before Parliament the Proceeds of Crime Act 2002 (Recovery of Cash in Summary Proceedings: Minimum Amount) Order 2002, which sets the minimum amount at £10,000.
Significantly, police and Customs officers have no existing specific power to search for cash inland. Under previous legislation, Customs officers could rely upon their general powers of search at the borders under the Customs and Excise Management Act 1979. The Police and Criminal Evidence Act 1984 allows police to search for evidence. Cash may be evidence, but not in every case. A specific search power is therefore necessary to support the ability to find and seize cash inland.
In recognition of the sensitivity of search powers, this new search power is subject to a number of safeguards, including a statutory code of practice. The code is required before the search powers can come into operation. Section 292 of the Act requires that the code be made in connection with the exercise of the search powers by a constable or Customs officer. The code has been drafted and the draft order before the House will bring that code into operation.
An initial draft of the code was published for public consultation on 23rd August. That consultation period ended on 15th November. Revisions have been made to the draft code in the light of the comments received, and a summary of the responses to the draft code and the Government's comments are in the Library.
The draft code has a short introduction. It places an obligation on the police and Customs to ensure that the code is publicly available for consultation. The Government believe that the availability of the code will ensure that the operation of the power will be open to public scrutiny and accountability.
The draft code draws particular attention to the officer's obligations under the Human Rights Act and the Race Relations Act. I am satisfied that this order and the code are compatible with both of these Acts. It is vital that the rights and protections conferred by these Acts are uppermost in an officer's mind when he is considering and exercising the search power. The draft code defines the limitations of the search power and gives guidance on the objective tests required for forming "reasonable ground for suspicion" before a search can be undertaken.
The draft code also provides guidance on the procedure required when an officer is seeking judicial prior approval, as provided in Section 290 of the Act. Rules have been made by my noble and learned friend the Lord Chancellor under which a justice of the peace can hold an application hearing in private away from the court. This will allow flexibility in arranging applications quickly and will encourage officers to use this route rather than their own administrative powers of search.
"Reports to the 'Appointed Person" gives guidance on the requirement in Section 290 of the Act to report to an appointed person and sets out the related procedure. A report will be required to be sent to the appointed person where searches were not approved by a justice of the peace and cash was either not seized

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or not detained for more than 48 hours. The appointed person is an independent person overseeing the operation of the new search power.
The remaining sections of the code deal with the steps prior to a search, the actual search of both persons and premises and the officer recording his actions. They ensure that officers conduct searches in a reasonable manner and provide several limitations and safeguards on that power. For example, paragraph 32 sets out the limitations of a search, disallowing the forcible removal of objects next to the skin, and paragraph 36 requires that searches should be performed at a reasonable hour where practicable.
The draft code is intended to be self-explanatory and easily understood and any further detail I give would merely be repetition of the document.
In summary, I am satisfied that the draft code sets out clearly the processes and safeguards required for the operation of the new search power. I hope that having more than 4,500 words shows the detail of best practice that we are imposing on officers and satisfies noble Lords that searches will have the required safeguards as checks on the power.
Because of the nature of the draft order I have spoken more to the draft code rather than to the order. The only further point specifically on the order is that it brings the code of practice into operation on 30th December. My honourable friend the Under-Secretary has signed a commencement order bringing the cash scheme into force on that date.
I commend the order and the draft code of practice to the House.
Moved, That the draft order laid before the House on 25th November be approved [3rd Report from the Joint Committed.]—(Lord Goldsmith.)
Viscount Bridgeman: My Lords, we on this side of the House support the order which, as the noble and learned Lord, Lord Goldsmith, made clear, effectively gives teeth to the power to seize cash conferred under the Proceeds of Crime Act 2002.
We note that the language and structure of the order are based on similar codes of practice under the Police and Criminal Evidence Act 1984, where these procedures for search are largely proven. I certainly welcome the assurance of the noble and learned Lord that the code complies with the Human Rights Act and with the Race Relations Act.
We are pleased to note the requirement for prior judicial authorisation wherever possible; the requirement for a report giving reasons for any action where such approval has proved impracticable—one presumes that that will be largely on grounds of time considerations; and, indeed, for the requirement that any search operations must be fully reported.
We also note that any searches, whether of persons or of premises, must be proportionate. That leads me to the question that I asked the noble and learned Lord, Lord Falconer, earlier. The whole issue of proportionality is subjective. I should welcome an
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assurance that this is being kept under review. There are constant changes, not only in the technology but also in the increasing sophistication and resourcefulness of criminals in making use of it; and also in terms of the increasing globalisation of crime. With that request for an assurance, we on these Benches welcome the order.
7.30 p.m.
Lord Goodhart: My Lords, the order is to a large extent dictated by the terms of the Proceeds of Crime Act. It is very much in line with what one would have expected under that Act. Certainly, we on these Benches have no quarrel in principle with the proposals in the order. But I am afraid that, having looked through the code of practice, I am going to make a few rather tedious points on the drafting—which is less than perfect and not as good as one would have hoped.
First, paragraph 9 reads:
"Where the power to search a person is exercised the Act requires that the officer or constable"—
the words "or constable" are unnecessary, since the word "officer" has already been defined as including a constable—
"may require the suspect—so far as he thinks necessary or expedient—to permit (a) a search of any article he has with him; or (b) a search of his person".
It is provided that an officer may detain the person for so long as is necessary to carry out the search.
This implies that detention is possible where the search is carried out under either (a), the search of an article, or (b), the search of the person. In fact, the authorising provision of the Act—namely, subsections (3) and (4) of Section 289—makes it clear that detention is only possible under (b), that is, for the purpose of the search of the person, and that there can be no detention for the purpose of searching an article that the person has with him. Perhaps the noble and learned Lord the Attorney-General would comment on that.
The third sentence in paragraph 10 is ungrammatical and reads extremely awkwardly.
Paragraph 22 states:
"The report must be submitted to the independent person appointed by the Secretary of State"—
Simply by way of comment, I think it slightly unfortunate that one is left with the statutory phrase "the appointed person", which I assume is due to the fact that the "appointed person" has not yet been appointed. It might have been easier for people reading the code to understand it if someone had been appointed already and could be referred to by name in the code—subject, of course, to it being made clear, as with the minimum figure of £10,000, that the information is subject to change.
Perhaps more importantly, the second sentence of paragraph 22 says that,
"Reports in respect of searches undertaken by customs officers in Scotland, must be submitted to the independent person appointed by Scottish Ministers".

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It is clear from Sections 290 and 291 of the Act that reports not only by Customs officers but by police officers in Scotland must be submitted to the independent person appointed by Scottish Ministers. So, in so far as the reference is specifically and exclusively to Customs officers, the statement in paragraph 22 is incorrect.
Moving on to paragraph 35, I am afraid that once again the sentence is ungrammatical.
I ask the noble and learned to comment on a point in the fourth sentence of paragraph 36, referring to rights of entry. It states:
"It would also include a search carried out when an officer has exercised a power of entry conferred by a search warrant granted in some other connection or power of entry conferred under some other legislation such as the Police and Criminal Evidence Act 1984 or Customs and Excise Management Act 1979 and circumstances subsequently lead him to believe that there is cash on the premises".
I should have thought that where a right of entry was conferred under some other statute it would be legitimate to carry out a search even if the officer conducting the search believed before entering the premises that cash might be there; whereas paragraph 36 suggests that it must be circumstances subsequent to the lawful entry which lead him to believe that there is cash on the premises.
On a further grammatical point, in paragraph 40 the expression,
"the object of the search",
is given quite different meanings in two successive sentences. The first sentence states:
"Premises may be searched only to the extent necessary to achieve the object of the search".
The paragraph then goes on to say:
"A search may not continue once the object of the search has been found"—
where, equally plainly, the term means the thing that you are looking for. I also wonder whether in the second sentence "the object of the search" has any obvious meaning when you are talking about cash, because cash is not normally a single object but a whole series of objects and it may be difficult to be certain that you have found all the cash that you are looking for.
Those points are, as I said, rather tedious. In making them I do not intend to suggest that we do not fully support the purposes behind the order. I await the noble and learned Lord's reply with interest.
Lord Goldsmith: My Lords, I am grateful for the noble Lord's last sentence. I was beginning to wonder in the light of what he had said previously.
I am grateful for the general support for the code that came from the noble Lord, Lord Goodhart, and the noble Viscount, Lord Bridgeman.
I turn first to the comments of the noble Viscount. He is absolutely right in saying that this follows a precedent set by other codes, particularly PACE codes. There is, of course, an important difference. The PACE codes relate to criminal matters, whereas the provisions in the Proceeds of Crime Act are civil.
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But in terms of following the precedent that they have established, in terms of setting up clearly, in order, the way in which these powers should be exercised, we have drawn on that and the noble Viscount is right to draw that comparison.
He asked whether it was intended to keep under review the operation of the code. Again, he is absolutely right in saying that we have to take account of the fact that there are constant changes in the ways in which criminal conduct is committed, and we have to keep up to date with those. I can assure him that the operation of the code will be kept under review.
The noble Lord, Lord Goodhart, will forgive me if I do not pick up on his grammatical points. I am sure that they are all good—although I took exception to one or two and was not sure that I agreed with them. But never mind. It is not possible to amend the code at this stage. Plainly, the noble Lord's points will be taken into account when there is a revision of the code. Dare I say that there was an opportunity to comment previously? Had those points been made at an earlier stage, they would no doubt have been looked at and either accepted or not as the draftsmen thought right.
I shall deal with the noble Lord's specific points. The first question, related to paragraph 9, was on the power to detain so that a search can take place. The noble Lord is right in saying that under Section 289(3) of the Act, the power to detain applies only where there is a search of a person, not where there is a search of an article. The code says that the person may be detained,
"so far as he thinks necessary or expedient"
to carry out the search. If the item to be searched is a bag, it is not necessary to detain the person. Strictly speaking, the code is right, because of that important qualification on the power. I assure your Lordships that that point will be made explicit in a Home Office circular that will be circulated to police and Customs before the recovery of cash scheme begins so that there is no misunderstanding about the power to detain.
The second point, related to paragraph 22, was on reports to be made by Customs officers in Scotland. It states that they must be submitted to a "person appointed", who will be appointed by Scottish Ministers. The noble Lord is not right on this point. It is a devolution issue. The draft code covers Customs officers throughout the United Kingdom. In respect of police officers, a separate code is issued by Scottish Ministers. The difference between the two is that Customs matters are reserved under the Scotland Act 1998 whereas policing matters are not. That accounts for the difference in treatment between them.
The noble Lord also questioned whether the appointed person had yet been appointed. He has. A panel under Home Office chairmanship, which included a circuit judge and an independent assessor, met on two days in November to consider candidates from a wide field. My honourable friend the Under-Secretary has invited Mr Andrew Clarke to take up the post on 30th December.
The noble Lord referred to paragraph 36 of the draft code. The intention is to prevent a situation in which anyone would misuse the powers of entry given in

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other legislation to find cash. In the majority of cases, police or Customs officers will come across cash when they are lawfully on the premises for a different purpose. It therefore seemed right to emphasise in the code that those other powers were not to be used for the purposes of searching for cash. The Act does not provide any power of entry to premises to search for cash itself. The powers can be exercised only when someone is on the premises.
I hope that those answers will satisfy the noble Lord. I am grateful for the support of the noble Lord and the noble Viscount.
On Question, Motion agreed to.

Jobseeker's Allowance (Amendment) Regulations 2002
7.44 p.m.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham) rose to move, That the draft regulations laid before the House on 20th November be approved [2nd Report from the Joint Committee].
The noble Baroness said: My Lords, these draft regulations are entirely benign. I hope, therefore, not only that they will be welcomed, but welcomed uneventfully. They have two purposes. First, they will remove a barrier to volunteering among the unemployed. As your Lordships will be aware, those claiming jobseeker's allowance must generally be available to take up an offer of paid work immediately. Jobseekers who undertake voluntary activities are, however, allowed 48 hours' notice before they must start a job. That short period of notice leaves it difficult for voluntary organisations to manage the activities of unemployed volunteers. The amending regulations should make it easier. Claimant volunteers will in future have a week's grace before they must start employment. That will give voluntary organisations a week to arrange for others to do the work that the unemployed volunteers have been doing. They will thus have as much notice as many employers, whose employees must give a week's notice before quitting.
The relaxation in the rules should also make it easier for jobseekers to make a greater commitment to volunteering. At present, around one in 10 jobseekers participates in voluntary activities. We hope that this amendment may, in a modest way, enable that proportion to rise. By undertaking voluntary activity, unemployed people can both make a difference to their own community and improve their own lives. It does not always lead to a paid job; but it can help people to acquire more experience, skills and confidence, which may in turn help them to succeed in the labour market.
We do, however, need to retain the work focus of jobseeker's allowance if it is to be effective in getting jobless people into employment. So we propose that claimant volunteers should still be available at 48 hours' notice for an interview in connection with a job. That should prevent them from missing employment
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opportunities because of their volunteering. As a further safeguard, we shall evaluate the effects of this rule change during the first year. However, we are not deliberately building an expiry date or mechanism into the amending regulations. So, if we consider it necessary, we can revisit the subject.
The second purpose of these amending regulations is to take account of the introduction of statutory paternity and adoption leave. As your Lordships will know, this year's Employment Act introduced important new rights to help parents to balance their work and family lives. Those include, for the first time, rights to paid time off work for fathers and adoptive parents. Draft Regulation 5 deals with the need to provide that, while they are on paternity leave or the paid period of adoption leave, parents are not to be treated as available for employment. That is essentially a back-up measure, as we do not expect that, in practice, parents who are on leave from their jobs to look after their children will try to claim JSA. But, if they do, it is clearly reasonable to treat them as not being available for employment. It is also important to prevent double provision between JSA and statutory paternity pay or statutory adoption pay. Currently, women are ineligible for JSA while receiving statutory maternity pay or maternity allowance because they are not regarded as available for employment. We are simply extending this approach to cover the new situations created by the Employment Act.
In conclusion, these draft regulations have two aims. First, they indicate—albeit modestly—the Government's commitment to supporting an expansion of voluntary activity among unemployed people. Secondly, they deal with the need to provide that people on adoption or paternity leave are not to be treated as available for employment, should they try to claim jobseeker's allowance. I am satisfied that these draft regulations are compatible with the European Convention on Human Rights. I commend them to the House. I beg to move.
Moved, That the draft regulations laid before the House on 20th November be approved [2nd Report from the Joint Committee].— (Baroness Hollis of Heigham.)
Lord Higgins: My Lords, I agree that the draft regulations are benign and can be welcomed. The noble Baroness hopes that they will be welcomed "uneventfully", but I am not sure what she means by that. I have only two "events" to raise. First, the regulations do not appear to define voluntary work. I understand from what she has said that it means voluntary work for an organisation. That still leaves unanswered the question of what is an organisation in this context. She may be able to enlighten us.
Secondly, as the noble Baroness rightly points out, the regulations also cover statutory paternity leave or ordinary adoption leave. I am clear on what statutory paternity leave is, but I am unclear on what ordinary adoption leave is, as against extraordinary adoption leave, if there is such a thing. Perhaps she might clarify these points. Otherwise, I agree entirely that these are sensible regulations, which should be approved.
Earl Russell: My Lords, the Minister was in the House just now, listening to my noble friend Lord Goodhart. When I say that he gave a brilliant demonstration of why it is a pity that regulations are not amendable, I do not mean to criticise the drafting of these regulations, which has been done with great care. I make purely a general point. I join the general and—as far as I can see—universal welcome of the main principle of these regulations. The encouragement of volunteering, which has been pressed for consistently since the introduction of JSA under the previous government, is warmly to be welcomed, both on the ground of the need to encourage civic spirit and on the need to give people training that may help them to get into future employment—and for the public good that much of it does. In that way, this is entirely welcome.
I very much welcome the inclusion of paternity leave. I have believed for a long time that the supposed female monopoly on childcare needs to go the same way as the past male monopoly on work. These two changes have come together. That is welcome, as is the recognition of adoption leave, which is coming in, worded as it is, in the light of the Adoption and Children Act 2002, which has just completed its passage through this House.
I have just one reservation, which concerns not what is in the regulations, but a missed opportunity in the amendment of Regulation 5 of the original Jobseeker's Allowance Regulations, which provides that people with carring responsibilities should be available for work within 48 hours. The extension of that 48 hours to volunteering is to be warmly welcomed, but in general it could have been extended for people with caring responsibilities. Very often, it is impossible to know exactly what caring responsibility you need to find help with until you know the hours of your employment, the physical geographical direction of your employment and what transport is available. If, for example, there is a bus that runs once an hour, it does not help if your nursery or place of childcare is on the same bus route. You have to stop to drop your child off and then you have to wait an hour for the next bus and you arrive late at work. You probably will not last long that way.
The same applies if the hours or directions are incompatible. When you actively seek work, you do not know whether you will need to travel north, south, east or west to find it until you get it.
In the light of that, a lot of parents will need to arrange their childcare all over again once they know what work they are being offered. For that, 48 hours is a very short time.
I am sure there will be future regulations dealing with jobseeker's allowance. If and when there are, I hope that point will be considered. That is the only note of reservation I wish to sound on these regulations, which I warmly welcome.
Baroness Hollis of Heigham: My Lords, I am grateful to the noble Lord and the noble Earl for their warm welcome. I am sure that had the noble Lord,
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Lord Goodhart, been here he would have scolded me for the use of the word "uneventful" I meant it as an alternative to saying that the regulations were not controversial and did not give rise to an issue of concern. Fortunately, I may be able to help the noble Lords with their eventful issues.
The definition of voluntary work is work for a not-for-profit organisation or work for anyone other than a member of a claimant's family, provided the claimant receives no payment, or only the payment of reasonable expenses. The proposals do not affect the existing small disregards for retained firemen and so on. Whether somebody is a volunteer is a question of fact for the Jobcentre Plus decision-maker. Clearly, someone is not a volunteer just because they do not accept a wage for a job for which somebody alongside them is accepting a wage. Then they are forgoing a wage that they would otherwise be entitled to have.
The noble Lord, Lord Higgins, asked about paternity and adoption leave. This is primarily a DTI matter, which is why he would not normally be familiar with it, but it has kickbacks into eligibility for jobseeker's allowance. Fathers will normally have a new right to two weeks' paid paternity leave, which can usually be taken within two months of a child's birth. Statutory paternity pay will be at the same standard rate as statutory maternity pay—£100 per week or 90 per cent of average earnings if that is less than £100 in April 2003. Of the 400,000 new fathers every year, we expect perhaps 70 per cent to take it up. It is a welcome two-week break for them to be able to give their partners the support that they probably need at that time.
Adoptive parents—I am thinking now of the primary carer, not necessarily the father—will have a new right to 26 weeks' adoption pay and up to one year's adoption leave in total. Again, that is to be paid at the same rate as statutory maternity pay. We expect this to affect perhaps 4,000 adoptive parents. It is interesting that about 82 per cent of adoptive parents—both parents—are in full-time or part-time work. There is a need for that support, particularly, from my experience, if the parents are trying to settle into the home not necessarily a baby, but an older child who may have had a troubled background. We know that about 20 per cent of such placements can easily break down, with the child being recycled back into the care system as a result. I hope that answers the noble Lord's question.
Lord Higgins: My Lords, I am most grateful to the noble Baroness. I understand all that, but it was not my question. What is "ordinary" adoption leave as against, perhaps, extraordinary adoption leave or not ordinary adoption leave, or whatever? The term is used precisely.
Baroness Hollis of Heigham: My Lords, the Employment Rights Act provides for 26 weeks'

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ordinary leave and 26 weeks' additional leave. The right to pay applies only during the 26 weeks' ordinary leave period. The rest is unpaid.
Lord Higgins: My Lords, is the second category not covered by this?
Baroness Hollis of Heigham: Yes, my Lords, that is an optional addition. In other words, it is unpaid. The point is that employment law protects your right to return to your job during that period, even if you are not paid. That is what we are talking about. The noble Lord looks baffled. Is that all right? Good.
The noble Earl, Lord Russell, asked about the situation of carers. He presented the situation of somebody who had a job and was seeking to fit their caring around it. The regulations do it the other way around, allowing people to fit their job around their caring responsibilities. In other words, a carer needs to be available only at those times when they do not have any caring responsibilities, provided it is not for less than 16 hours a week. Carers claiming JSA will therefore record their specific limited hours of availability for employment in their jobseeker's agreement. These will normally be the hours when the carer has no caring responsibilities, so 48 hours' notice to take up employment should be sufficient, because it is to take up employment in the hours in which they are not caring.
We are not expecting carers to give up their caring in order to take up employment, unlike volunteers, whom we expect to give up volunteering to take up employment. That is why the apparent discrepancy continues. It is worth saying that any primary carer such as a lone parent would normally be on income support and therefore not claiming JSA and not falling within this regime. However, some lone parents who may be widowers may be seeking JSA. They will be entitled to limit their eligibility for work to fit around their caring responsibilities, provided they are significant—more than 16 hours.
Earl Russell: My Lords, I thank the noble Baroness, but the point remains that one cannot be certain of one's hours of availability for work until one knows the amount of travelling time that has to be fitted in as well as the hours of caring.
Baroness Hollis of Heigham: My Lords, I take that point. The point here is that if somebody has caring responsibilities and is also on JSA, we have no evidence not to expect that Jobcentre Plus staff and those associated with them have not been using their discretion appropriately. If the noble Earl has any cases to suggest that someone has fallen foul of these rules, I shall be very happy to look at them, but I have not come across any. Given that most lone parents in that situation would be on income support rather than JSA, it would be unusual. We are more likely to be talking about someone who is caring for somebody other than a child in these circumstances. Therefore, some of the issues that the noble Earl posited about
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taking a child to school or to nursery might not arise. If he ever comes across any such troubles, I ask him to let me know and I shall make sure that they are responded to in a civilised way.
With those responses, I hope the House will accept the regulations.
On Question, Motion agreed to.

Social Security Commissioners (Procedure) (Tax Credits Appeals) Regulations 2002
7.59 p.m.
Baroness Hollis of Heigham Baroness Hollis of Heigham rose to move, That the draft regulations laid before the House on 28th November be approved [3rd Report from the Joint Committee].
The noble Baroness said: My Lords, I shall also speak to the Tax Credits (Appeals) (No. 2) Regulations 2002.
It may help to put these regulations into context if I remind the House of their background. The child tax credit and working tax credit will be introduced in April next year. Your Lordships may recall that provision was made during passage of the Tax Credits Act 2002 for appeals against most decisions made by the Inland Revenue on tax credits to be heard on a temporary basis by appeal tribunals within the Appeals Service. That provision was warmly welcomed in the House, particularly from the Liberal Democrat Benches. There will be an onward right of appeal to the social security commissioners. These arrangements will remain in place until the tax appeal system has been reformed. Appeals made by employers will not be subject to the same temporary arrangements as they will be heard by the tax commissioners. We discussed that issue at length during our consideration of the legislation.
The first of the draft statutory instruments before the House today makes regulations for procedures at the appeal tribunal—for Great Britain, not Northern Ireland. The second of the draft statutory instruments made by my noble and learned friend the Lord Chancellor provides for procedures at the social security commissioners. The two sets of regulations are made under powers in the Social Security Act 1998, as applied and modified by the Tax Credits (Appeals) Regulations 2002, made on 26th November. The Tax Credits (Appeals) Regulations 2002 are made under the powers in Section 63(8) of the Tax Credits Act 2002 and their purpose is to provide the same appeal route as that which applies for social security benefits. Briefly, Section 63 of the Act provides the legal framework for conferring on appeal tribunals the functions which will ultimately go to the general commissioners or special commissioners.
The appeal tribunals and the social security commissioners are already familiar with existing tax credits. However, your Lordships may wish to note that the Tax Credits Act 2002 provides for enquiry powers which are more like those generally used by the

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Inland Revenue. Consequently, two new types of case will be heard by appeal tribunals and commissioners. First, under Section 19 of that Act, the Inland Revenue may enquire into the entitlement of a person to a tax credit for a tax year and into the amount of tax credit due. The person who is under enquiry can apply in writing to the Board of Inland Revenue for the tribunal to direct the Inland Revenue to finalise the enquiry and to issue their decision of the proper award. Applications will be subject to similar processes and procedures as for tax credit appeals. The appeal tribunal will be obliged to give the direction applied for unless it is satisfied that the board has reasonable grounds for continuing with the enquiry.
The second new power concerns penalty proceedings. There are two types of penalty proceedings which carry rights of appeal and which will be heard and determined by appeal tribunals. In the first type of case, the Inland Revenue may impose a penalty on a person for providing an incorrect statement or information. Penalties imposed by the board carry appeal rights under Section 38 of the 2002 Act. In hearing an appeal against a penalty imposed by the board, an appeal tribunal may set aside, confirm, reduce or increase the penalty up to the maximum of £3,000 allowed under the 2002 Act. There is a further right of appeal from the tribunal's decision to the social security commissioners.
In the second type of penalty proceedings, it will be for an appeal tribunal to decide whether or not a penalty should be imposed on a person who does not comply with a notice from the Inland Revenue to provide information. While the Inland Revenue may apply to an appeal tribunal to determine a penalty, the tribunal cannot impose a penalty if the failure has been remedied beforehand. Penalty proceedings are started by the Inland Revenue laying information in writing before the appeal tribunal about the failure. The tribunal summonses the defendant to appear at a hearing and answer the information and, if the failure is still continuing, the tribunal may declare the failure and impose a penalty of up to £300. There is then a right of appeal against the tribunal decision to the social security commissioners.
I turn first to the Tax Credits (Appeals) (No. 2) Regulations, which make provision for administering and deciding tax credits appeals, applications for a direction to close down and enquiry and penalty proceedings. Your Lordships will be pleased to note that I do not intend to discuss each individual regulation. I should, however, like to draw your attention to the broad areas they cover and regulations of particular interest.
Draft Regulation 2 covers the service of notices or documents. Regulations 3 to 5 deal with persons with a right of appeal and time limits. Regulations 6 and 7 set out how an application for an extension of time in which to appeal and an application for a direction to close down a tax credit enquiry are to be made. Regulation 8 prescribes those persons who may proceed with an appeal or with an application for a direction where a party to the proceedings has died. Regulation 9 sets out the composition of an appeal
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tribunal hearing different types of tax credits cases, a matter on which I can enlarge. Regulations 10 to 27 deal with procedures and broadly mirror the provisions of the Social Security and Child Support (Decisions and Appeals) Regulations 1999.
I turn now to the second set of regulations, the Social Security Commissioners (Procedure) (Tax Credits Appeals) Regulations 2002. Again, I shall be brief. These regulations, like the preceding ones, largely mirror the existing Social Security Commissioners (Procedure) Regulations 1999, which detail the procedure. Changes are made where necessary to reflect the new tax credits system under the Tax Credits Act 2002.
Noble Lords may wish to know two things about these regulations. First, certain provisions in the 1999 regulations which are not applicable to tax credits have been omitted from these regulations, such as those provisions under the Forfeiture Act.
Secondly, noble Lords may wish to know that both types of penalty proceedings which I have already described as coming before the appeal tribunal are appealable to the social security commissioners. They attract an automatic right of appeal to the commissioners on matters of both fact and law, where the penalty is initially determined by the board. Where the penalty is initially determined by the appeal tribunal, they attract an automatic right of appeal by all parties on a question of law and, by the defendant, on the amount of the penalty. This is in contrast to all other matters appealable to the social security commissioners, which are purely on points of law and appealable only with leave. The special situation applies because it is a sanction.
I am satisfied that these regulations are compatible with the European Convention on Human Rights. I commend the draft regulations to the House. I beg to move.
Moved, That the draft regulations laid before the House on 28th November be approved [3rd Report from the Joint Committee].— (Baroness Hollis of Heighant.)
Lord Higgins: My Lords, the House will be grateful to the Minister for that explanation. Although it is helpful to take the two sets of regulations together, I am not entirely clear about the relationship between the two. The Explanatory Memorandum for the Social Security Commissioners (Procedure) (Tax Credits Appeals) Regulations 2002 states:
"The Regulations have been drafted as a freestanding set. It is felt that this will make the regulations more user-friendly and avoid the need for cross-reference with the Social Security Commissioners (Procedure) Regulations 1999".
I understand that. However, would it not also have been sensible to bring the two sets of regulations together? I assume that that has not been done because the vires of the two are not the same. Nevertheless, the two have been presented together. Given that the arrangements are transitional and may eventually be overtaken by events, I think it particularly important that people should be able to read and consider them together.

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When we were discussing the Tax Credits Bill, I had reason to complain—I might almost say bitterly—about the failure of another place to scrutinise affairs as well as they should have done because of the way in which the procedures there had been programmed or "modernised". However, I cannot say that about the procedures in another place yesterday. My honourable friend Mr Mark Prisk, the Member for Hertford and Stortford, raised a number of issues relevant to these orders to which the Minister largely replied. I do not propose to go over that same ground again as the noble Baroness, the noble Earl, Lord Russell, and myself went over it in the course of discussing the primary legislation and I do not think that we need to go over every single aspect of it.
However, there is a basic difference between these Benches and the Benches opposite as regards the right approach for the appeals we are discussing. We continue to maintain that tax credits to a large extent constitute public expenditure and that only a small element—perhaps only 10 per cent of the total—can reasonably be regarded as having something to do with tax in the sense that a deduction is made from the tax that has been payable as opposed to benefit simply being paid out. The argument about the tax treatment in public expenditure terms of tax credits has a parallel in the debate about which tribunal should consider appeals against decisions—and whether it should be the usual social security tribunal or the Inland Revenue in the form of the tax commissioners.
I note that the President of the Office of the Appeals Service and Chief Social Security and Child Support Commissioner, Judge Michael Harris, states:
"The removal of Tax Credits from the Appeals Service is simply a barmy idea. Tribunals have Tax Credit experience and there is no reason why they cannot continue to cope with them. The Appeals Service will probably be asked to deal with Tax Credits for a short period of time initially, however if it is then transferred to the Inland Revenue this is a waste of public money. It is a political issue. Whatever their title Tax Credits are benefits not tax"
That coincides very much with the views that we on this side of the House have expressed.
At all events it appears that appeals will continue to be overseen by the social security appeals process until such time as the noble and learned Lord the Lord Chancellor sorts out the reform—I suppose that that is what it should be called—of the appeals procedure more generally. Can the Minister give us any indication of when that change is likely to take place? I say that without prejudice to the fact that we still think that it is more appropriate for such matters to be subjected to what one might consider the less inquisitorial approach adopted by the social security tribunal as opposed to that typically adopted by the Inland Revenue when people appeal against its decisions.
In the course of debating the Tax Credits Bill on 23rd May 2002—that appears at col. 157 of Hansard—I was not clear whether we were referring to general or specialist tax commissioners. The noble Baroness kindly said that she would write to me on that matter.
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I do not doubt that she did but, alas, given the cupboard that serves as my office here, I cannot remember what the answer was. If she can think of it off the top of her head, or if her officials in the Box can scribble it out frantically, as they appear to be doing, I may receive clarification on that point.
Incidentally, as regards appeals and whether people are entitled to tax credits, I heard in passing this morning a statement—I believe that it was on the "Today" programme or on one of the other news programmes—revealing the amount that is now not claimed by people entitled to social security benefits. That is certainly a large amount for, as the NAO pointed out in a recent report, about 20 per cent of pensioners do not claim all the benefits to which they are entitled. However, it was also asserted that the total sum claimed by people who receive benefits to which they are not entitled constitutes an even higher figure. That would be a large amount indeed.
I have one final point to make. The tax credits explanatory notes run to some 44 pages plus a form at the back. I have complained previously that the form has been shortened at the expense of lengthening the explanatory notes. It would therefore be slightly inappropriate for me to suggest that the explanatory notes should be lengthened even more. I refer to the TC600 notes on tax credits.
However, so far as I can see, despite all the information that is given in the notes, which run, as I say, to some 44 pages, there does not seem to be anything that might be helpful to claimants both with regard to what the appeals procedure is—however, that information would be rather complicated given that the procedure is in a transitional phase of unknown length—or what the penalties are for wrongly claiming in either of the two respects to which the Minister referred in her opening remarks. I should have thought that for the sake of half a page or a page extra on top of the other 44 or 45, there might be a case for covering those two points when the explanatory notes are reprinted.
There continues to be a difference between the two sides of the House. We still believe that it would be better to leave arrangements with the social security side rather than the Inland Revenue. Despite those important issues, as long as the situation does not change we remain content. However, I hope that the Minister will give us some idea when the transitional period is likely to end.
8.15 p.m.
Earl Russell: My Lords, I hope that the noble Lord, Lord Higgins, will forgive me for saying that although we share this side of the House, we do not always share all the opinions expressed on it. Hearing the noble Lord on the question of whether tax credits constitute public expenditure takes me back to many memories of committees upstairs. It also reminds me of an incident in 1649 and the Bill that made England a republic and restored the country to its ancient state of a commonwealth. One Member asked how England could be restored to its ancient state of a republic when

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it had never been one. Henry Marten, who was probably the nearest thing the Long Parliament knew to an atheist, replied that he was deeply troubled in his conscience by the interpretation of a text of scripture which said that a man who had been blind from birth had had his sight restored.
The question of whether a reduction in taxation amounts to public expenditure is in the same sort of theological realm as Henry Marten's question. It makes a good story, but it does not lead to any particularly easy resolutions. However, I shall not pursue that point further.
The regulations, as the Minister made clear, are transitional. We on these Benches are generally satisfied with the transitional regulations, although we retain some of the anxieties expressed on 24th January by my honourable friend Professor Webb in the other place in respect of the final form when the transfer to the Inland Revenue is complete. There is a question of change in this regard about which thoughts must be had and to which I am sure that we will return in due course.
I have a few specific points arising from the regulations. In Regulation 19 of the Tax Credits (Appeals) (No. 2) Regulations 2002, the Minister has found a most elegant way in which to deal with the conflict between the desire to reduce the size of the tribunal and the need for expert advice. I only wish that, between us, we had thought of that in 1998 when we spent ages arguing around a question to which that seems to be the answer.
On the other hand, there is a potential conflict between Regulation 19(3) and Regulation 14(1), and I should be glad to know how it could be resolved. Regulation 14(1) deals with cases in which medical advice may need to be withheld from the person who is the subject of it for fear that it may cause distress. It says,
"Where … there is medical advice or medical evidence relating to a person which has not been disclosed to him and in the opinion of a legally qualified panel member, the disclosure to that person of that advice or evidence would be harmful to his health, such advice or evidence shall not be required to be disclosed to that person".
This is presumably a mental health provision, which I understand perfectly well, but I would be glad to know how it is reconciled with Regulation 19(3), which says,
"A copy of any written report received from an expert in accordance with paragraph (2) shall be supplied to every party to the proceedings".
There is at least the appearance of a conflict, and if there is a resolution I should be glad to hear it.
The Minister will not be surprised to hear that I am also concerned about Regulation(2)(b), which relates to postal times. The Minister knows that that is a longstanding concern of mine in which I should declare an interest that I have not previously had to declare. Last week, I received a penalty notice of £60 for parking my car without displaying my residents' parking permit. The records show that the permit had been issued three days before the date of the alleged offence. I received it four clays afterwards and I could not have displayed
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what I did not then possess because it was still in the post. I considered appealing but was given a 50 per cent discount on the fine if I paid within 14 days. However, I could not appeal until those 14 days had elapsed so I had to pay the full penalty. The Government's assumptions about the regularity of the post are grossly out of date and need rethinking.
There is in Regulation 2 of the Tax Credits (Appeals) (No. 2) Regulations a lack of a level playing field. It states that any notice that is,
"required to be given or sent to the clerk … or to the Board … shall be treated as having been so given or sent on the day that it is received".
However, a document that is sent to anyone else should be taken as being received on the day on which it is sent. That appears to involve the lack of a level playing field. That point should be added to the unreliability of the post. We cannot continue combining the commercial enterprise with the universal service obligation. If we put one thing on top of another we shall have a situation that will produce much resentment and about which I fear we may hear rather more.
Subject to those few points, and with the further addition that I should like to hear the Minister's comments on the few but interesting criticisms made by the Child Poverty Action Group, with which I shall not detain the House now, I welcome the regulations.
Baroness Hollis of Heigham: My Lords, I am again glad that noble Lords have welcomed the regulations. I am grateful to the noble Earl, Lord Russell, for giving me advance notice of the discrepancy between Regulations 14 and 19. I hope that I shall be able to give him a satisfactory answer.
I turn first to the queries raised by the noble Lord, Lord Higgins. He asked about the two sets of regulations; his surmise that different vires were involved was correct. He will not be surprised if I duck commenting on the comments of Judge Harris, for whom I have the highest regard although I do not agree with his views on every issue.
The noble Lord pressed me on the timetable. We expect the arrangements to last for some time—perhaps a year or more—but appeals in the longer term will go to a reformed tax appeals system. We hope to announce our propositions for the way forward in the next few months. I cannot be more precise than that; that is the timetable to which we are working.
The noble Lord asked about tax commissioners general and special. Neither of us has a bad memory but the precise detail of that also escaped me. I am assured in a note from the Box that we wrote to say—this is clearly in the folk memory—that appeals can go to either special or general commissioners, and an appellant has a right to elect to have his appeal heard by either general or special commissioners under Section 39(3) of the Tax Credits Act, which established this system. It is a matter of election.
The noble Lord asked about the memorandum and said that it was not particularly helpful. That may be right, but it should be added that that is not the first

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and last word on the subject. Full information on appeals and other processes and penalties will be made available to claimants. The substance of the point is that that must be in plain English and helpful and constructive; that must be achieved. We will discuss the necessary process with the appeals service and work with interested groups, such as CPAG, to ensure that claimants and tribunals get the facts that they need for hearings. The key facts involve issues such as the greater success rate that a company's oral hearings have over paper hearings. I shall ensure so far as I am able that the literature that goes to prospective appellants is of the sort that noble Lords and I would wish. I believe that that covers the questions raised by the noble Lord, Lord Higgins.
The noble Earl, Lord Russell, asked about the inconsistency between Regulations 14 and 19. Regulation 14, as he surmised, is about mental health issues. It involves the sort of evidence that would come from a person's GP or medical consultant. It might involve, for example, the information that someone has a terminal illness about which they may not know. It involves that and similar distressing circumstances. That would be assessed by someone on the appeal tribunal.
But Regulation 19 prescribes the manner in which expert assistance is to be provided to an appeal tribunal. Such expert assistance can be given only by a panel member. Therefore, on the one hand, outside information, which may be highly sensitive, is coming in, and, on the other, information is given by the panel member which must be shared with the appellant. To the best of my understanding, that appears to reconcile the concerns expressed by the noble Earl.
The final point raised by the noble Earl—a point raised also by the CPAG—concerned the apparent discrepancy between literature coming in and literature going out. I am sure that, from his own experience, the noble Earl will agree that a problem arises in relation to the department and the appeal service keeping track of dates. What we are doing—and our reason for doing it—is to ensure that the department and the appeal service know when a document is sent or received. They cannot ascertain when a claimant receives a document that they have sent; nor are they able accurately to ascertain when a document has been sent by a claimant. Those in the department can be clear when a document has arrived at the department and when it is sent out. As the noble Earl said, anything else is dependent on the vagaries of the post or on whether someone is away on holiday or away for a weekend and so on. Therefore, in this case, we must work with information which is solid and robust and which can stand up to further inspection.
Earl Russell: My Lords, I thought that that would be the Minister's answer. Will she square the circle between us by making the presumption rebuttable?
Baroness Hollis of Heigham: My Lords, I shall have to take advice on that and write to the noble Earl. However, we have discussed the matter with the Child
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Poverty Action Group. I am certainly willing to consider what the noble Earl said and I shall write to him to see whether there is any way that we can meet his queries. But, having for many years chaired a local authority housing committee where, before we had a formalised appeal system, a number of appeals related to housing benefit, ultimately I had to say that we had to go by the date of arrival and by the date when forms were sent out by the department simply because of the unexpected vagaries of people's existences. In order to be fair to claimants, we could not handle the system in any other way.
The important point is to ensure that the appeal times, and so on, are of a decent period and that late appeals can be accepted with good cause. As the noble Earl will understand, both those issues are embedded in the system. Therefore, I hope that the matter of posting dates, and so on, will not come between us. However, I shall write to the noble Earl on the issue of rebuttal.
I have done my best to answer the questions raised and I hope that, as a result, noble Lords will feel able to accept the regulations.
On Question, Motion agreed to.

Tax Credits (Appeals) (No. 2) Regulations 2002
Baroness Hollis of Heigham: My Lords, I have already spoken to these regulations. I beg to move.
Moved, That the draft regulations laid before the House on 28th November be approved [3rd Report from the Joint Committee].— (Baroness Hollis of Heigham.)
On Question, Motion agreed to.

Gibraltar
8.28 p.m.
Lord Thomas of Swynnerton Lord Thomas of Swynnerton rose to ask Her Majesty's Government what plans they have to resolve the problem of Gibraltar.
The noble Lord said: My Lords, I have spent much of my life studying the history of Spain and, in consequence, have become very fond of its people, its country and its customs. Therefore, I feel a certain obligation to inspire a discussion as to what might be done to resolve a question which, as a Spanish Minister put it to me last year, is like a grain of irritating sand in the shoe of British/Spanish relations. Today, I would add that any mention of Spain should include a recognition of our horror at the ecological catastrophe which is currently engulfing Galicia, one of the most delightful parts of Spain—indeed, of Europe.
In a debate of this brevity, I have, perhaps fortunately, no time to recall much history or to dwell, for example, on how Gibraltar was conquered by us in 1704 in the war of the Spanish succession and retained

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by us at the Treaty of Utrecht; nor how, in the course of the Second World War, we built an airport on what, until then, many people thought had been considered neutral ground. Nor do I have time to recall how the Rock played a determining part in our old strategy guarding the route to India; nor, indeed, how, when that role disappeared in the 1960s, Spain brought pressure on us, hoping that we would surrender this last of European colonies as we had surrendered so many others, and how that very pressure led to the Gibraltar constitution of 1969 and to the growth of a new Gibraltarian self-assertiveness. Instead of history, let us talk of positive possibilities and positive ways ahead.
I think that all noble Lords, however they may judge the policy proposed, would allow that the Government, earlier this year—positively, as I saw it—came to look on Gibraltar as a problem to be resolved, not a redoubt to be defended.
I suggest that the first question we should ask is whether we could, perhaps, maintain the status quo. I do not believe that that is a long-term possibility if only because Gibraltar wants to participate fully in the European Union. To secure that, it would need Spanish goodwill. It would have to accept the modifications of the generous fiscal arrangements which years ago Britain made possible for its large number of companies which the Commission in Brussels, very properly, is now demanding. Gibraltar also wants to use Spanish airspace and Spanish territorial waters to deposit waste in Spain. Many Gibraltarians want to drive easily to their week-end homes in Sotogrande and elsewhere in southern Spain.
I repeat that Spanish goodwill which, to be realistic, will not be forthcoming without change, is necessary for Gibraltarians in the present circumstances. The old days, before the civil war perhaps, of friendships between the civil governors, or the Captain-General of Andalusia and the Governor or Gibraltar, joint master as he was at that time of the Calpe Hunt, would be very difficult to revive in modern Europe.
Gibraltar now also constitutes this irritant in the friendship between two great nations, which have many things in common in the European Union in particular, but also in the wider world: the close relations we have with our ex-colonies, now independent; our two unsinkable world languages; and a personal friendship which has been fostered very creatively by the Prime Minister and his Spanish opposite number.
What are the alternatives to the status quo? Independence? That does not seem to me a possibility. The Treaty of Utrecht, however tattered it sometimes seems to us, gave Spain a residual legal right of repossession if Britain were to abandon her interests, and Spain will not forget that.
Noble Lords should remember that Spain has a defence interest in Gibraltar because of its position and because of its proximity to Africa whence, as it is, thousands of would-be Moroccan immigrants to Spain arrive daily on rafts in the summer at beaches close to the Rock. Comparable entities, Liechtenstein
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or Monaco, for example, have a close relation with their larger neighbours. Surely that sort of relationship would not be very likely in the incidence of an independent Gibraltar achieved against the wishes of Spain.
There is then the idea of cession to Spain, either directly or through a lease of, say, 100 years. It may seem scandalous even to mention such an idea in this House, but I remind noble Lords that tens of thousands of British citizens live in Spain within an hour or so of the Rock of Gibraltar by road, and that at least 12 million citizens go to Spain for their holidays every year. None seems the worse for it. I have contemplated living in Spain myself.
In the 1960s I recall that a creative-minded subcommittee of the Labour party international department looked forward once to surrendering Gibraltar to a democratic Spain. Spain has now become a constitutional democratic state. Its king is admired wherever he goes. Spain is a member of the European Union and part of NATO. Actually, Spain would be obliged to defend Dover if it was attacked and Britain would be obliged to defend San Roque or Algeciras if they were to be attacked.
Affection, and, so far as I can see, admiration for Britain is widespread in Spain. In the event of such a cession, citizens of Gibraltar could certainly preserve their British nationality in all such circumstances. But I accept that an arrangement of that nature would not now be acceptable to Gibraltarians who have in their border crossings often seen the less agreeable face of Spanish officialdom.
Next I consider, but think I should discard as unrealistic, the suggestion of one sometime British ambassador to Madrid, Sir John Russell, who proposed a sale of Gibraltar to Spain in the 1960s, such as the sale of Florida, Louisiana and Alaska to the United States. I do not think that any noble Lord would entertain such a concept today.
I therefore return to the idea of dual sovereignty, which was advocated strongly by the Foreign Secretary last spring but which was rejected by the Gibraltarians in their referendum of last month. I think it a pity that they voted thus. A two-flag solution would surely recognise the reality that the Rock is geographically a part of Spain, even though it has been for so long politically and culturally attached to Britain. I urge the Gibraltarians in good time to think again. The benefits would be very great. Gibraltarians could negotiate, I think, almost any kind of autonomy with a dual sovereignty which they desired. They could preserve most of their economic privileges.
Britain could retain a residual strategic interest by, for example, maintaining a listening point, which, from statements made by the Secretary of State for Defence during the course of the summer, I gather is still important.
We might also be able to secure European support for a new university to be founded, say, at San Roque or Algeciras to serve Gibraltarians as well as the people of southern Andalusia. European institutions might establish themselves creatively on the Rock

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With two famous and marvellous seas on either side, Gibraltar could become, at the least, a fine conference centre. The beautiful European flag, as I see it, with its golden stars, could share the honours with the British and the Spanish ones. Perhaps a NATO dimension could be added. Vast opportunities could open up were this to be accepted. And the grain of sand in the shoe of British/Spanish relations could thus be transformed, oyster-like, into a pearl.
8.39 p.m.
Lord Monson: My Lords, I listened with great interest to the noble Lord, Lord Thomas of Swynnerton, as I always do, and acknowledge his profound knowledge of Spain and all things Spanish, which I cannot remotely match. He put his argument seductively on the topic, as he always does. Perhaps I may briefly enlarge on his brief canter through the history of Gibraltar. I point out that Gibraltar has been under the Spanish crown for only 252 out of the past 1,300 years—less than 20 per cent of the time—which may or may not be relevant to the argument.
What galvanised me to speak was the noble Lord's use of the word "problem" to describe Gibraltar. If it is a problem —that is a big if—that is certainly not of Gibraltar's making, nor of this country's. In our lifetime, there have been many genuine territorial problems in various parts of the world, many of them arising from clashes of race, religion or culture within a particular geographical region.
As the debate started an hour and 28 minutes later than was forecast by the Whips' Office, I shall not go into the history of problems in Europe in the 1920s and 1930s, nor the holocaust in the Indian subcontinent following an over-hasty partition. However, in our time—during the past 40 years or so —there have been genuine problems in Quebec, Northern Ireland, the former Yugoslavia, Cyprus, Lebanon and Sri Lanka. Most urgent and topical is Israel, the West Bank and the Gaza Strip. Geographically rather nearer Gibraltar, it cannot be denied that, despite manifold concessions, for which it must be praised, Spain still has a serious Basque problem and many lives have been lost in consequence.
However, problems are not always inevitable. Alsace and Lorraine were not problems in 1940, nor were the Baltic states or the eastern part of the Alpes Maritimes, merely because Hitler, Stalin and Mussolini respectively wanted to get their hands on those areas. The Falklands were not a problem in 1982 when Galtieri wanted to grab them; nor was Kuwait 10 years later because Saddam Hussein wanted to annex it. In the extremely unlikely, indeed, virtually inconceivable event of Malaysia laying claim to Singapore—like Gibraltar, a tiny political entity lying at the southern tip of a large landmass, it would be an outrage but not a problem.
Lest I be accused of being anti-Spanish, which I am not, let me declare that neither Ceuta nor Melilla, both of which I have visited, can be seriously classified as genuine problems. Although in recent years, they have
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both acquired substantial Muslim minorities of up to 15 per cent, every indication is that nearly all the inhabitants—whether they be Spanish Christians, Sephardic Jews or Moroccan Muslims—are happy with the status quo, although the majority that favours it may not be quite as high as that in Gibraltar.
Like Gibraltar, neither territory possesses oil or other scarce mineral resources that their larger neighbours could lack, nor do any of them possess the only deep-water harbour in the western Mediterranean at the possible expense of their neighbours. In other words, in each case there are neither valid demographic nor valid material grounds for coveting one's neighbours' property.
It would be unfair simply to turn the tables and declare that there is no Gibraltar problem, only a Spanish problem. As a noble Lord pointed out during one of our debates on Gibraltar during the past year—it may have been the noble Lord, Lord Wallace of Saltaire, but I cannot swear to it—it is not really a Spanish problem but a Castilian problem. Most of the Andalucians, Catalans, Galicians and others are totally relaxed about Gibraltar.
It is a fallacy to imagine, as is sometimes claimed, that all those who pour across the Gibraltar frontier at weekends are British expatriates living on the Costa del Sol, desperate to stock up on jars of Marmite or bottles of HP sauce. In my experience, most of the shoppers are Spanish. Moreover, I have driven all over the provinces of Huelva and Málaga in an unmistakably British car with Gibraltar number-plates. Not once did anyone shake their fist or scowl. On the contrary, we met with nothing but sheer kindness and hospitality all round.
I spoke of a Castilian problem, but I suspect that it applies to no more than a small minority of Castilians. Certainly, most people whom one encounters in Madrid nowadays seem pleasantly devoid of nationalistic or militaristic sentiment. I guess that there is a small Castilian clique, not unlike the French énarques—although not necessarily in their politics—in that its members are small in number but powerful in influence. It hankers after the old days: hence the bullying.
Bullying there has certainly been, not only of the Gibraltarians but of the Portuguese. It is not generally known that TAP—otherwise known as Air Portugal—tried to set up a thrice-weekly service between Lisbon and Gibraltar and had acquired aircraft specifically for that route. That would have been of enormous material and psychological benefit to the Gibraltarians. When Madrid heard of it, it was enraged and made every sort of threat to the Portuguese, who ultimately caved in. The service was cancelled, not least because the Portuguese are constantly worried about threats to their water supply. Most of Portugal's great rivers such as the Minho, the Douro and what we call the Tagus have their source in the mountains of western Spain.

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All that bullying is not exactly communautaire. Indeed, it is wholly contrary to the spirit and probably the letter of what the European Union is supposed to be about. I hope that those responsible will think again, mainly because it is the right thing to do but also because, from a self-interested point of view, it makes sense. Only a lengthy and sustained period of civilised behaviour by successive Spanish governments towards Gibraltar will have any chance of persuading the Gibraltar electorate to change its mind.
I have one final point. Over the past six months or so, the Gibraltar Government's office in London has received an astonishing 750,000 messages of support from the British public, by letter, fax, phone and e-mail. That is heartening in itself and because it demonstrates that no British Government will now dare to sell Gibraltar down the river, if they wish to remain in office.
8.47 p.m.
Lord Moynihan: My Lords, I add my congratulations to the noble Lord, Lord Thomas of Swynnerton, on securing the debate.
More than a year ago, press reports began to suggest that the Government were prepared to consider sharing sovereignty over Gibraltar with Spain. Five months ago, in July, the Foreign Secretary confirmed that that principle had been agreed with Spain. I regret to say that, since then, the situation has gone from bad to worse. I would go so far as to say that, in their efforts to find a settlement for Gibraltar, the Government have, instead, scored a spectacular own goal. A settlement is further away than ever, and both Spain and Gibraltar are alienated.
We are all agreed on one thing: the ongoing dispute with Spain over the status of Gibraltar is in no one's interest. It is not in Britain's interest, not in Spain's interest and, least of all, in Gibraltar's interest. It is in the interest of everyone to find a comprehensive and permanent settlement. Such a settlement cannot be achieved without a constructive basis for talks with Spain. That was the rationale for the 1984 Brussels communiqué.
There must be something of the spirit that nothing can be agreed by any party until all is agreed by every party. The 30,000 inhabitants of Gibraltar cannot be left out of the loop in the wider interest of better relations with Spain. Yet, the Government seem, at best, to have found their views inconvenient and, at worst, to have disregarded them altogether. The starting-point for talks must be the consent of the people of Gibraltar. Without that, nothing can be achieved.
Your Lordships are well aware of the commitment made in the preamble to the 1969 constitution of Gibraltar. The Government have repeatedly insisted that there is no question of any change in sovereignty against the wishes of the people of Gibraltar. Yet, their actions belie their words. As a result, there has been much concern about what might or might not be agreed between the UK and Spain over the heads of
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the people of Gibraltar. As the excellent Foreign Affairs Committee report on Gibraltar published last month states:
"The British Government risks giving the impression that it is more concerned to achieve an agreement with Spain, almost at any cost, than it is to ensure that the Government and people of Gibraltar support this agreement".
We all wish for the best possible relations with Spain. She is an important partner and an ally in so many areas—not least in the European Union and NATO. Yet we cannot sacrifice the interests and wishes of the people of Gibraltar to this wider goal. We cannot forget that for more than 30 years Spain has unreasonably discriminated and harassed Gibraltar through excessive border controls, air and maritime restrictions and limited telephone access. The people of Gibraltar are still beset by an unsubtle blend of obstruction, threats and restrictions contrived by Spain. Every day there is disruption—from long queues at the border to insufficient telephone lines and inadequate air services.
An end to Spain's sanctions against Gibraltar would be in the interests of the Gibraltarian people, but the Government's decision to discuss the concept of joint sovereignty with Spain has not secured this, even though one would expect that to be a minimum prerequisite of any negotiations which included sovereignty. Yet despite the relaunched Brussels process, good will from Spain in the form of concessions towards Gibraltar have been in short supply. Even the Minister for Europe recognises that, pointing out last month the need for, as he put it, a
"little bit of TLC on the part of Madrid"
to calm things down.
The recent diplomatic spat over responsibility for the oil tanker "Prestige" demonstrates how low relations between Britain and Spain over Gibraltar have sunk this year. For example, the Government officially denied reports that the "Prestige" was heading for Gibraltar. But during the row, Loyola de Palacio, the EU's Spanish Transport Commissioner, remarkably and inexcusably was quoted in El Pais as stating:
"In Gibraltar we see yet another case of tax evasion, smuggling and inappropriate behaviour".
Diplomacy is about straightforwardness as much as anything else. Straight talking is essential in the case of any country which thinks that it is entitled to some territory—for example, China and Taiwan, Argentina and the Falklands or Spain and Gibraltar.
It should be the goal of our diplomacy to impress on Spain that it will not get what it wants through the tactics of force, bullying and threats. From the days of Franco to today, in the single-minded pursuit of their claim to Gibraltar, successive Spanish governments have intermittently laid siege to the Rock with all the subtlety of a bar-room bully. That is in spite of the overwhelming evidence which points to the total failure of these tactics. It has long been obvious that if Spain wants Gibraltar, she must win the hearts and minds of the Gibraltarians. Yet the Spaniards are no nearer to capturing their hearts and minds today than

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they were 30 years ago and Gibraltar's 30,000 inhabitants are resolute in their desire to remain under British rule. Again, the Foreign Affairs Committee concluded in its report that without a prolonged period of wooing the people of Gibraltar, it is surely unrealistic of Spain to expect any change on their part.
However, the Government do not seem to have made that clear. Instead, they have allowed unfounded and unjustified Spanish allegations to go unrefuted. Will the Minister say why the Government have not rebutted such Spanish allegations of illegal practices, including smuggling, money-laundering and tax evasion promptly and decisively, including, for example, the Ruperez letter published by the Wall Street Journal in June?
Standing up for Gibraltar when members of the Spanish Government condemn her as an economic parasite and condemning flagrant breaches of the law by Spain would hardly be an irresponsible inflaming of the situation, but rather the Government taking the opportunity, quite rightly, to put the record straight.
I would like to ask the Minister a number of key questions. First, will she state clearly for the record the Government's policy on Gibraltar following last month's referendum? Will the Government continue talks on the principle of joint sovereignty under the Brussels process? After all, the Foreign Secretary said that the Government would,
"continue to seek an agreement … but it must be one that is acceptable to the people of Gibraltar in a referendum".— [Official Report. Commons, 12/7/02; col. 1167.]
The people of Gibraltar have now held a referendum, yet the Government have effectively said that it does not count. I should like to know why. The argument that the referendum is valueless because there are, in the words of the Prime Minister,
"no proposals on the table",
and there is nothing to vote on does not square with the Foreign Secretary's statement that,
"After 12 months of negotiation, we and Spain are in broad agreement on many of the principles that should underpin a lasting settlement. They include the principles that Britain and Spain should share sovereignty over Gibraltar".— [Official Report, Commons, 12/7/02; col. 1166.]
The principle of joint sovereignty in itself is, to every man, woman and child in Gibraltar, a substantive proposal.
However, given that the Prime Minister has said that there are no proposals, can the Minister state clearly what has been agreed with Spain since the relaunch of the Brussels process? At minimum, as I understand it, the principle that Britain and Spain should share sovereignty over Gibraltar has been agreed, and it is that principle which the Gibraltarians have now rejected. Yet the Government will not accept that referendum as valid.
Can the Minister explain why the Government have been unwilling to allow the people of Gibraltar the chance to accept or reject the principle of joint sovereignty in a referendum? Is there some legal or technical reason why this referendum is flawed and
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cannot be accepted? In what way was it not a democratic vote used to express a democratic wish? The Minister for Europe has said that he wants to,
"tackle the suggestion that we sought to dismiss the idea of the referendum out of hand or ignore it. I do not ignore any expression of the people's will".— [Official Report, Commons, 25/11/02; col. 141.]
So will the Government therefore accept the validity of the referendum?
Can the Minister clarify whether it is government policy that the British and Spanish Governments should be able to reach agreement on matters concerning Gibraltar with the endorsement of the Gibraltar Government? I say to the noble Lord, Lord Thomas of Swynnerton, that the "two flags, three voices" formula is meaningless if the Government of Gibraltar is granted a voice, only for it to carry no weight whatever. Can the Minister explain why, in the talks, a system could not be developed to allow Gibraltar to have even an internal veto within the British delegation in order to secure the Government of Gibraltar's attendance at the talks? Can she further say whether it was the case that the Gibraltar Government were allowed such a veto from 1996 to 2001 and why this is not possible now?
Does the Minister accept the conclusion of the Foreign Affairs Committee that it was,
"politically impossible for the Gibraltar Government to participate in the Brussels Process talks without also having the power to limit the outcome of those talks"?
I do not think that the talks and the Brussels process should be permanently abandoned. Of course talks with Spain should and must continue. The only way to secure a more prosperous future for Gibraltar is through a negotiated resolution of the dispute with Spain on all issues. But the direction in which these particular talks have been going seems to hold little future. There have been calls for a period of reflection on how policy on Gibraltar should progress following the referendum, and I endorse those calls.
When talks reconvene they should be genuinely tripartite and on an agenda where agreement is possible, such as better access to the colony and improved communications. The thorny issue of sovereignty should be on the agenda only when all parties are willing to discuss it. It is essential to secure the agreement of the Gibraltarians prior to entering further talks with Spain and to secure a declaration which is accepted by all parties. Both the UK Government and the Spanish Government have a responsibility to prove to the people of Gibraltar that they have more to gain than to lose from this process.
9 p.m.
Lord Lea of Crondall: My Lords, speaking in the gap, I merely want to make two points about the general thrust of the interesting contribution by the noble Lord, Lord Thomas of Swynnerton. As all would surely agree, we should not be worrying about this question if it were a case of letting sleeping dogs lie. I am afraid that the dogs are hardly asleep; yet we find it very difficult to know how to make any progress.

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Perhaps I may take up the penultimate point made by the noble Lord, Lord Thomas—which will not be popular in all quarters but which is in a sense to do with the dilution of everyone's sovereignty in the European Union. I am not sure what the technical status of Gibraltar is vis-a-vis the European Union. What I do know is that many of the "hearts and minds" problems accurately identified by the noble Lord, Lord Moynihan, are problems that we all have—we have them in Belfast and we have them in Basingstoke—about our own sovereignty being diluted. Yet we talk as though undiluted sovereignty—"we are more loyal than you are" almost—has to be taken as a fixed thing. Therefore, the hearts and minds question arises.
I am reminded that in many parts of the European Union border areas there is a sort of "creep" of co-operation on many matters. This is relevant. I refer, for example, to the air traffic control problem, relations with the rest of Andalucia and so on. That "forward creep", although not very dramatic, should be related—in this respect I agree with the noble Lord, Lord Moynihan—in order to bring elements of the hearts and minds further forward.
9.2 p.m.
Lord Watson of Richmond: My Lords, in examining what has been described in this debate as the "problem of Gibraltar", I take the saga of the inappropriately named tanker "Prestige" as illustrative of two key aspects of the problem.
First, after disaster had struck the tanker—and because of the awful damage to the beauty of the Galician coast and to the livelihood of the area's fishermen—our real and deep sympathy went out to Spain. But after that disaster, the Spanish Government, unfortunately and inaccurately, sought to focus unique blame on Gibraltar—an error that was compounded by the over-emphatic European Commissioner to whom reference has been made.
The charge was that the "Prestige" called frequently at Gibraltar, where she had never been adequately examined. In the event, the truth is rather more complicated, as the press and our ambassador in Madrid have hastened to point out.
The "Prestige" has docked at Gibraltar only once in the past five years. In that time she has also docked at Algeciras and Las Palmas, as well as at Dunkirk, Wilhelmshaven, Cork, Rotterdam and many other continental ports, and was apparently headed for Singapore. "Gibraltar for orders" as a ship's destination does not necessarily signify that a ship will actually call there, as orders are often received while still at sea. In any case, as The Times pointed out in an editorial, pinning blame for a disaster that overtakes,
"a Liberian tanker, registered in the Bahamas, managed in Greece, and chartered from Switzerland on behalf of a Russian oil trader",
is inherently tricky, and to attempt to the lay blame uniquely on Gibraltar is frankly "ludicrous".
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The attempt to do so, however, is sadly symptomatic of a great deal of what has been Spain's approach to the Gibraltar problem, and it is regrettable. It is the first aspect of the Gibraltar problem illustrated by the "Prestige" saga. So far, Spain has not succeeded in finding the language or the attitude to win the ears, let alone the hearts, of Gibraltarians. That is a great pity. Spain's rhetoric has rasped rather than reassured. So, too, in real terms, have actions over border-crossing arrangements, telecommunications, phone connections, air traffic and so forth.
Sadly, our own Government have made a poor situation apparently worse. Through ambiguity, intended or unintentional hilarity, and the suspicion at least of going behind or above the Gibraltarians themselves, the Government have agitated unease on the Rock. In another place, the new Minister for Europe produces what we in this House must all hope was a non sequitur. He said:
"I want to do right by the people of Gibraltar".
He added immediately:
"I seek no promotion to the Cabinet".
Why? Would an unwillingness to do right by the people of Gibraltar enhance his prospects of promotion to the Cabinet? One can only wonder and ponder.
Terry Waite, in an article last month on Gibraltar, wrote:
"Gibraltar is an anomaly but, for all that, the inhabitants of the territory have a genuine and unique identity and are entitled to be listened to even though they may be few in number. The key to resolving the problem lies in taking the people of the Rock seriously".
That is the key—for Spain, Her Majesty's Government and us in this House. The near 99 per cent vote in the referendum was not eccentric. It was really important. I was interested to note that, following the referendum, the Minister for Europe in another place conceded for the Government:
"We are not deaf or stupid and we have listened".
Good. That is necessary.
If the Government have agreed to listen to the Gibraltarians, so, too, should the Spanish Government. Gibraltarians, too, should listen and watch what is happening in the rest of Europe. I shall pick up a point made by several earlier contributors. What is happening in the rest of Europe is very significant for the future of Gibraltar and for the ultimate resolution of the so-called problem. It is hopeful. The old divisions in Europe between East and West are going, despite conflict and inherent animosity sometimes much greater and far sharper than in this case. There is a new propensity in Europe to open minds to new possibilities.
The future that matters surely is that of the younger generation of the Rock. They must have a future with, rather than against, their neighbours. The decision on the future of Gibraltar lies with Gibraltarians. That is their right. It is our obligation to safeguard it. I urge that, in making and taking their eventual decisions, Gibraltarians must consider the future as well as the past.

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I return to the ill-fated "Prestige", whose saga illustrates a second aspect. The Times has pointed out that the solution to preventing future disasters lies in a European Union package of measures to be introduced next year which will concentrate on more and older vulnerable ships and also express a determination to make it compulsory for oil to be transported only in double-hulled vessels, which is surely right. The solution to the problem of Gibraltar lies in co-operation.
Our questions for the Minister tonight must be not simply for a general reassurance that the verdict of the referendum will be listened to, that the wishes of the Gibraltarians will not be overridden and that there will not be any secret deal. I am sure that the Minister will be happy to give such assurances to the House. However, we are really seeking something further than that. We need to know whether, in their dialogue with the Government of Spain, the Government are able to ensure that the real physical problems of Gibraltar are addressed, that the issues that are seen and experienced as harassment are resolved, that the tenor of the dialogue is fundamentally changed, that the concerns of the small but distinctive population of Gibraltar are addressed and that therefore talk about the longer future of the Rock can take place in a different context and a different atmosphere. I urge and ask the Minister not simply to point us to the lessons to be learnt immediately from the events of the past two or three months, but to give a clear indication that the Government can capture the attention of the Government of Spain to address the problems that most agitate people on the Rock so that, these having been addressed, we can move forward in a different atmosphere.
9.12 p.m.
Lord Howell of Guildford: My Lords, this has been a useful short debate. Your Lordships will obviously be grateful to the noble Lord, Lord Thomas of Swynnerton, for initiating it. He said he was not going to go into history because of the time available. That is a pity, because the noble Lord is a historian of the first rank and I was half looking forward to a few adventures into history before we got on to the present or the future. However, I realise that the practicalities ruled that out.
The debate is useful because, by all accounts, the last debate on the subject in the other place was not a very fortunate affair and some very unhappy reports emanated from it. This has been an opportunity to see whether your Lordships are able to do better. The tone has been constructive, as it should be on this immensely difficult problem. Although the arguments for the status quo are put forward with respect and intensity, one has to accept that there are problems and it would be good to see a way forward.
I shall not follow the noble Lord, Lord Thomas. I am not tempted to look at various solutions or settlements, let alone deals. Although one certainly wants to do everything possible to ensure good
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relations between this country and a glorious country such as Spain, which we so much admire, the recent endeavours on the diplomatic side—particularly the endeavours of the British Government, I am afraid—have left such a cloud and a mist over the situation that it is very hard to see any way forward. I shall follow the path of methods and ways forward step by step. I cannot offer your Lordships a clear vision of how we get to the happier goal of good relations between ourselves and Spain and a contented Gibraltar that feels its voice has been heard and its views respected. I do not see how we can get there at the moment, but I shall examine a few aspects to see whether we can open one or two doors.
The first point is that the recent endeavours and the opening of the discussion—indeed, the opening of the negotiations, apparently—described by my noble friend Lord Moynihan are not actually a continuation of what we on this side understood to be the Brussels process. I know that Ministers have said from time to time, "The Conservative government started all this", first under my noble and learned friend Lord Howe and then under my noble friend Lord Hurd, "and we are continuing it". However, to me, one of the most important sentences in the Select Committee report which has been much quoted this evening is one which is not actually in black, but states:
"The Foreign Secretary failed to point out the difference between the 1984 Brussels Process talks—when sovereignty was one of several subjects for `discussion'—and the 2001 Brussels Process talks, when the principle of joint sovereignty was negotiated between Britain and Spain".
It is that word "negotiation" which comes zooming up into the scene that has been a cause of so much trouble.
The Select Committee goes on to make other points, some of which have been quoted by noble Lords. Like some noble Lords, the committee rejects the view that it was eccentric for the people of Gibraltar to hold their own referendum. It points out, as my noble friend Lord Moynihan has done, that the chances of progress without a prolonged period of wooing the people of Gibraltar is unrealistic. It says that the Government were wrong to negotiate joint sovereignty when they must have known that there was no prospect whatever that any agreement on the future of Gibraltar which included joint sovereignty could be made acceptable.
The committee says that it was politically impossible for the Gibraltar Government to participate in the Brussels process talks without also having the power to limit the outcome of those talks; that is the veto issue. It concludes that publicly questioning the probity of Gibraltar during the course of the relaunched process increased tensions and suspicions. It says that we have ended up with the worst of all worlds, and that the British Government now face an unenviable choice: to carry on with the negotiation in flat defiance of the view of the people of Gibraltar, or to withdraw from negotiations and offend Spain whose hopes had no doubt been raised that there was going to be some kind of deal.

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So that is the sad situation we have reached. Trying to be as objective as one can, it is very difficult to avoid the conclusion that this round of endeavours to meet a recognised problem has been very poorly handled. Looking back, it seems extraordinary that there was not the realisation that there had to be, to start with, a whole preliminary period of discussion fully involving the people of Gibraltar and bringing to them, and to the eyes of the Spanish Government, and to ourselves—we have to learn as well—the possibility that certain solutions could be achieved.
So what am I left with recommending? I think that one has simply to say to our good Spanish friends, partners, allies and fellow Europeans that the lesson is that kindly behaviour—being nice, if you like—and showing good will can pay dividends. If the past attitudes, which have appeared at times to be bullying, have been frustrating and have messed up people"; lives at the frontiers and so on give way to a very positive and friendly approach, Spain may be surprised, we may be surprised, and the Gibraltarians themselves may be surprised at what can be achieved.
I confess that one is open to the accusation that this sounds a bit like Woodrow Wilson believing in the innate decency of human beings and nations and that, if only we had talks, all would be well. That is a bit naive. However, I cannot believe that there would not be dividends, at least in step one—I am not sure where this leads beyond step one—in the Spanish authorities determining as a clear act of policy to be supportive and to meet the immediate sores and irritations that antagonise the people of Gibraltar and make them so absolutely determined to reject any negotiations and not to participate in discussions on the terms offered.
I hope, therefore, that that policy can be put to bed and that it has finished. Frankly, it has done a lot of damage and has made matters worse. We must be constructive and now develop a new policy position with our Spanish and Gibraltarian friends. We must proceed on a tripartite basis and on the basis of discussions and not negotiations. We must realise that the attempt to negotiate in the way that that was done has reached a dead end. A new approach is needed, part of which comprises the two flags and three voices concept already mentioned and originally proposed, I believe, by my noble friend Lord Hurd. But that is not enough, as my noble friend Lord Moynihan said. We have to proceed on a basis that, if matters are to be agreed, they should be agreed by everyone and that nothing should be agreed on the side until everything has been agreed.
I agree with the noble Lord, Lord Watson, that the solution lies in co-operation. For partners and friends to co-operate requires a starting point of trust and good will. If there is not some basis of trust and good will established between Spain and Gibraltar, and if there is not some restoration of good faith between Gibraltar and London, which has been severely shaken by the negotiation attempts, there will be no
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progress at all. However, if there is a restoration of trust and good will, we can make progress and we can determine ways in which relations with Spain in this regard, which are very important to us, can be improved. I hope that the wishes of the people of Gibraltar can be respected and that a better future for them can be achieved. I cannot believe that it is beyond the wit of man to do that but I have to say that the attempts of the past few months have not made it any easier.
9.22 p.m.
Baroness Amos: My Lords, I am grateful to the noble Lord, Lord Thomas of Swynnerton, for initiating the debate. His knowledge and understanding of the Iberian peninsula and its history are well known in this House.
The noble Lord, Lord Thomas, set out the issues which face Gibraltar and need to be addressed. This debate is a clear sign of the concern felt in this House for the people of Gibraltar and for their future. That concern for a better future for the people of Gibraltar is something that we all share. It is precisely that desire to secure a stable and prosperous future for the people of Gibraltar that continues to drive this Government's policy.
The situation as it currently stands, with the continuation of a 300 year-old dispute, does not yet offer hope of that better future. To achieve this, it is not simply a matter of removing the every day disruption to the lives of people in Gibraltar, which has been mentioned by many noble Lords, be it border delays or restrictions on air services and telecommunications. There is also a need and an opportunity to promote a secure base for future economic development in Gibraltar and the surrounding region in such a way as to enable Gibraltar to realise fully its potential.
It was with this in mind that my right honourable friends the Prime Minister and the Foreign Secretary decided to relaunch the Brussels Process talks in July last year. In taking that decision, my right honourable friends recognised that the only way to secure a more prosperous future for Gibraltar was through a negotiated resolution of the dispute with Spain on all issues, including sovereignty. The process we are taking forward was launched in 1984.
The noble Lord, Lord Watson, pressed me to talk about the context of the discussions that we are having. We feel that it is in no one's interests for the dispute that has dragged on for 300 years to continue. It places unacceptable restrictions on the daily lives of the people of Gibraltar, and damages relations between Britain and Spain, both bilaterally and within the EU. We want to overcome the differences between the UK and Spain and build new, better and more modern relationships between Britain, Gibraltar and Spain for the new century.

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In relaunching the talks, the Government have made it absolutely clear that we will abide by the pledge given by Harold Wilson's government in 1969 that there would be no change in sovereignty without the consent of the people of Gibraltar. If we could reach agreement with Spain on a comprehensive settlement, the whole package would be put to the people of Gibraltar in a referendum and they would decide. We have made that absolutely clear. That is an assurance to the people of Gibraltar that Ministers, including my right honourable friend the Prime Minister, have made again and again. It is fully understood and accepted by the Chief Minister of Gibraltar, Peter Caruana, who confirmed in his New Year message this year that he believed,
"that this assurance is totally reliable".
I believe that the noble Lord, Lord Moynihan, has forgotten that we were also clear from the start that we wanted the Chief Minister to be involved in the process so that Gibraltarians could help to shape it. That invitation remains open.
The history of the recent negotiations bears some repetition. As noble Lords are aware, three Brussels Process meetings took place in July 2001, November 2001 and February 2002. A further meeting was due to take place in July 2002 but, due to Cabinet changes in Spain, it did not. My right honourable friend the Foreign Secretary, conscious of his undertaking to keep Parliament informed of progress at every stage, made a Statement to another place on 12th July in which he reported on the progress of the talks and on our policy towards Gibraltar.
The noble Lord, Lord Howell, may recall that that Statement set out a number of principles that we believe should underpin a lasting settlement and on which we had reached broad agreement with Spain. This included the principle of joint sovereignty, which the noble Lord, Lord Thomas, set out in his speech, making reference to the benefits of that approach.
I remind noble Lords that there were other principles too: that Gibraltar should have more internal self-government; that it should retain its British traditions, customs and way of life; that Gibraltarians should retain the right to British nationality; that Gibraltar should be free to retain its institutions; and that Gibraltar could choose to participate fully in the EU single market and other arrangements. It also set out some important "red lines" on the need for a permanent settlement and for current arrangements for the British military facilities to continue. Again, it made it clear that any agreement must be acceptable to the people of Gibraltar in a referendum. The Statement also made it clear that no agreement had actually been reached and that there would be no such agreement unless Spain met those "red lines" in full. There were therefore no proposals to put to the people of Gibraltar, and that remains the position.
I should like to deal with the suggestion made by the noble Lord, Lord Moynihan, and others that we have sought to dismiss the idea of a referendum out of hand.
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That is not the case. The principle of consent by the people of Gibraltar is central to our approach. Our commitment is firm: that if we reach agreement on a comprehensive settlement, the whole package will be put to the people of Gibraltar in a referendum, and they will decide. But that does not mean that we have not listened to the views expressed on 7th November and in the run-up to the referendum, just as my right honourable friend the Foreign Secretary listened to the views of Gibraltarians when he visited in May; and we have taken note of them. All the parties—us, Spain and the people of Gibraltar—now need to reflect on the best way forward. We shall also, of course, reflect on the report published by the Foreign Affairs Committee on 7th November, which was mentioned by a number of noble Lords, and we will respond by the date given, which I believe is 7th January.
So, what is next? My right honourable friend the Prime Minister made clear in another place on 6th November that the process that we began of discussion with Spain and with the people in Gibraltar is right because it is in the interests of people in Britain, Spain and Gibraltar. Constructive dialogue, as has been said this evening, has to be the way ahead and we will continue to pursue that. In so doing, we do not now want to start ruling things in or out. That would not make sense at this time.
As many noble Lords will be aware, the Chief Minister of Gibraltar is also in favour of a dialogue with Spain and my honourable friend the Minister for Europe is looking forward to meeting him shortly in London for a first discussion. I know that he wants to hear the Chief Minister's views on how best to proceed.
The noble Lord, Lord Moynihan, mentioned the comments of my noble friend in an interview the day after the referendum, when he said that we also see a need for some tender loving care—TLC—from Madrid and the need to build mutual respect, confidence and trust. My noble friend Lord Lea mentioned the importance of hearts and minds and the noble Lord, Lord Howell, talked of the importance of a friendly approach.
Sadly, that is not something that we saw in the course of the "Prestige" disaster, which was mentioned by the noble Lords, Lord Moynihan and Lord Watson. Some in Spain tried to point the finger of blame at Gibraltar. We have made it clear to Madrid and the Commission that neither the UK nor Gibraltar was responsible for that terrible incident.
The noble Lord, Lord Monson, discussed support for the people of Gibraltar and the difficulty for any government seeking to sell Gibraltar down the river. Let me conclude by repeating that our aim remains a better future for Gibraltar and the resolution of the problems that it faces. We will continue our dialogue with Spain and Gibraltar to that end. There remain real issues that have to be discussed. The noble Lords, Lord Howell and Lord Moynihan, mentioned the issues raised in the report of the Foreign Affairs Committee. We will of course respond to those issues and I shall be happy to send a copy of our response to the noble Lords.

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The noble Lord, Lord Moynihan, asked what we were doing to counter the groundless allegations being made against Gibraltar. We will review seriously any inaccurate statements or allegations that damage Gibraltar. We look to correct any inaccuracies in public statements by Spanish Ministers or others in our contacts with the Spanish Government at various levels and through the press. We shall continue to do that.
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We should do no one a service by ignoring the issues that confront Gibraltar or simply hoping that they will disappear. They need to be tackled constructively. We will maintain our commitment that no deal will be imposed on the people of Gibraltar against their will. Ultimately, their future is for them to decide.
House adjourned at twenty-six minutes before ten o'clock.